| NOTICE: I regret to inform you that I will probably no longer to be able to
provide this column on a daily basis after the end December, possibly even
sooner. I may occasionally provide commentary, but not on an regular,
daily basis. Hopefully I will be able to resume daily service at some
point. The web site and archive will remain at least through May.
Click
here if you wish to be notified by email if and when service resumes. Basically, I have been living off capital for the past four years (stock profits from "the boom"), but my capital burn rate for my living expenses has significantly exceeded my rate of return, even for the past year. The result is that I regretfully will be forced to seek a full-time "normal" job and hence I will be unlikely to be able to devote the five or more hours that go into this column every day. I had hoped that the market would bounce back more strongly so that my return would exceed my burn rate, but that didn't happen and I had burned through too much of my capital base by the time the market did start to take off in October 2002. I had also hoped that I would be able to build interest in this site via word of mouth, and that really didn't happen either. I would have to have ten times as many readers and have each of them pay the full suggested rate to make the site financially viable on its own. There is simply too much competition in the investment newsletter/web site business to expect that kind of interest. My thanks to all those loyal readers who have paid for their usage of the site. -- Jack Krupansky -- still The Unrepentent Optimist - 12/6/03 |
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Thursday’s rally was a classic example of a “recovery bounce” for a market that was deeply oversold of a short-term technical basis. You can make all sorts of claims about catalysts, but the simple fact is that everybody who was going to sell had already done so and the shorts were getting too anxious to let their profits slip away. So, a big part of the gain was probably simply short-covering. There may have been some real buying putting upward pressure on the market to keep the shorts scrambling out of their positions, and momentum speculators probably also hopped on the train.
The retail sales report was a little better than expected, but not enough to be much of a real catalyst. The jobless claims report was worse than expected, so that clearly was not a positive catalyst. The Nasdaq-100 Pre-Market Indicator (PMI) was up only 9 cents and Nasdaq opened down 17 cents, and that was an hour after the two economic reports came out, so clearly there was no catalyst effect there from the economic data.
The real catalyst was simply too many short-term players betting too heavily on the downside and then having to scramble to get out and “go long” after it became clear that the selling pressure had abated.
Nasdaq hit it’s morning high shortly before 11:00 a.m., and then meandered in a narrow range until 2:00 p.m. when it rallied again. The intra-day high was reached around 4:20 p.m. and a little profit-taking ensued.
Nasdaq volume was moderate (1.80 billion shares). Breadth was strongly positive, with 2.87 gainers for each loser. This would have been a strong rally, except that volume was not very heavy. It was a classic recovery bounce, possibly due to short covering, but isn’t a confirmation of a new up-leg.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW), Microsoft (MSFT), Cisco (CSCO), Oracle (ORCL), Applied Materials (AMAT), and JDS Uniphase (JDSU), but net buyers of CIENA (CIEN) and Brocade (BRCD). Institutions were selling into the rally, but they frequently do that after buying recent dips, so there is no reason to expect the market to dramatically fall off a cliff any time in the near future.
The Unemployment Insurance Weekly Claims report registered a moderate rise in initial claims – but still under 400K for a 10th consecutive week – and a modest rise in continuing claims. This was a mixed, but slightly negative report, but there is a lot of volatility. The headline numbers did move in the wrong direction, but only moderately and the current levels remain modestly bullish. Unadjusted initial claims rose very sharply to 490K, but are well below the year-ago level of 547K. There is a seasonality effect here, so the sharp rise was to be expected. The 4-week moving average of initial claims rose modestly but is still well below 400K for a 10th consecutive week, and moderately below the level of a year ago. Unadjusted continuing claims rose very sharply but are still well below the level of a year ago. Adjusted continuing claims are still moderately below the level a year ago. The 4-week moving average of continuing claims declined modestly, and is moderately below the level of a year ago. Initial claims have not yet been safely enough below 400K (moving average is 365K, which is still somewhat above 350K) to challenge the implication that payroll employment may not be growing very much at all (even though overall, household employment probably continues to grow). Unemployment won’t fall significantly until the economy begins to consistently grow at a faster pace and the pace of business restructuring slows down and the pace of business formation picks up. The insured unemployment rate (2.6% or 2.7% unadjusted) is modestly better than during the same week in 1992 when the economy was recovering from the last recession (2.8% or 2.9% unadjusted). Initial claims were not consistently below 400K in 1992 until October. Initial claims are moderately higher than in the same week in 1992 (378K vs. 350K), and moderately sharply higher than in 1992 once you strip off the dysfunctional seasonal adjustment (490K vs. 450K.) The talk about continuing claims being near a 20-year high is a complete red herring (true, but irrelevant) since it is the insured unemployment rate (see three sentences back) that is important and covered employment has risen by over 21% since 1992 alone. The bottom line is that although the labor market is lackluster, it’s not in too bad shape and not getting seriously worse.
The Retail Sales report for November registered a moderately sharp gain, but only a moderate gain ex autos. This was a positive report. Retail sales were up 6.9% compared to a year ago.
The Manufacturing and Trade Inventories and Sales report for October registered a moderately sharp rise in sales (of distributive trade and manufacturers’ shipments), a moderate rise in inventories, and a slight decline in the inventories/sales ratio. This was a positive report. Rising business inventory levels during a recovery are a very bullish sign for the future prospects for the economy. Sales rising faster than inventories is a bullish sign for future production.
The Import and Export Prices report for October registered a moderate rise in import prices, or a modest rise ex oil, and a slightly larger moderate rise in export prices, but a slightly smaller modest rise ex agriculture. This was a relatively neutral, but slightly positive report. Export prices rose for the third consecutive month. Exports may finally be seeing a modest benefit of the “weaker dollar”, or maybe the global economy is starting to pick up a little steam. The global economy will pick up as the U.S. economy picks up, but with a delay. Like it or not, we lead the rest of the world.
After the close: AMG Data Services reported that for the week ended Wednesday, December 10, $1.8 billion flowed into equity mutual funds, with half going to domestic funds. This was a positive report, especially coming on the heels of the recent publicity over mutual fund trading abuses. Although this is not a lot of money, it keeps accumulating and provides a rising tide under the market that will continually surprise the short-sellers and technical traders and speculators. $1.9 billion flowed out of taxable bond funds. $2.7 billion flowed into money market funds. $115 million flowed out of municipal bond funds, the 21st consecutive week of outflows.
NOTICE: I am still using the “old” VIX even though CBOE began offering the “new” VIX on September 22nd. The old VIX is based on options for the S&P 100 index whereas the new VIX is based on options for the more popular S&P 500 index. I’m still investigating how to switch over to the new VIX and how that relates to historical data.
The old CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 8.48% on Thursday to 15.86, which is only moderately above the lower end of the low anxiety (moderate complacency) zone (15 to 20). People were quite relieved to see the market bounce so nicely. The bears will continue to beat their drums about the market being filled with the kind of excessive complacency that frequently presages a dramatic market decline. I wouldn’t bet the farm on that outcome, but it is a yellow flag.
The new VIX fell by 6.48% on Thursday to 16.73.
The Nasdaq-100 VIX (VXN) fell by 6.07% on Thursday to 26.15.
The Nasdaq-100 After Hours Indicator had a positive tone for the Thursday evening session, closing up 2.45 points. The bounce got people in a more optimistic mood.
The minutes of the October FOMC meeting noted that “the prospects for persisting slack in labor and other resources in combination with substantial further increases in productivity were likely to hold inflation to very low levels over the next year or two”, which caused the bond market to push out its expectations for rate hikes. Fed funds futures now suggest a quarter-point cut in June or July and another quarter-point cut in August or September or October.
[12/12/03] The fed funds futures market suggests that the Fed will leave the fed funds target rate unchanged for the rest of the year, but possibly raise the fed funds target rate by a quarter-point in June or July. Fed funds futures are at best accurate no more than six weeks out, so those longer-term moves are purely speculative, at best.
The dollar fell moderately against the yen and rose slightly against the euro. The dollar is quite sound and no true investor should lose any sleep worrying about whether the dollar is ‘weak’ or ‘strong’ on any given day, week, month, quarter, or year.
The price of oil fell slightly, but remains modestly below the $32 “anxiety” level. In any case, the price of oil continues to be relatively well-behaved and no true investor should lose any sleep worrying about it.
The price of gold fell moderately. In any case, there is nothing about the current price of gold that should give any true investor any reason to lose any sleep.
[7/29/03] The relative calm continues. Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
[7/29/03] The eerie calm continues. There may continue to be attacks or alleged attacks abroad, but the U.S. “homeland” may be relatively immune, at least for now. Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents or rumors of incidents.
[7/29/03] As messy as the mopping-up phase of the war continues to be, great progress is indeed being made and there is little need for true investors to fret over the negative news that so captivates the media. Over time, the economic impact of the war will be a large net positive, even if there is some short-term negative impact.
[6/25/03] I have suspended my dollar-cost averaging investment plan since my exposure to the market is now about where I want it to be.
We could see a little profit-taking after the rally on Thursday, or we could see some follow-through rallying. I have a suspicion that short-sellers would like to get out to avoid further pain and loss of profits.
It’s a Friday, so traders will tend to close (or hedge) positions in advance of the weekend when anything can happen.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +38 on Thursday, well above the midpoint of my range of -40 to +50.
The confirmed bull market for Nasdaq that began on October 9, 2002 (and was confirmed on June 16, 2003) has run for 295 days (1 year and 45 days). The market now has a longer-term upwards bias despite near-term volatility. The path of the market through the end of the year is of course uncertain, but Nasdaq will most likely be moderately higher at the end of December than where it was at the beginning of November. Nasdaq should break above the 2,000 level fairly soon, so the question is whether we hit 2,100 or 2,250 by the end of the year. The important thing is that we continue to see inflows into equity mutual funds while the economy, revenues, and earnings continue to incrementally improve.
Nasdaq is 23 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq is 7 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq is 6 days off its 52-week intra-day high of 2,000.92 on December 3. We need to track all three of these intra-day highs until Nasdaq manages to close above them for at least a couple of days. Technical traders will be chattering about Nasdaq establishing a “triple top”, a rather bearish sign, so we do need to give this a relatively severe yellow flag.
The confirmed up-leg for Nasdaq that began with the intraday low of 1,253.22 on March 12 has run for 188 days. Nasdaq is 8 days off its closing peak of 1,989.82 on December 1 for the up-leg and for the overall post-October 2002 bull market. That closing peak is also the current 52-week closing high.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, August 8 with an intra-day low of 1,640.88 is now 87 days old and 8 days off its closing peak. This is a minor leg nested within the larger leg that started on March 12 which is itself nested in the larger advance that started on October 9, 2002.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, October 24 with an intra-day low of 1,841.62 is now 34 days old and 8 days off its closing peak. This is a minor leg nested within the larger leg that started on August 8 which is itself nested in the larger advance that started on March 12. Multiple nested up-legs are a sign of deep strength in the market. This leg is still significantly broken, and it won’t be fully recovered until it closes above the previous peak of 1,976.37 for at least three days and sets a new closing peak at least 1% above that old peak (1,996.13).
The Nasdaq correction off the intra-day high of 1,992.27 on November 7 is now 23 days old. It reached an intra-day low of 1,878.07 on Friday, November 21, a decline of 114 points or 5.73%. It may be over, but we do need to see a new 52-week closing high above that old intra-day high.
We have a secondary correction off the intra-day high of 2,000.92 on December 3 that is now 6 days old. It reached an intra-day low of 1,887.46 on Wednesday, December 10, a decline of 113 points or 5.67%. It may be over or close to over, but we do need to see a new 52-week closing high above that old intra-day high.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, November 21 with an intra-day low of 1,878.07 is now 14 days old and 8 days off its closing peak. The fact that Nasdaq is 59 points off the intra-day peak for this new leg indicates that this leg is still significantly broken, but not yet destroyed. Give it a couple more days before deciding for sure.
The potential up-leg of the Nasdaq advance that started on Wednesday, December 10 with an intra-day low of 1,887.46 and a bounce of 17 points into the close is now 2 days old and at its closing peak of 1,942.32 on December 11. The intra-day peak for this up-leg was 1,945.92 on December 11. We now wait for confirmation of this potential up-leg. We ignore Days 2 and 3 of the up-leg as long as a new intra-day low is not set. Then on Days 4 through 10 we look for a gain of at least 1% on volume higher than the previous day to signal confirmation.
The fact that Nasdaq is still 59 points off its recent 52-week intra-day high is a strong yellow flag and suggests that Nasdaq still hasn’t broken out of its near-term ‘consolidation’ phase. That does not mean that a full-blown correction is necessarily likely. We may still be in a short-term trading range. There may have been as much as 125 points of ‘trading froth’ at the peak, so we could see up to another 66 points of decline before a true correction might be indicated. Note that we’re still 64 points above the starting level of the most recent confirmed minor up-leg that started on November 21. The big wildcard remains mutual fund money flows – which were inflows of $1.8 billion in the most recent week, $2.6 billion in the previous week, $2.1 billion in the previous week, and $3.5 billion in each of the two weeks before that.
[11/5/03] The latest economic data continues to support the thesis that the U.S. economy is solidly into a gradual, zigzag, underappreciated, stealth recovery. The Q3 GDP report certainly convinced a lot of people that the economy is stronger than previously thought, but the cynics continue to promote the idea that the recent strength was almost solely due to short-term fiscal stimulus. I disagree. I believe that the economy would have been reasonably strong without the stimulus (ala Q2) and that we will see incremental improvement (compared to Q2) over the next four quarters. Some people will be shocked or raise alarm when Q4 comes in ‘weaker’ than the ‘artificially sweetened’ Q3, but there is no reason for alarm. That’s part of the zigzag process. The two key factors driving the pace of the recovery will continue to be the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses which will create new jobs.
[9/1/03] Our Tech Stock ‘Safe’ Signal is still stuck at 0.00 (no safety) since none of the big tech companies are even hinting that they are seeing any significant improvement in demand. There does seem to be some sense of stabilization and a modest hint of improvement, but no clear and decisive indication of a dependable ramp up in revenues and earnings.
[5/25/02] DISCLAIMER: I cannot and do not offer any recommendations of stocks to buy or sell. I may on occasion discuss companies that I am considering or myself have bought or sold, but the reader must do their own research before making their own purchase or sale decision. It is never a good idea to buy a stock just because someone else tells you to or even merely mentions a company in a favorable light.
Jack Krupansky -- The Unrepentant Optimist (Click here for Jack's Bio)
Updated: December 11, 2003 11:35:03 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology