| 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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Tuesday was the culmination of the “Saddam sell-off” that started on Monday and the start of the recovery bounce from that sell-off. I strongly suspect that the intra-day weakness on Tuesday was strictly technical in nature and not based on economic or business fundamentals.
Nasdaq closed only 6 points higher, but that was 24 points above its intra-day low. That’s good sign that the “Saddam sell-off” is probably over.
There may have been a bit of a sector rotation going on, with money moving from Nasdaq stocks into the old economy stocks that make up the bulk of the Dow. That happens sometimes and is not necessarily a new, long-term trend.
Nasdaq volume was moderate (1.82 billion shares). Breadth was slightly negative, with 1.04 losers for each gainer. This was a split market for Nasdaq, with people selling the smaller stocks, but buying the large-cap stocks. In any case, it was a transition day with the sell-off from Monday petering out and starting to rebound.
According to Thomson Financial I-Watch, institutional investors were net sellers of Oracle (ORCL) and Motorola (MOT), but net buyers of Sun (SUNW), Microsoft (MSFT), Nortel (NT), Lucent (LU), Intel (INTC), Brocade (BRCD), and JDS Uniphase (JDSU). Institutions were clearly buying the intra-day dip, strongly suggesting that the market is not about to dramatically fall off a cliff any time in the near future.
The Consumer Price Index (CPI) report for November registered a modest decline in consumer prices, and only a slight decline ex food and energy (“core” inflation). This was a neutral, somewhat positive report, with no evidence of either excessive inflation or deflation. The good news is that it allows the Fed to keep interest rates low (and steady) for an extended period of time.
The Industrial Production and Capacity Utilization report for November registered a moderately sharp gain in production, “its largest increase since October 1999”, and a moderate gain in capacity utilization. This was a very positive report. Manufacturing production rose moderately sharply. Production of business equipment rose sharply. Production of technology equipment was quite strong, although home electronics rose only slightly. Information processing rose sharply. Computer and electronic products rose very sharply. The special category for selected high-technology industries registered a very sharp gain. Communications equipment rose sharply. Computers and office equipment rose sharply. Semiconductors and related electronic components rose very sharply. Consumer goods rose moderately, with a slight decline in autos. Nondurable consumer goods production rose moderately. Capacity utilization is on a clear uptrend, but the improvement has still been too modest and too weak to declare “mission accomplished.” The manufacturing sector is definitely seeing improvement, but it is too soon to conclude whether it is merely a near-term improvement or the beginning of a stronger trend. Mostly likely it is a mix and we will continue to see a gradual zigzag up-trend.
The New Residential Construction report for November registered a sharp decline in building permits, a sharp rise in housing starts, and a moderate decline in housing completions. This was a mixed, but somewhat positive report. Housing demand continues to be quite strong and continues to baffle and befuddle the economists. The decline in permits may suggest a slowing of demand in the future, but it could also simply be a transient fluctuation.
The International Transactions Current Account report for Q3 registered a moderate decline in the current-account deficit. This was a positive report. The improvement may simply be a transient fluctuation or could be due to improvement of the global economy or the weakening of the dollar.
The ICSC-UBS Weekly U.S. Chain Store Sales index registered a sharp rise (2.1%) for the week ended December 13 compared to the prior week. This was a positive report, but much of it gets credited to consumers bouncing back after the winter storms. Sales were up a strong 5.1% over a year ago. ICSC continues to forecast 3.5-4.5% growth in December compared to a year ago.
The weekly Reuters Instinet Redbook Sales Average report registered a moderate decline in chain store sales (1.1%) for the two weeks ending December 13 compared to the corresponding weeks of November, but registered a relatively sharp gain (3.0%) for the week compared to a year ago. This was a mixed, but somewhat negative report. The winter storms get the blame for the part of the decline. The report noted that “Alongside scheduled promotions, some department stores conceded to taking unplanned markdowns to move seasonal apparel as well as using email price discounts to try to draw customers into stores.” It will be interesting to see how all of this plays out. There might be heavier use of gift cards which don’t get counted as part of sales until they are actually used, and that might be after the holidays are over, especially when consumers expect the real sales begin.
From Monday: The National Association of Home Builders (NAHB) Housing Market Index (HMI) for December registered no change, but is still near its highest level since December 1999. This was a neutral report. The “present conditions” (current home sales) index declined slightly. The six-month expectations index declined moderately. The traffic of prospective buyers index increased moderately. Demand for housing is still very strong despite the recent interest rate fluctuations. Builders are anticipating that demand will drop off somewhat when interest rates do move upwards more sharply, but nobody really knows when that will be. Even the best of economists continue to be completely confounded and befuddled by the strength of the housing market.
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered no change at -11 (out of a range from -100 to +100) for a third week, the highest level since August 2002. This was a neutral, but slightly positive report, showing some stability. There was a 1% decline in the consumer view of the overall economy, but a 1% improvement in how consumers feel about their own finances and a 1% improvement in how consumers view the buying climate. Please note that there is no clear and indisputable link between consumer confidence reports and future consumer spending.
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 7.16% on Tuesday to 15.70, which only moderately above the lower end of the low anxiety (moderate complacency) zone (15 to 20). People were relieved that the Nasdaq sell-off ended and a bounce began. 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 7.54% on Tuesday to 15.93. The market bounce was a relief after Monday’s sell-off.
The Nasdaq-100 VIX (VXN) fell by 3.40% on Tuesday to 26.15.
The Nasdaq-100 After Hours Indicator was not updating properly Tuesday evening, but Nasdaq-100 futures were up modestly at 7:00 p.m.
[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 modestly against the yen and fell moderately 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 moderately sharply, but remains moderately above 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.
The appointment of former Sun (SUNW) executive Ed Zander to head Motorola (MOT) is a very positive move and should really reenergize the company. It’s difficult to predict when that will result in an improvement in the company’s financial performance, but the future definitely looks brighter for Motorola. As far as Sun, they still seem to be wandering in the wilderness with no clue in sight.
[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.
Today we get to see whether Nasdaq has stabilized and is ready to continue its advance.
Traders may remain a bit confused about which market direction they want to bet on, so stock mutual fund inflows could determine the market trend for them.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +6 on Tuesday, only slightly 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 298 days (1 year and 48 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 26 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq is 10 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq is 9 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 191 days. Nasdaq is 11 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 90 days old and 11 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 37 days old and 11 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 26 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 9 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 17 days old and 11 days off its closing peak. The fact that Nasdaq is 77 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 5 days old and 2 days off its closing peak of 1,949.00 on December 12. The intra-day peak for this up-leg was 1,979.78 on December 15. 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 was Day 4 with a decline of 31 points plus a decline of 61 points off the intra-day high, but the intra-day low for this leg still stands. Setting a new intra-day high for the leg and then closing very sharply off that high is a clear yellow flag. Tuesday was Day 5, but the gain was too small to be confirmation. Wednesday will be Day 6.
After the sharp decline off the intra-day peak of the current potential up-leg (78 points), yet another potential up-leg of the Nasdaq advance started on Tuesday, December 16 with an intra-day low of 1,901.66 and a bounce of 24 points into the close of 1,924.29 on December 16. The intra-day peak for this up-leg was 1,927.09 on December 16. 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. Wednesday will be Day 2.
The fact that Nasdaq is still 77 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 48 points of decline before a true correction might be indicated. Note that we’re still 46 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 16, 2003 08:15:44 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology