| 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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Several good economic reports seemed to provide a catalyst to get the market moving in a positive direction on Tuesday. That movement only lasted an hour before the profit takers moved in, but Nasdaq managed to stay positive despite their diligent efforts. By 3:00 p.m. the profit takers were forced to throw in the towel and a wave of late buying raised Nasdaq to a respectable gain.
The gain on Tuesday may well have been based on the gradually rising tide of continued inflows into stock mutual funds putting upwards pressure on the market.
There may have been a little bit of sector rotation from old economy stocks back to tech stocks after the recent run-up of the Dow.
Trading volume has been very slow this week due to the impending holiday(s).
Nasdaq volume was very light (1.33 billion shares). Breadth was almost strongly positive, with 1.84 gainers for each loser. This was a modest rally, but certainly not strong.
According to Thomson Financial I-Watch, institutional investors were net sellers of Intel (INTC), Oracle (ORCL), AT&T Wireless (AWE), and Lucent (LU), but net buyers of Sun (SUNW), Microsoft (MSFT), JDS Uniphase (JDSU), Micron (MU), and EMC (EMC). It was a mixed day, with institutions selling some stocks into the rally (which they frequently do after buying into recent dips) and buying other stocks on the intra-day dips, strongly suggesting that the market is not about to dramatically fall off a cliff any time in the near future.
The final estimate Gross Domestic Product (GDP) report for Q3 registered no change in real GDP growth (8.2%) since the preliminary report. This was a positive report in that it reaffirmed the preliminary estimate for a high growth rate, but it’s ancient history, mostly modest accounting adjustments, and gives us little guidance about the economy in the coming months (or even in the past three months). I wouldn’t get too excited about the 8%+ growth rate since a lot of it was due to the short-term effects of fiscal stimulus.
The Personal Income and Spending report for November registered a moderate rise in personal income and moderate rise in personal spending (expenditures or PCE – Personal Consumption Expenditures). This was a positive report. Disposable personal income (DPI) – personal income less personal tax and nontax payments – rose moderately, at the same rate as personal income. Real DPI (DPI minus inflation) rose moderately, actually slightly faster than DPI since we had slight deflation. Real PCE (Personal Consumption Expenditures minus inflation) rose moderately and were also slightly higher than PCE due to slight deflation. It is real DPI and real PCE that really matter since they measure how much additional spending power the consumer really has and how much they really use. It’s not really possible to draw much of a conclusion about the trend in income and spending from this report due to the dramatic short-term impact of fiscal stimulus in recent months.
The final (revised) University of Michigan Consumer Sentiment Survey for December registered a modest decline from the final November reading, but was well above the gloomy initial December reading. This was a positive report, relative to the preliminary report. The present conditions index rose recovered only part of its decline from November, but the expectations index rose moderately from its initial December reading and is modestly ahead of its final November reading. Please note that there is no clear and indisputable link between consumer confidence reports and future consumer spending.
The ICSC-UBS Weekly Chain Store Sales Snapshot registered a moderate rise (0.6%) for the week ended December 20 compared to the prior week. This was a positive report. Sales were up a strong 5.7% over a year ago. ICSC continues to forecast 3.5-4.5% growth in December compared to a year ago. The report estimated that 8-10% of spending was on gift cards compared to 5% last year, which will shift more of the actual spending on goods from December into January.
The weekly Reuters Instinet Redbook Sales Average report registered a moderate decline in chain store sales (1.2%) for the three weeks ending December 20 compared to the corresponding weeks of November, but registered a moderate gain (2.9%) for the week compared to a year ago. This was a mixed, but somewhat negative report. Winter weather and gift cards get a lot of the blame.
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered a moderate gain to -9 from -11 (out of a range from -100 to +100), a 17-month high. This was a positive report, and hints that maybe we are finally starting to break out of the long stagnancy of consumer confidence. There was a 1% improvement in the consumer view of the overall economy, but no change in how consumers feel about their own finances and a 1%decline 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 3.89% on Tuesday to 15.57, which is only moderately above the lower end of the low anxiety (moderate complacency) zone (15 to 20). People were relieved to see a moderate bounce in Nasdaq. 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 2.66% on Tuesday to 16.49.
The Nasdaq-100 VIX (VXN) fell by 5.09% on Tuesday to 23.49. VXN is now at its lowest level ever, since it was started in January 2001. The bears will view this low level of anxiety as dangerous complacency and suggestive of a looming correction. On the other hand, it may simply mean that there has been a changing of the guard and the people who normally buy Nasdaq-100 index options may have dramatically reduced their positions and no longer need the portfolio insurance as much. In any case, we do have to treat this as another yellow flag. The other way to view this VXN trend is that people are increasingly confident that the economy really is recovering and that corporate earnings are going to be increasingly rosy as business picks up.
The Nasdaq-100 After Hours Indicator had a negative tone for the Tuesday evening session, closing down 2.29 points. Some of the decline may have been due to the report a case of mad cow disease in Washington State, but there was already a modest amount of profit-taking due to the rally during the day.
[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 modestly against the yen and 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 rose modestly, and is slightly 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 rose modestly. 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.
I read a story in which a “market strategist” at a respected firm claimed that the Michigan consumer sentiment report “provides the market the latest read on consumer confidence which is critical to the sustainability of the economic recovery.” Two points need to be made. First, a “market strategist” can tell you what’s going on in the market, but is a truly lousy source for information and analysis about the economy. Second, there have been numerous studies of the various consumer confidence surveys that show clearly that there is no clear and indisputable link between these surveys and future consumer spending, let alone the overall economy. The best that any of the studies could demonstrate was that the Conference Board consumer confidence survey was a weak predictor of the retail sales report for a given month that comes out after the month of the consumer survey. That is not a predictor of future consumer spending, let alone “the sustainability of the economic recovery.” Market strategists are great for talking about charts, technical analysis, support and resistance, seasonal trading patterns, predictions of short-term market trends, etc., but have no special skill for expounding about the future of the economy. The Michigan report may well be “critical” for providing a short-term dose of volatility in the market, but that short-term impact should not be confused with predicting longer-term economic trends or longer-term market trends, for that matter.
[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 stock market will close early at 1:00 p.m. today and Friday due to Christmas on Thursday.
After the moderate rally on Tuesday, we could see some profit-taking.
There could well be a knee-jerk reaction to the news about a case of mad cow disease out in Washington State, but it’s always difficult to predict the ultimate reaction as time passes. Sometimes, traders get all excited and excessively short stocks, only to force the market into a situation of “selling exhaustion” which then causes traders to reverse and push stocks back up. Some specific stocks might well get dinged by speculators who are willing to keep the pressure on those stocks until the threat of mad cow disease is eradicated. The overall impact on the economy will probably be fairly minor, and isn’t worthy of the concern of true investors.
Trading during holiday weeks tends to be slower and more volatile, so the market could move in unexpected ways for little reason.
The jobless claims, durable orders, and new home sales reports are due out today and each could move the market. Initial claims should continue to trend down, but there tends to be a lot of volatility, especially at this time of year.
Unless there is some really bad news, Nasdaq should continue to move higher.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +19 on Tuesday, moderately above 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 303 days (1 year and 53 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 31 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq is 15 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq is 14 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 196 days. Nasdaq is 16 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 95 days old and 16 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 42 days old and 16 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 31 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 14 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 22 days old and 16 days off its closing peak. The fact that Nasdaq is 26 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 10 days old at its closing peak of 1,974.78 on December 23. The intra-day peak for this up-leg was 1,979.78 on December 15. The fact that we continue to close below the intra-day peak for the leg remains a yellow flag.
The rally on Tuesday was sufficient to confirm the new minor 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. The up-leg is now 6 days old at its closing peak of 1,974.78 on December 23. The intra-day peak for this up-leg was 1,974.78 on December 23. 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 was Day 6 with a gain barely under 1% and volume that was very light but heavier than the previous day. Normally we want to see the gain well above 1% and volume fairly heavy, but given the typical slowness of holiday trading and the closeness of the gain to 1%, I will go ahead and agree that the rally on Tuesday was indeed confirmation of this up-leg. But, I’ll refer to it as a weak up-leg until it does close a solid 1% above Tuesday’s closing level, which will be close to the 2,000 level.
The fact that Nasdaq is still 26 points off its recent 52-week intra-day high is a 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 99 points of decline before a true correction might be indicated. Note that we’re still 73 points above the starting level of the most recent confirmed minor up-leg that started on December 16. 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 23, 2003 11:01:57 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology