| 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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The market was able to successfully withstand the attempts by the cynics to incite a sell off based on the raising of the terror threat level from yellow to orange. Traders pushed Nasdaq down in the pre-market, made a second attempt after the initial rebound, but ultimately the traders were forced to concede defeat and we saw a modest bounce into the close. Otherwise, it was a fairly quiet day, with little in the way of economic data or business reports.
Nasdaq volume was very light (1.29 billion shares). Breadth was slightly positive, with 1.07 gainers for each loser. This was a typical slow trading session.
According to Thomson Financial I-Watch, institutional investors were net sellers of Texas Instruments (TXN) and Applied Materials (AMAT), but net buyers of Sun (SUNW), Oracle (ORCL), Microsoft (MSFT), Intel (INTC), EMC (EMC), JDS Uniphase (JDSU), and Micron (MU). Institutions were 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 Wal-Mart (WMT) Weekly Retail Sales Update indicated that sales are tracking near the low end of its December forecast of 3-5% growth. This was a negative report, but the company said that “progress was made over the recent weekend.” The strongest product categories were pharmacy, electronics, toys, girl’s apparel, outerwear, pet supplies, household paper goods, and food. Holiday sales do appear to be weaker than expected, but the traditional tracking statistics don’t include all the new online merchants nor the sales of the increasingly popular gift cards which don’t “count” until they are used later.
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 0.93% on Monday to 16.20, which is in the lower half of the low anxiety (moderate complacency) zone (15 to 20). People were slightly disappointed that the market didn’t stage a stronger bounce. 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 rose by 3.17% on Monday to 16.94. People were more than a little disappointed that the market didn’t bounce more strongly, plus they are buying more portfolio insurance due to the Dow and S&P being at such lofty levels. But, that negativity may simply be a contrarian bullish indicator. If too many people start assuming a correction is coming and betting on it, usually they will be disappointed.
The Nasdaq-100 VIX (VXN) fell by 0.56% on Monday to 24.75. People were modestly pleased to see Nasdaq bounce back from early trader-induced weakness.
The Nasdaq-100 After Hours Indicator had a positive tone for the Monday evening session, closing up 21.9 points. I suspect that there was something wrong with the Nasdaq web site. As of 7:20 p.m., Nasdaq-100 futures were up only 0.50 points (with no earlier spike), suggesting that people remain in a “wait and see” mode, neither betting on a big rally nor on a big correction.
The market seemed a little more certain that there would not be a rate hike until after April.
[12/19/03] The fed funds futures market suggests that the Fed will leave the fed funds target rate unchanged for the next few months, but possibly raise the fed funds target rate by a quarter-point in May, June or July, with another quarter-point hike in August or September. 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 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.
Libya expressed interest in seeing the return of U.S. oil companies. This won’t happen immediately, but the very likely probability of such a prospect modestly over the horizon will keep the U.S. economy growing in a more sustainable manner.
The price of oil fell very sharply, and is once again modestly below the $32 “anxiety” level. The news of about the terror alert level did not raise oil prices, suggesting that the threat level was already priced in and we saw a “buy the rumor, sell the news” effect. 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 rose moderately. That was a very slight rise given all the chatter about the “terror alert”. Gold may be close to an intermediate-term peak with all the gold bugs having sated themselves. In any case, there is nothing about the current price of gold that should give any true investor any reason to lose any sleep.
There is one component of Israeli Prime Minister Sharon’s latest rendition of the policy towards the Palestinians that I wholeheartedly agree with: “Quiet will be met with quiet.”
[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.
Ho hum, another day at Code Orange. Personally I think it’s good to occasionally (but only briefly) raise the alert level to make sure that government officials, law enforcement, and emergency response personnel are staying prepared. Also, publicly raising the alert level almost assuredly causes the terrorists to be more cautious and to be less inclined to follow through with attacks they might have planned. Average citizens don’t need to do anything at all in response to these alerts. Leave it all to “the authorities”. After all, we’re paying them enough.
According to CNN, a senior Pentagon official described the threat level as “true orange,” noting that some previous orange designations had been viewed with skepticism.
I suspect that there is a somewhat higher risk this time, now that the U.S. is making more progress in Iraq, the breakthrough with Libya, Saudi Arabia cracking down, Iran afraid to be seen as aiding terrorists in any way, and the terrorists may feel pressured into doing “something” that will directly affect the U.S., lest they be seen as losing “the war.” I suspect that they sincerely want to do something, but whether they have the human resources in the U.S. is another question. I suspect that their resources here in the U.S. are rather scarce and they are reluctant to waste them if they feel there is a low probability of success. Sure, they can mount attacks in Saudi Arabia or Iraq, but attacks in CONUS (military speak for the continental U.S.) are a completely different story. Resort areas outside CONUS where Americans may be spending holidays are certainly at higher risk.
[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.
It’s still too soon to tell whether the capture of Hussein is making a difference or not. The good news is that the U.S. is keeping up the pressure with frequent raids in the areas where the insurgency is active. It is critical that they keep up that pressure, to keep the insurgents “leaning back” as the Pentagon would say, while U.S. forces keep “leaning forward.” I can’t say that I feel that we’ve turned the corner, but it does feel like the U.S. efforts in Iraq are at least “firing on more cylinders.”
[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 read one story that finally more properly referred to the mutual fund market timing abuse as “frequent trading” rather than the inaccurate “rapid-fire trading”. Trading a fund at most once a day can be considered “frequent”, but is hardly “rapid-fire”. Day trading can be rapid-fire, but even then not always since some day traders may only do a few trades a day.
[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 market should now be over its one-day focus on the raising of the terrorism alert level.
People chatter about a “Santa Claus rally”, but that’s not something true investors should even waste time thinking about. The good news this year is that everybody isn’t clamoring to dump their losing stocks to take a tax loss before the end of the year.
Nasdaq is sitting in a fairly neutral posture, well off the recent highs and well above the recent lows. Traders could play it either way, but the continued rising tide of stock mutual fund inflows will give the market a modest bias towards the upside.
The final estimate of Q3 GDP probably won’t move the market.
The personal income and spending report for November could move the market a little.
The revised Michigan consumer sentiment report for December could move the market a bit.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +5 on Monday, right at the midpoint of my range of -40 to +50.
[12/20/03] Nasdaq appears to be stuck in a trading range, with upwards movement stymied by significant technical resistance at the 2,000 level, for now, until sufficient stock mutual fund inflows lift Nasdaq high enough to counteract negative trader and speculator sentiment. The good news is that this extended trading range will provide a significant support base once Nasdaq does break out above 2,000.
The confirmed bull market for Nasdaq that began on October 9, 2002 (and was confirmed on June 16, 2003) has run for 302 days (1 year and 52 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. 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 30 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq is 14 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq is 13 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 195 days. Nasdaq is 15 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 94 days old and 15 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 41 days old and 15 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 30 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 13 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 21 days old and 15 days off its closing peak. The fact that Nasdaq is 45 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 confirmed minor 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 9 days old and 2 days off its closing peak of 1,956.18 on December 18. The intra-day peak for this up-leg was 1,979.78 on December 15. The fact that we are still moderately off the intra-day peak for the leg remains a yellow flag.
The potential up-leg of the Nasdaq advance that started on Tuesday, December 16 with an intra-day low of 1,901.66 and a bounce of 24 points into the close is now 5 days old and 2 days off its closing peak of 1,956.18 on December 18. The intra-day peak for this up-leg was 1,963.28 on December 19. 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 was Day 2 with a modest decline, but the intra-day low for the leg remains intact. Thursday was Day 3 with a nice 35-point gain, but we don’t get confirmation on Days 2 or 3 because it’s so common to see temporary dead-cat recovery bounces that tend to evaporate as quickly as they appear. Friday was Day 4 with a modest loss. Monday was Day 5 but the 5-point gain was too modest to constitute confirmation. Tuesday will be Day 6.
The fact that Nasdaq is still 45 points off its recent 52-week intra-day high is a solid 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 are still 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 80 points of decline before a true correction might be indicated. Note that we’re still 69 points above the starting level of the most recent confirmed minor up-leg that started on December 10. The big wildcard remains mutual fund money flows – which were inflows of $1.9 billion in the most recent week, $1.8 billion in the previous 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 22, 2003 09:07:20 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology