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The Nasdaq gain on Monday was solid and it was heartening to finally see Nasdaq close above the 2,000 level, but volume was way too light to attach too much meaning to the rally. With such light holiday trading volume, the gain was probably more in the way of “trading froth” and short covering than real buying. There was no clear and obvious catalyst for the early positive sentiment, so traders were probably trying simply to scare up some volatility to force the shorts to cover.
Traders and speculators may have overplayed the mad cow news and the Code Orange alert level and been caught leaning too heavily towards the downside and simply been caught in a short squeeze and forced to cover.
I do suspect that there was at least some real buying since the market held up and even advanced modestly through the day and did not reverse after the initial pop that petered out before 10:30 a.m. The sharp rise in the final hour of trading was probably short covering by day traders who went short after the morning pop petered out.
Nasdaq volume was very light (1.42 billion shares). Breadth was strongly positive, with 2.34 gainers for each loser. This would have been a strong rally, but volume was way too light.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW), Oracle (ORCL), Applied Materials (AMAT), Cognizant Technology (CTSH), Intel (INTC), Cisco (CSCO), JDS Uniphase (JDSU), and Micron (MU), but net buyers of Microsoft (MSFT). Institutions were selling into the rally, but they typically do that after buying recent dips, so there is no reason to believe that the market will dramatically fall off a cliff any time in the near future. Institutions were especially heavy buyers of Microsoft.
The Conference Board Help Wanted Index for November registered a modest rise in help-wanted advertising. This was a positive report, suggesting some improvement in the labor market. The index is still slightly below the level of a year ago. The Conference Board refers to their Help-Wanted Advertising Index as a “key barometer of America’s job market”. They opine that “The labor market is finally sparking to life. Initial unemployment claims are down. In fact, they’ve been trending lower in the last two months. Finally, in November, the volume of help-wanted ads showed an increase of two points. This is the first rise of even this small amount since June.” Despite the modest rise in the index, there was a huge leap in the percentage of labor markets have a rising want-ad volume (73%) compared to October (37%). I would also note that in today’s job market and with the internet, companies simply don’t have to do as much newspaper advertising.
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 2.61% on Monday to 16.04, which is in the lower half of the low anxiety (moderate complacency) zone (15 to 20). People were soothed by the rally to new highs. 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 2.06% on Monday to 17.09.
The Nasdaq-100 VIX (VXN) fell by 1.17% on Monday to 23.73.
The Nasdaq-100 After Hours Indicator had a negative tone for the Monday evening session, closing down 1.08 points. People were clearly in a “take the money and run” mood, not quite willing to believe that the Nasdaq close above 2,000 was truly sustainable. Still, the profit taking was rather modest.
[12/27/03] 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 July or August, with another quarter-point hike in 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 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.
The price of oil fell very sharply, but remains modestly above the $32 “anxiety” level. Warm weather caused some profit taking. 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 sharply, to the highest closing level since October 1988 and had the highest intra-day level since February 1996. 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 CFTC (Commodity Futures Trading Commission) Commitments of Traders report for the week ended Monday, December 22 indicated a modest increase in the ratio of open commercial S&P 500 index futures long positions to short positions from 0.97 to 0.99, indicating that “the smart money” is now only very slightly bearish and have modestly decreased their betting that the S&P 500 index will decline. Traders cut their long positions heavily, but cut their short positions even more heavily. Trading of the “e-mini” S&P 500 index futures indicated a very sharp decrease in the ratio of longs to shorts from 0.91 to 0.61 indicating that amateur traders became much more bearish. They cut their short positions sharply, but cut their long positions much more sharply. Trading of the Nasdaq-100 index futures indicated a sharp increase in the ratio of longs to shorts from 0.84 to 1.11, indicating that “the smart money” switched from being moderately bearish to moderately bullish. Traders cut their long positions, but cut their short positions much more heavily. Trading of the “mini” Nasdaq-100 index futures indicated a very sharp decrease in the ratio of longs to shorts from 1.27 to 0.97, indicating that amateur traders switched from being strongly bullish to being modestly bearish. Amateur traders cut their short positions sharply, but cut their long positions much more sharply. In general, the “smart money” tends to be more “right” (eventually) than the amateurs. But, the smart money can be a contrarian indicator as it moves to a limit at which point it will tend to reverse. Also, it is not possible to tell with any certainty whether a position is truly an outright bet or merely a hedge for some other position (e.g., you own some stock but you short some futures as “protection” from a market decline). And finally, we don’t know what traders were up to during the days since last Monday.
[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.
Trading will continue to be light and volatile due to the holidays.
We could see some profit taking after the nice rally on Monday, but with the holiday volatility, anything goes.
The Chicago PMI report, the Conference Board consumer confidence report, and the Existing Home Sales report could all move the market.
Traders and speculators like to make a big deal about things like the January Effect and Santa Claus rallies, but those types of short-term effects can be ignored by true investors. That said, there may be some significant short-term positive sentiment brewing. The Nasdaq 2,000 level provided a lot of resistance for a long time, but a “break out” is a positive sign and can cause traders to get real excited.
True investors should focus on where they think the economy and business revenues and corporate earnings will be headed over the course of 2004 rather than worry about short-term market fluctuations.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +33 on Monday, well above the midpoint of my range of -40 to +50.
[12/30/03] Will Nasdaq be able to close out 2003 above 2,000 (or even better, close above 2,003)? Maybe, maybe not. We certainly proved that Nasdaq can close above 2,000, but sustaining that level is another story. There is no technical or fundamental reason in the way, but traders can be very unpredictable in this type of situation and profit takers can hit at anytime regardless of the fundamentals. My prediction: Nasdaq will close out 2003 in the range 1,945 to 2,075.
[12/30/03] We’ll need to see Nasdaq close above 2,000 for at least two weeks before considering that level sustainable. Nasdaq may not have completely broken out of its trading range, with upwards movement stymied by significant technical resistance in the vicinity of 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 sustainably break out above 2,000.
The confirmed bull market for Nasdaq that began on October 9, 2002 (and was confirmed on June 16, 2003) is now 306 days (1 year and 56 days) old and at its closing peak of 2,006.48 on December 29. The intra-day high was 2,006.48 on December 29. That closing peak is also the current 52-week closing high. 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. 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 finally managed to blow away all of its recent intra-day highs and close above them as well. Nasdaq was 33 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq was 17 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq was 16 days off its 52-week intra-day high of 2,000.92 on December 3. This eliminates the threat of a “triple top”, a rather bearish sign, so we can remove this relatively severe yellow flag.
The confirmed up-leg for Nasdaq that began with the intraday low of 1,253.22 on March 12 is now 199 days old and at its closing peak.
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 98 days old and at 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 45 days old and at 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 almost fully recovered, but needs to close above the previous peak of 1,976.37 for another two days. It’s a good sign that it has managed to set a new closing peak at least 1% above that old peak.
As a result of the new Nasdaq 52-week closing high, the Nasdaq correction off the intra-day high of 1,992.27 on November 7 is completely over after 33 days. It reached an intra-day low of 1,878.07 on Friday, November 21, a decline of 114 points or 5.73%.
The secondary correction off the intra-day high of 2,000.92 on December 3 is also completely over after 16 days. It reached an intra-day low of 1,887.46 on Wednesday, December 10, a decline of 113 points or 5.67%.
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 25 days old and at its closing peak. This leg is almost completely recovered, but needs to close another two days above the previous closing peak of 1,989.82.
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 13 days old and at its closing peak. By closing above the previous intra-day peak of 1,979.78 for this leg we remove yet another 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 9 days old and at its closing peak. The strong close above the 2,000 level eliminates the weakness of this leg.
By setting both a new 52-week closing high and a new 52-week intra-day high, Nasdaq eliminates the recent yellow flags that had been dogging the advance. But we still do need to see two more days above the previous intra-day highs (1,992 and 2,000) before we treat this latest rally as a sustainable leg. We also need to see Nasdaq close near or above these levels for another two weeks before safely concluding that Nasdaq has broken out of its consolidation phase and trading range. There may still be a fair amount of “trading froth” at the current level, so we need to be somewhat cautious and suspicious until nasdaq can close for multiple days above the 2,050 level.
[12/27/03] The big wildcard remains stock mutual fund money flows – which were inflows of $1.3 billion in the most recent week and $1.9 billion, $1.8 billion, $2.6 billion, $2.1 billion, $3.5 billion, and $3.5 billion in the preceding weeks.
[12/29/03] Market Outlook for 2004: There is still a lot of chatter about stocks and the market being overvalued, but there are also people who have different ways of looking at the same data and differing opinions of the outlook for the economy, corporate revenue growth, and corporate earnings over the coming year and beyond. As a general rule, the stock market will tend to look ahead 3, 6, 9, or even 12 months. About all we really know for sure is the economic growth will be uneven, revenue growth will be uneven, and earnings growth will be uneven, but all three will probably be trending up over the full year. Each company will have its own quirky path through this uneven landscape, with some companies stumbling or even failing even as others zoom ahead. We’re bound to have some soft patches in 2004 as different parts of the economy catch up at different speeds and sometimes pause to digest prior rapid growth. While earnings growth is a key factor in determining stock prices, perception of future earnings growth is also a key. But as important as earnings are, it is ultimately the law of supply and demand that will determine the path of stock prices. Money flows in or out of stock mutual funds will be a key factor in the market trend. Despite the mutual fund scandals, inflows have continued, albeit at a more subdued pace. Mutual fund inflows may pick up more strongly as employment, income, and 401(k) contributions rise. Foreign money flows are a wildcard, but most of the conservative foreign investors have probably stayed away so far anyway, so there is little reason to expect much in the way of foreign outflows from U.S. stocks, despite all the chatter about the dollar and the trade and federal budget deficits. Some stocks will zoom ahead on anticipation of future recovery and others will lag until investors are convinced that earnings are really sustainable. Some stocks will fall victim to the traditional “buy the rumor, sell the news” maxim and do well in anticipation of earnings improvement and then falter and decline even as strong earnings finally become realized. Part of the rise or fall of stock prices in any short period is due to the “trading froth” caused by traders and short-term speculators who push the market up further than its core trend or below that trend, but this trading froth will tend to reverse and swing the other way within months, weeks, or sometimes even days. The bottom line: The major market indices could end 2004 up or down from where they start. Nasdaq could end down as much as 20% or up as much as 60%, depending on the robustness of business spending in Q3 and Q4.
[12/29/03] 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. A big wildcard in 2004 will be the possibility of a new wave of corporate cost-cutting as companies burn through the easy part of revenue growth and are forced to revert to cost-cutting to keep up earnings growth. The problem is that one company’s cost is another company’s revenue or an employee’s income, so more cost-cutting can boost earnings in the near-term but risk putting intense downwards pressure on business spending and employment. This cost-cutting process will moderate once companies begin to build up a deep enough backlog of unfilled orders so that they can keep revenue growth at a consistently strong pace to keep earnings growth up. The economy will survive this process, but the zigging and zagging of the pace of the recovery will continue.
[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)
| UPDATE 12/29/03: I'll continue to post daily commentary as
long as I can. I haven't found a job yet, so there is nothing to
interfere with my site work. 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 29, 2003 08:35:31 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology