Our daily stock market commentary and views on the economy and geopolitical events are posted weekdays and Saturday by 12:30 a.m. ET.
[ Market Activity | Economic Reports | Anxiety (VIX) | After Hours | Fed Futures | Dollar | Oil | Gold | Geopolitical Situation | Terrorism | Iraq | Books | Reform | Telecom | Technology | Miscellaneous | My Investments | Outlook for Today | Bottom Line | Economic Outlook | Tech Stock 'Safe' Signal | Resources | Disclaimer | Archive | Charts | Adages | Glossary | Lore | Search | Payment - Please! | Contact Us ]
People expected some profit taking after Nasdaq’s close above the 2,000 level on Monday, but try as they may, traders were simply unable to force Nasdaq into giving up any of its gains. Nasdaq managed a modest 3.40-point gain on Tuesday to a new 52-week closing high, but the entire gain came right at the close.
There were some intra-day bouts of profit-taking, but that was mostly day trading, not real selling. Nasdaq did fall as low as 1,998 shortly after the Chicago PMI report came out weaker than expected at 10:00 a.m., but that loss was quickly recovered. The fact they everyone expected some profit-taking but we ended up with a modest gain suggests that there was a modest amount of real buying that kept Nasdaq afloat.
Nasdaq closed only slightly off its intra-day high. That’s a good sign.
Nasdaq volume was light (1.54 billion shares). Breadth was modestly positive, with 1.2 gainers for each loser. This was another slow holiday trading session.
According to Thomson Financial I-Watch, institutional investors were net sellers of Intel (INTC), JDS Uniphase (JDSU), AT&T Wireless (AWE), and Texas Instruments (TXN), but net buyers of Microsoft (MSFT), EMC (EMC), Micron (MU), Cisco (CSCO), and Oracle (ORCL). It was a mixed day, with some selling into the modest rallies, but with enough buying on the dips to strongly suggest that the market is not about to dramatically fall off a cliff any time in the near future. Institutions continue to accumulate Microsoft.
The Chicago PMI report for December registered a moderately sharp decline in the Business Barometer for manufacturing in the Chicago area. This was a negative report, but the barometer is still at a high level, indicating solid growth ahead. It does appear that manufacturing is finally gaining some traction, but there is still some lingering tentativeness. Production continues to expand but at a moderately slower pace. New Orders continued to expand but at a moderately slower pace. Order Backlogs expanded again but only modestly. Employment contracted again but at only a very modest pace.
The Existing Home Sales report for November registered another sharp decline. This was a negative report, but there is a lot of volatility and we are still above the highest sales level through June. The issue here is that we have no idea how existing home sales will trend over the coming months.
The Conference Board Consumer Confidence report for December registered a modest decline, with a moderately sharp decline in the Present Situation index outweighing a moderate gain in the Expectations index. This was a mixed report and is only modestly off the one-year high. The report notes that “The improvement in consumers’ expectations signals healthy economic growth in 2004. But job worries continue. Consumers’ lackluster assessment of current conditions reflects continuing anxiety about labor market conditions. While consumers expect the job situation to improve in the months ahead, until a significant turnaround takes place, consumers’ optimism about current-day conditions will continue to lag behind their expectations.” 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 very sharp rise (2.0%) for the week ended December 27 compared to the prior week. This was a positive report. Sales were up a strong 5.5% over a year ago. ICSC raised its forecast from 3.5-4.5% to 4.0-4.5% growth in December compared to a year ago. Strong redemption of gift certificates was reported.
The weekly Reuters Instinet Redbook Sales Average report registered a moderate decline in chain store sales (1.0%) for the four weeks ending December 27 compared to the corresponding weeks of November, but registered a moderately sharp gain (3.6%) 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. Sales picked up markedly in the week, but not enough to balance weakness earlier in December.
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered no change at -9 (out of a range from -100 to +100), a 17-month high. This was a neutral, but somewhat positive report, and hints that maybe we are finally starting to break out of the long stagnancy of consumer confidence. There was some improvement in the consumer view of the overall economy, but no change in how consumers feel about their own finances and some deterioration 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, rose by 5.80% on Tuesday to 16.97, which is in the lower half of the low anxiety (moderate complacency) zone (15 to 20). With the momentum of Monday’s rally evaporating and the market at lofty levels, people were quite anxious to buy more insurance for their portfolios to protect their current profits. 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 3.45% on Tuesday to 17.68. People were anxious to protect their profits.
The Nasdaq-100 VIX (VXN) fell by 1.56% on Tuesday to 23.36. VIX did spike up to 24.18 when Nasdaq drooped under 2,000 in the morning, but then settled down as Nasdaq recovered and even gained a little ground. People were modestly relieved that Nasdaq retained all of the gains from Monday and then some. They see that as a bullish sign.
The Nasdaq-100 After Hours Indicator had a negative tone for the Tuesday evening session, closing down 2.09 points. The decline was simply profit taking after the two-day rally that left Nasdaq above the 2,000 level for a second day. People still have some optimism, but remain quite gun shy about the durability of the gains.
[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 modestly against the yen but rose moderately sharply against the euro. The decline of the dollar continues to be quite “orderly”, so there is no need to worry about the “record high for the euro” headlines. 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 sharply, and is 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 rose moderately, to its highest closing level since October 1988. 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.
[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.
This is it, the final trading day of the year. Nasdaq will finish its first winning year since 1999 and stands a good chance of closing above the 2,000 level.
Traders and short-term speculators will take another shot at undercutting the advance of Nasdaq above the 2,000 level. One counterintuitive tactic is to push stocks up very sharply in early trading until the point of “buying exhaustion” is reached and then reverse and go short. Few people will want to open new long positions in that downdraft until it peters out as it reaches the point of “selling exhaustion”, but if traders push hard enough and trading volume is light enough, they can cause long speculators to abandon their long positions and further fuel the decline. But with light holiday trading volume, the market could go either way.
The weekly jobless claims report will tend to move the market. The initial claims report has a lot of volatility, so it could go either way despite the fact that the trend is declining.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +3.40 on Tuesday, only modestly below the midpoint of my range of -40 to +50.
[12/31/03] 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 1,970 to 2,060.
[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 307 days (1 year and 57 days) old and at its closing peak of 2,009.88 on December 30. The intra-day high was 2,010.13 on December 30. 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.
The confirmed up-leg for Nasdaq that began with the intraday low of 1,253.22 on March 12 is now 200 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 99 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 46 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 day. It’s a good sign that it has managed to set a new closing peak at least 1% above that old peak.
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 26 days old and at its closing peak. This leg is almost completely recovered, but needs to close another day 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 14 days old and at its closing peak.
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 10 days old and at its closing peak.
We still do need to see another day 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.
Over a year ago, here’s what I had forecast for Nasdaq in 2003: “2800 at end of year, 1800 at mid-year, 1600 at end of first quarter.” Obviously I was way off, but not as far off as bears who thought Nasdaq was “going below 1,000”.
[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.
The economic reports on Tuesday showed a weakening of the pace of the recovery, but that’s a typical characteristic of the zigzag path that we can expect to see for quite some time to come. There was nothing surprisingly bad or noteworthy in the reports on Tuesday. The recovery continues to plod along. Sometimes we will see data that is sharply above the normal trend, but that will be balanced by trend or below trend reports.
[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 30, 2003 07:42:27 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology