| 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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(Updated since Saturday – changes marked with [ * ])
Friday was a modest day of consolidation after the rally on Thursday. There were significant attempts to sell-off the recent gains, but Nasdaq bounced back and even managed a modest gain.
The weak Michigan consumer sentiment report was a disappointment, but ultimately did not prevent the market from extending the rally. In an indirect manner, it may have helped stocks since it was viewed as indicating that the recovery is still weaker than desired, so the Fed will keep interest rates low for longer, and low interest rates are bullish for the market.
Nasdaq volume was very light (1.46 billion shares). Breadth was moderately positive, with 1.67 gainers for each loser. This was a rather dead trading session with so little volume.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW), Intel (INTC), Cisco (CSCO), Applied Materials (AMAT), EMC (EMC), and JDS Uniphase (JDSU), but net buyers of Microsoft (MSFT), Oracle (ORCL), CIENA (CIEN). It was a mixed day, although institutions seemed willing to sell into any strength, but that’s typical after buying into recent dips. In any case, there is nothing here to suggest that the market is likely to dramatically fall off a cliff any time in the near future.
The Producer Price Index (PPI) report for November registered a modest decline, or a slight decline ex food and energy – food declined modestly and energy declined sharply. This was a mostly neutral, but mixed report, with no signs of either accelerating inflation or deflation. Intermediate goods prices (a good surrogate for future consumer inflation) declined modestly, but actually rose modestly ex food and energy. The PPI and its components have been bouncing around with a moderate uptrend over the past year. A little inflation (sometimes known as “pricing power”) is a good thing.
The preliminary University of Michigan Consumer Sentiment Survey for December registered a moderately sharp decline from the final November reading. This was a negative report. The present conditions index fell sharply and the expectations index fell moderately. Please note that there is no clear and indisputable link between consumer confidence reports and future consumer spending.
The International Trade in Goods and Services report for October registered a moderate rise in exports but a modestly larger moderate rise in imports, producing a modestly larger trade deficit. This was a modestly negative report. Exports grew by $2.2 billion versus $2.7 billion for imports. For now, the only way to deal with this “massive” deficit is to continue to strengthen the U.S. economy and then wait for the global economy to pick up and increase demand for our exports. Continuing to improve the attractiveness of investment opportunities in the U.S. also helps.
The Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) registered a moderately sharp decline, and its six-month smoothed growth rate declined modestly. This was a negative report, but continues to suggest reasonably strong growth in the months ahead. The decline was mostly due to higher jobless claims, and lower mortgage applications. All of this stuff fluctuates a lot from week to week.
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, rose by 0.57% on Friday to 15.95, which is moderately above the lower end of the low anxiety (moderate complacency) zone (15 to 20). People were a little concerned by the Michigan consumer sentiment report and how much time Nasdaq spent in negative territory. People probably bought more portfolio protection (S&P 100 index put options). 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 1.91% on Friday to 16.41. People were relieved that the market held its recent gains.
The Nasdaq-100 VIX (VXN) fell by 1.11% on Friday to 25.86. The modest point gain was welcome.
The Nasdaq-100 After Hours Indicator had a mixed tone for the Friday evening session, closing down 0.11 points. People are just content to wait and see what happens next in the market.
[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 fell moderately sharply 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.
[ * ] It will be interesting to see how the capture of Saddam Hussein affects the oil market. On the negative side, his capture does reduce geopolitical uncertainty and increases the odds that attacks on Iraq’s oil infrastructure will subside more quickly than previously expected. But on the positive side, the reduced geopolitical uncertainty is bullish for the global economy and a stronger economy means more physical demand for oil. Also on the positive side is the fact that there is a fair probability that the remaining insurgency will continue to attack the oil infrastructure. A sharp stock market rally could siphon funds away from oil, but a lot of the people who are into speculating on oil may have too cynical a view of stocks to be deterred from their black gold. In summary, it could go either way, a sharp pullback or a sharp rally or anything in between.
The price of oil rose very sharply, and is moderately above the $32 “anxiety” level. Part of the rise was due to switching from the December futures contract to the January contract which has more time value. In any case, the price of oil continues to be relatively well-behaved and no true investor should lose any sleep worrying about it.
[ * ] It will be interesting to see how the capture of Saddam Hussein affects the gold market. On the negative side, his capture does reduce geopolitical uncertainty. But on the positive side, the reduced geopolitical uncertainty is bullish for the global economy and a stronger economy means more physical demand for gold. A sharp stock market rally could siphon funds away from gold, but a lot of the people who are into gold may have too cynical a view of stocks to be deterred from their precious metal. In summary, it could go either way, a sharp pullback or a sharp rally or anything in between.
The price of gold rose sharply, closing above $410. 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.
[ * ] The capture of Saddam Hussein is of course a very major milestone and should help to accelerate progress in Iraq, but we could still see a significant amount of insurgent attacks in the future. The capture may reduce popular support for the insurgency, but most of the insurgents are still in the same boat as they were before Hussein’s capture: they are former Baathists and government officials, senior army officers, foreign terrorists, and criminals who are all considered persona non grata and have nothing to look forward to by cooperating the U.S. Iraq and U.S. forces will continue to be a strong magnet for foreign terrorists. As unpalatable as it may seem, we may have to offer an amnesty for former Baathists, government officials, and army officers simply to reduce the magnitude of the support for the insurgency. The alternative is to be forced to accept the fact that the mop-up operation will take much longer than it would otherwise. The important thing at this stage is for U.S. and Iraqi forces to keep up and even increase the pressure they are putting on the insurgents so that their morale will be sapped and they will be forced to concede that their insurgency has no chance of success. At a minimum, that will dramatically reduce the influx of new support for the insurgency. In any case, excellent progress is being made and that is good news for investors.
[ * ] The real significance of Hussein’s capture is that it demonstrates that the U.S. has finally cut down the cycle time for acting on intelligence information. In the past, the U.S. would get solid intelligence, but the information would be stale and useless by the time the U.S. got around to acting on it. This time, the U.S. was able to respond very quickly on a tip and achieve success. The U.S. will begin to make a bigger dent on the insurgency as they degrade the reputation of the U.S. forces as being too clumsy and too slow to keep up with a fast-paced insurgency.
[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.
[ * ] I haven’t bothered to comment on the whole Dow 10,000 thing because it is merely a short-term trading phenomenon and has little significance for true investors. It’s considered a psychological level, but even that is more an issue for traders and speculators rather than investors. After all, we have broken through the 10,000 level before, but not in a sustainable way that benefited longer-term investors. The Dow 10,000 level is also referred to as offering technical resistance. What that means is that short-term players may put on long positions (and take off short positions) as the market moves towards 10,000 and then watch carefully what happens to trading volume as the market approaches, hits, and possibly passes through the resistance level. If volume remains strong, traders can feel comfortable that the market is “breaking out” and add to their positions to ride the rally. But as soon as volume peters out, traders will quickly exit long positions and put short positions back on to ride the pullback. That’s what we saw the first day that the Dow “hit” 10,000 (and when Nasdaq hit 2,000 as well). This running towards the resistance level can happen several times before you get either a break out or a more severe pullback. Ultimately, what makes the difference is the net real money flows for the market, the people buying with the intention to hold or selling with the intention of staying away. If there happens to be enough real money flowing in when the market is in the vicinity of resistance, traders will see that increased volume and add to their positions and that will have a cascading effect that will convince the short-term players that the market is breaking out. Any net real selling near the resistance level would have the opposite effect.
[ * ] The other effect of a psychological level such as 10,000 is that the media loves to really jump all over such an alluring headline and than can have the effect of drawing some players out of the woodwork who might otherwise have ignored the market. Foreign investors will start to pay a little more attention to the U.S. stock market when they see these kind of headlines. Money managers will start thinking anxiously about whether they have enough exposure to U.S. stocks to mollify their investors if the market does break out. Most people will be intrigued by the headlines, but insist on holding off and seeing if the Dow can really sustain the rally. Some of those people will then jump in, helping to sustain the rally. The cynics will continue to loudly protest that “this is the greatest sucker rally in history, a fraud, a con, a scam... there is no boom… it is a blip... it is an illusion.” The net effect of such protestations will simply be to delay some investment in the market to a later date which will only make the advance more sustainable.
[ * ] Please ignore all the Dow 10,000 and Nasdaq 2,000 hoopla and focus on what you believe will be going on in the real economy, business revenues, and corporate profits six to twelve months to two years from now.
[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.
[ * ] The net market reaction to the capture of Saddam Hussein will be quite unpredictable. Sure, we could see a nice pop and that could in turn kick off a cascade of short covering and momentum trading that pushes the market sharply higher. The question is how far that cascade will tumble (upwards) before petering out and possibly reversing. There will be a lot of cynics selling into such a rally and putting on new short positions as soon as momentum peters out. Short-term traders and speculators could certainly have a field day (or two or three) with this news, but it’s debatable how much additional real investment money would sustainably flow into the market and stay there. Yes, there could be additional inflows to the market if people thought that the elimination of Hussein would boost the economy, but it is unclear how many side-lined investors are really looking at the economy as dependent on Hussein’s status. One wildcard is that the Hussein euphoria could combine with the Dow 10,000 excitement and force a very dramatic short-covering rally that is simply too big to ignore and does attract enough inflows to keep the rally going, for a while. The biggest wildcard is the amount of selling into the rally by the cynics who continue to protest that stocks are overvalued. In summary, the likely path of the market over the coming five days is “any of the above”. We very well could see a very nice pop on Monday, but then see the rally quickly peter out or possibly reverse or suffer profit taking as the week rolls on. True investors should remain focused on the six to twelve-month outlook for the economy, growth of business revenues, and growth of corporate profits over that period.
[ * ] It is very possible that Nasdaq sees enough of a pop to close solidly above the 2,000 level.
They market should push at least a little higher.
[ * ] My forecast for Monday is that Nasdaq will close in the range -40 to +90 (midpoint of 25). Nasdaq came in at +7 on Friday, modestly above the midpoint of 5 for 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 296 days (1 year and 46 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 24 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq is 8 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq is 7 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 189 days. Nasdaq is 9 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 88 days old and 9 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 35 days old and 9 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 24 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 7 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 15 days old and 9 days off its closing peak. The fact that Nasdaq is 52 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 3 days old and at its closing peak of 1,949.00 on December 12. The intra-day peak for this up-leg was 1,949.02 on December 12. 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. Monday will be Day 4.
The fact that Nasdaq is still 52 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 73 points of decline before a true correction might be indicated. Note that we’re still 71 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 14, 2003 07:44:44 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology