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(Updated since Thursday – changes marked with [ * ])
There was a modest degree of profit taking on Wednesday. Talk of mad cow disease was the nominal catalyst, but simple profit taking was more likely. Mediocre economic reports could also get some of the blame, but the decline was still quite modest.
Traders may have been trying to have a field day with the mad cow news, but they made little headway with it.
There is plenty of “trading froth” in the market, so traders can jerk the market up and down a fair amount independent of the underlying, overall market trend.
Nasdaq volume was very light (643 million shares) due to the shortened, holiday hours. Breadth was modestly negative, with 1.17 losers for each gainer. This was simply a typical slow holiday trading session and doesn’t indicate any trend.
According to Thomson Financial I-Watch, institutional investors were net sellers of Intel (INTC), Micron (MU), Texas Instruments (TXN), Applied Materials (AMAT), EMC (EMC), Motorla (MOT), Altera (ALTR), and Xilinx (XLNX), but net buyers of Microsoft (MSFT). Institutions were selling, but volume was too light for the selling to mean anything.
The Unemployment Insurance Weekly Claims report registered a slight decline in initial claims – under 400K for a 12th consecutive week – and a slight decline in continuing claims. This was a somewhat positive, but mixed report, but there is a lot of volatility. Unadjusted initial claims rose moderately to 424K but are well below the year-ago level of 483K. There is a seasonality effect here, so actual initial claims above 400K at this time are normal. The 4-week moving average of initial claims declined slightly and is well below 400K for a 12th consecutive week, and well below the level of a year ago. Unadjusted continuing claims rose moderately but are still moderately 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 362K, 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 runs its course and the pace of business formation picks up. The insured unemployment rate (2.6% or 2.7% unadjusted) is slightly better than during the same week in 1992 when the economy was recovering from the last recession (2.7% or 2.8% unadjusted). Initial claims were not consistently below 400K in 1992 until October. Initial claims are moderately higher than in the same week in 1992 (353K vs. 334K), and moderately higher than in 1992 once you strip off the dysfunctional seasonal adjustment (424K vs. 396K.) 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 remains lackluster, it’s not in too bad shape and not getting seriously worse.
The Durable Goods report for November registered a slight rise in shipments, a sharp decline in new orders, a moderate rise in unfilled orders, and a slight decline in inventories. This was a negative report, but please note that there tends to be a lot of monthly volatility for orders and shipments, primarily since few customers buy durable goods on a nice, smooth monthly cycle. In particular, there was a sharp rise in orders in October, so the sensible thing is to average them. The rise in unfilled orders is a healthy sign for the future. Shipments for nondefense capital goods rose moderately, but declined moderately ex aircraft. New orders for nondefense capital goods declined sharply, even ex aircraft – which is a good proxy for business capital spending. Shipments for computers and related products fell moderately, new orders declined very sharply, and unfilled orders were unchanged. Shipments for communications equipment fell moderately sharply, new orders fell very steeply (40%), and unfilled orders fell moderately sharply. Shipments for semiconductors fell moderately, but were up slightly ex the seasonal adjustment. Semiconductor orders are not included in this report.
The New Home Sales report for November registered a moderately sharp decline. This was a negative report, but still slightly above the level in May. Housing demand continues to be strong and continues to confound and befuddle even the best of economists. Please note that the decline of 2.7% is well below the margin of error of 10.7%. Sales were still 5.9% above a year ago.
The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey for the week ending December 19 registered a moderately sharp decline in applications, with a moderately sharp decline in applications to purchase and a moderately sharp decline in refinancing. This was a negative report, but there does tend to be a lot of volatility and people were bound to be distracted by preparations for the holidays. Nonetheless, demand for buying homes is still quite strong, even if well off recent highs (by 11%). Refinancing, on the other hand is on a downtrend.
From Tuesday: The Mass Layoffs report for November registered a modest decline in the number of layoff events (50 people at one location) and a moderately sharp decline in the total number of people laid off. This was a positive report.
[ * ] After the close on Wednesday: AMG Data Services reported that for the 4-day holiday week ended Wednesday, December 23, $1.3 billion flowed into equity mutual funds, with 58% 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. $102 million flowed out of taxable bond funds. $13.1 billion flowed out of money market funds. $229 million flowed out of municipal bond funds, the 23rd consecutive week of outflows. Real estate funds reported the first outflows ($23 million) since June. Energy funds reported the highest inflows since May.
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 3.53% on Wednesday to 16.12, which is in the lower half of the low anxiety (moderate complacency) zone (15 to 20). People were somewhat more anxious as a result of the modest market weakness coupled with a bunch of mediocre economic reports (not to mention all the chatter about mad cow disease). 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 1.03% on Wednesday to 16.66. Anxiety rose only modestly in the face of a little market weakness and a bunch of mediocre economic reports.
The Nasdaq-100 VIX (VXN) fell by 0.64% on Wednesday to 23.34, yet another all-time low for VXN. People were pleased that the level of profit taking was so modest.
The Nasdaq-100 After Hours Indicator had a mixed tone for the Wednesday afternoon session, closing up 0.06 points. People are basically confused as to where to expect the market to go next.
The mediocre economic reports convinced traders that the Fed will be “on hold” longer than expected.
[12/25/03] 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 June, July, or August, with another quarter-point hike in August, September, or October. 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 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.
The price of oil rose very sharply, and is once again moderately above the $32 “anxiety” level. Crude inventory levels are lower than expected. 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. 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.
For the week ending Wednesday, December 24, the Pentagon reports that 7,307 more reservists are on active duty, for a total of 185,821. This was a moderately sharp increase. The Air Force and Marines showed decreases in the number of reservists on active duty, but the Army and Navy showed increases. The headcount has declined by 38,707 or 17% from the peak of 224,528 on May 1st.
[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.
[ * ] It’s possible we may see some lingering spillover of the mad cow anxiety, but I suspect it was mostly a one-day (half-day, actually) speculative reaction. The net impact on the overall economy and most sectors of the economy will probably be quite minimal. If traders and short-term speculators push the issue too hard, they will only set themselves up for a dramatic short squeeze as soon as the anxiety selling peters out.
[ * ] It’s a Friday, so traders will tend to close (or hedge) positions in advance of the weekend when anything can happen.
[ * ] A lot of market participants are probably gone for the holidays, so trading will be quite lite and somewhat volatile.
My forecast for Friday is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -6 on Wednesday, moderately below 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 304 days (1 year and 54 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 32 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq is 16 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq is 15 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 197 days. Nasdaq is 17 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 96 days old and 17 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 43 days old and 17 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 32 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 15 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 23 days old and 17 days off its closing peak. The fact that Nasdaq is 32 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 11 days old and 1 day off 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 confirmed 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 is now 7 days old and 1 day off 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. I’ll continue to refer to it as a weak up-leg until it closes a solid 1% above the 1,974.78 closing level, which will be close to the 2,000 level.
The fact that Nasdaq is still 32 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 93 points of decline before a true correction might be indicated. Note that we’re still 67 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 $1.3 billion in the most recent week, $1.9 billion in the previous 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.
The durable goods, new home sales, and mortgage applications reports certainly were a “zag” in this zigzag recovery, but there is no evidence to suggest that the recovery is anything but on course, albeit an uneven, gradual, zigzag course.
[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)
| 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 |
Updated: December 26, 2003 12:26:22 AM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology