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Wednesday was a day of post-FOMC meandering for the market, with no big moves either way. Give it another two days to make a decisive move. NASDAQ fell a modest -2.41 points.
The economic data was mixed, but somewhat negative.
NASDAQ trading volume was barely moderate (1.77 billion shares), and breadth was very modestly negative, with 1.05 losers for each gainer. This was another classic "treading water" trading session.
The International Trade in Goods and Services report for October registered a moderate rise in exports (+$1.8 billion vs. -$2.8 billion last month), a moderate rise in imports (+$4.7 billion vs. +$4.0 billion last month), and a moderate rise in the trade deficit (+$2.9 billion vs. +$6.8 billion last month). This was a negative report. The trade balance will gradually shift over time and eventually begin to move back towards stronger exports and weaker imports as structural elements of the economy evolve. Until then, maybe up to five years from now, there is no action required by anybody, other than to remain patient. We may have to wait another month to get a clean post-storm report.
The weekly Mortgage Applications Report registered a moderate decline (-5.7% vs. +5.2% last week) for the week ended December 9. This was a positive report, but there does tend to be a lot of volatility. Applications to purchase fell moderately (-3.5% vs. +5.0% last week), and refinancing applications fell moderately sharply (-9.7% vs. +7.0% last week). The volatility will probably remain quite high from here on out, especially as the Fed continues to raise interest rates and demand for housing gradually (eventually) begins to moderate to a more moderate pace.
The DOE EIA Weekly Petroleum Status Report registered a modest rise (+0.3% or +0.9 million barrels to 321.2 million barrels) in the inventory level of crude oil, and remains well above the upper end of the average range for this time of year. This was a positive report, and indicates that we have plenty of crude oil and that the lofty price level is due primarily to speculation rather than real supply or demand. The crude oil inventory level is +11.7% above a year ago, and well above the level which would indicate a shortage or tightness of supplies (200 million barrels). The Strategic Petroleum Reserve (SPR) was unchanged (at 685.6 million barrels), and is +1.8% above a year ago. The gasoline inventory level rose moderately sharply (+0.9% or +1.8 million barrels to 202.6 million barrels), and is -4.1% lower than a year ago. The heating oil (distillate fuel oil) inventory level fell slightly (-0.1% or -0.1 million barrels to 130.5 million barrels), and is +5.2% above a year ago. What these weekly reports do make quite clear is that there is no shortage of oil, gasoline, or heating oil at the overall, national level. As the EIA report puts it, "Total commercial petroleum inventories increased by 1.2 million barrels last week, and are above the upper end of the average range for this time of year." That doesn't sound like a particularly bad place to be, unless you're an energy and commodities bull.
The AAA Daily Fuel Gauge Report registered a modest rise of +0.3 cents since Monday (from $2.180 to $2.183) in the retail price of a gallon of unleaded gasoline, a ninth consecutive rise. This was a negative report. Regular unleaded gasoline is now -11.0 cents below the level of a month ago, +12.9 cents above its May 2004 peak of $2.054, and -87.4 cents below its September peak of $3.057. Using the rule of thumb that retail prices will tend to converge about 60 to 65 cents above the front-month NYMEX futures price (the so-called "wholesale price"), we could see $2.24 to $2.29 regular unleaded within a couple of weeks if the wholesale price were to remain steady. All of that is subject to dramatic change on a daily basis. Out here in Boulder, Colorado, prices are stable in the $2.11 to $2.19 range. The spread between wholesale plus $0.60-0.65 and retail gasoline prices remains negative (by 6 to 11 cents), so we could see some more retail gains in the not-too-distant future.
[12/10/05] If you ever find yourself struggling with some of the math needed for investment and financial decisions, check out Robert Hershey's All the Math You Need to Get Rich: Thinking with Numbers for Financial Success.
Wednesday was mostly a bad day for commodities, especially the metals, but it was a bad day for the dollar as well. Oil inventory levels have proved to be quite resilient and don't suggest any shortage that might justify elevated prices.
[12/13/05] Crude oil will remain volatile as short-term traders and speculators shift positions out of the January contract and into the February contract since the latter becomes the front-month contract after Friday. Gains in the January contract will likely be due to short-covering.
[12/9/05] There are still plenty of people interested in speculating in commodities, but the breadth does seem to be waning. Spurts of activity such as on Thursday do seem bullish, but also seem to smack of a market on its last, anxious legs. Even outright bear markets (which we aren't quite in yet) occasionally have sharp rallies, but they don't indicate the overall, longer-term trend.
[12/14/05] According to the Department of Interior's Minerals Management Service (MMS),
As of today, December 12, 2005, MMS will issue Hurricane Katrina/Hurricane Rita Evacuation and Production Shut-in Statistics twice a week. The report will be posted on the www.mms.gov website at 2:00 p.m. EST on Mondays and Thursdays. In the last few days there has been minimal improvement in the production numbers and this appears to be a trend that will continue with incremental movement over the next several months.
[12/13/05] Recovery from the Gulf Coast storms continues to slog along. You can read what the Department of Energy's Energy Information Administration has to say twice a week, as well as the twice a week update from the Department of Interior's Minerals Management Service (MMS). We have a ways to go, but progress is occurring every day. According to MMS, another 0.40% of oil production came back online, with 29.43% (vs. 29.83%) of Gulf oil production now out of service, and another 0.35% of natural gas production came back online, with 23.12% (vs. 23.47%) of Gulf natural gas production now out of service. I'm not so sure that these numbers will hit zero any time soon since some of the outages were 100% losses and will require new equipment and facilities to be fully replaced. It's rather interesting how well the economy is doing and how moderated energy prices are considering those outages; so much for the persistent argument that energy markets are "tight".
Crude oil futures are in contango (rising prices) from January 2006 through April 2007 ($64.14 as the peak price in March and April), and then backwardation (declining prices) all the way out to the December 2012 contract at the lowest price ($57.55). All contracts after December 2008 are priced below the January 2006 contract. All contracts except those in 2009 through 2012 are above $60. The "backwardation" of longer-term contracts strongly suggests that elevated oil prices are primarily a speculative "bubble" due to deep-pocket investment funds rather than due to actual or prospective supplies or demand. The proposition that elevated oil prices are due to long-term demand growth and long-term supply shortages is simply not born out by futures contracts for outlying years ($57.55 for December 2012). The market is now struggling mightily to find its equilibrium level, but that could take another month or so. I suspect that the crude oil duration curve is going through another one of its transitions, which may take another week or two to play out.
Unleaded gasoline futures remain somewhat erratic. We have contango (rising prices) from December 2005 through July 2006 and then backwardation (falling prices) through December 2006, and then a slight rise in January 2007. The January 2007 contract is priced +4.35 cents above the January 2006 contract. The bottom line is that there is no evidence of a market expectation of dramatically rising gasoline prices over the long term, but there is plenty of evidence of lots of confusion and possibly even some mischief in the near term. The market is now struggling mightily to find its equilibrium level, but that could take another month or two.
[12/1/05] With metals prices being so strong lately, I'm a little reluctant to call a full end of the commodities speculation wave of the last two years. I'd like to give the metals group another couple of weeks to see whether they are able to move up significantly from their recent highs, say another 5%, with gold to $525, platinum to $1,050, silver to $8.87 and copper to $2.18. Commodities may be at a similar stage as stocks back in mid-March of 2000, with the Dow having peaked in January, NASDAQ peaked on March 11, and the S&P 500 peaking on March 24. The euro peaked a long time ago, energy a while ago, and the metals are the remaining leg of the stool still standing.
[11/11/05] It's still too early to call an end to "The Great Oil/Energy/Commodities Speculation of 2004 and 2005", but the commodities markets have clearly been knocked off their feet. The shorts are still rather timid, but it's only a matter of time before the bulls finally capitulate. If gold fails to break out above $500 and crude fails to rally back above $65 by the end of November, I will "officially" call for the end of this incarnation of the commodities bull market.
[11/28/05] We're rapidly approaching the moment of truth for commodities. Unless some strong buying materializes over the next couple of weeks, we're likely to see some further weakening. The metals have been strong lately, but they may be overreaching, and we are not seeing any corresponding strength in energy or foreign exchange, suggesting a mere rotation between commodities rather than strength overall. That said, we could see occasional rallies due to premature short-covering.
[11/23/05] Goldman Sachs lowered its estimates for crude oil to $62 from $66 a barrel this year and to $64 from $68 next year. There was no mention of their infamous call for a $105 "superspike". This is backpedaling on their part, and likely to be followed by more backpedaling as the next six months unfold. They're obviously trying to "tout" speculation in commodities futures. They collect transaction fees as well as profiting on in-house trading. These are quite obvious conflicts of interest, but are oddly considered to be legal.
[11/17/05] Which is more likely over the coming year, crude oil at $100 per barrel or at $19 per barrel? I'd say the latter.
[10/19/05] Since some people are convinced that a recession is coming, the Asset Allocation Clock will tend to start moving those people out of commodities and into cash or other short-term fixed-income assets. The Fed campaign to raise short-term interest rates provides a further incentive for such a shift.
[9/27/05] The next two months could in fact be the "moment of truth" for the commodities boom. Crude oil's inability to break out above $70, even after two "body blows" is quite telling.
[9/21/05] Some of the intense interest in commodities is driven by something call the Asset Allocation Clock. A fair number of people have the misguided belief that the U.S. is on the verge of a recession or significant economic contraction, and the Asset Allocation Clock diagram tells them that commodities are the place to be when a business cycle is well beyond its peak and about to roll over.
[4/15/05] The commodities markets remain "loopy". That's the most charitable thing I can say. There's simply too much "hot money" chasing a lot of unrealistic, concocted "stories", not unlike the old dot-com boom. Tears to follow for anyone who sincerely buys into any of those cockamamie stories as other than very short-term trading plays.
[10/7/05] Ongoing anxiety: One potentially significant factor to consider for oil prices is the potential for a supply disruption as a result of the ongoing saber-rattling between the U.S. government and Iran, especially now that a new hard-liner has been elected. The administration is talking a harder line with Syria as well. I don't have any information to suggest that a disruption might be likely, but at some point there could be some increased chatter to that effect that may spook traders and speculators.
[8/4/05] Disclosure: I actually have some very small positions in some oil and gas production limited partnerships (Geodyne), less than $1,000 total, dating from the early 1980's. I've hung on to them merely because there isn't a liquid market for trading them, so I'd have to take a bath to sell them. The total return plus residual value since the early 1980's is probably significantly less than if I had invested in rolling T-bills for that period. These positions are small because they were actually quarterly payments (from a larger position that I dumped long ago) that were made in the form of fractional units of whatever their latest limited partnership was.
[11/11/05] Some popular books related to the "Peak Oil" fad: "Beyond Oil : The View from Hubbert's Peak" by Kenneth S. Deffeyes (2005), "Hubbert's Peak : The Impending World Oil Shortage" by Kenneth S. Deffeyes (2003), "The End of Oil : On the Edge of a Perilous New World" by Paul Roberts (2004), "The Coming Oil Crisis" by C. J. Campbell (2004), "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy" by Matthew R. Simmons (2005), and "The Oil Factor: Protect Yourself and Profit from the Coming Energy Crisis" by Stephen and Donna Leeb (2005). And if you're simply gung-ho about commodities in general, take a look at "Hot Commodities : How Anyone Can Invest Profitably in the World's Best Market" by Jim Rogers (2004). I'm not offering a recommendation on any of these books, but simply note that they are popular with the commodities crowd. If you're interest in the counterargument to "Peak Oil", check out "The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy" by Peter W. Huber and Mark P. Mills (2005). If I wasn't so lazy, I'd write my own book on commodities speculation called "Peak Bull".
The important thing at this stage is to wait for at least four or five Fed officials to make speeches and give their own read on the current outlook. Given the imminent holidays, that might take until mid-January.
There was a moderately sharp decline in the odds of a hike to 4.75% in March and a very sharp decline in the odds of a hike to 4.75% after January (March or May). The market continues to price in a hike to 4.50% in January, most likely a hike to 4.75 in March, and no hike to 5.00% later in the year. The March hike may merely be an insurance hedge rather than an outright bet. The hike to 4.50% in January is fairly likely. There is no serious betting on a hike beyond 4.75% in 2006 or any rate cuts in 2006.
[12/14/05] The fed funds futures market suggests a quarter-point hike (to 4.50%) at the January 31, 2006 FOMC meeting, probably a quarter-point hike (to 4.75%) at the March 28, 2006 FOMC meeting, no hike at the May 10, 2006 FOMC meeting, no hike at the June 28/29, 2006 FOMC meeting, no hike at the August 8, 2006 FOMC meeting, no hike at the September 20, 2006 FOMC meeting, no hike at the October, 24 2006 FOMC meeting, and no hike at the December, 24 2006 FOMC meeting. Fed funds futures are at best accurate no more than six weeks out, so those longer-term moves are purely speculative, at best. Futures are normally quite accurate in the short-term, so a hike to 4.50% at the January 31, 2006 FOMC meeting is fairly certain. Bets on hikes beyond January are most likely insurance hedges rather than outright bets.
[12/14/05] My personal forecast is that the Fed will hike the fed funds target interest rate to 5.00% in May, subject of course to the evolution in the economy over the coming months. I won't pull back from that forecast unless I see clear evidence that the overall economy is weakening, and I may push that forecast higher if I see evidence of deeper economic strength. I'm more likely to forecast 5.25% to 5.50% than 4.50% to 4.75%.
[12/3/05] San Francisco Fed Bank President Janet Yellen indicated on Friday that "it seems unlikely that the end of the current tightening phase is yet at hand", but her comments didn't appear to conflict with existing expectations that the Fed was likely to hike in January as well as December. One press report suggested that Yellen had said that the fed funds rate is still at the bottom of the neutral range (3.5% to 5.5%).
[12/1/05] So, what does PIMCO's "Bond King" Bill Gross have to say about all of this in his latest December 2005 Investment Outlook? No real change, suggesting that the Fed may have already hiked too far and that "Short-term interest rates are high, not low, and by this time next year central banks the world around will be initiating easing cycles...", but he doesn't offer a forecast or where the Fed will pause before starting to cut again. He suggests a "battle plan" that would "favor front-ends of yields curves, longer than average duration portfolios and a high quality emphasis within the context of a slowing U.S. and global economy with contained inflation." I suspect that Mr. Gross wrote his outlook before the preliminary Q3 GDP number came out at 4.3%.
[1/26/05] For the most recent rumors about companies that are laying people off, going out of business, shuffling management, or otherwise restructuring, check out F****dCompany.com.
[11/22/05] The 2005 Year-End Global Venture-Capital Investment Report from Ernst & Young and Dow Jones VentureOne states that "during the course of 2005, fund raising by venture-capital firms increased significantly with venture capitalists stockpiling the most investment capital since 2001. Mergers and acquisitions (M&A) and initial public offerings (IPOs) by venture-backed companies also showed continued strength during this period -- setting the stage for continuing investment in 2006. While investments in venture-backed companies in 2005 remained relatively consistent with 2004 levels, a strong trend toward later-stage financings suggests that investors are confident in the prospects of their portfolio companies and optimistic in regard to exit opportunities. Developments in the emerging venture-capital markets of China and India during this period underscored the increasing globalization of the venture capital industry." They conclude that "Looking forward to 2006, it is likely that the substantial fundraising that occurred in 2005, a strengthening liquidity landscape, and investors’ global interests, will lead to an increased level of venture-capital activity in the next 12 months. Because of the early signs apparent in 2005, the target for some of that investment capital may well be directed toward emerging areas such as alternative energy as well as renewed investing in the next wave of Internet start-ups." My reading on venture capital is that the sector is only slowly limping back to health and it will probably be another two or three years before venture capital investment once again makes a dramatic contribution to the health of the U.S. economy.
[11/3/05] VentureOne (a unit of Dow Jones Newswires and the publisher of VentureSource) reports that there was a 16% rise in the amount of venture capital funds raised in Q3 over the same quarter a year ago, but there was an 18% decline from the amount raised in Q2. 18% more has been raised in the first three quarters of 2005 than during the same period of 2004. These amounts are "commitments" to the venture funds which "closed" during the quarter. Please note that this is about venture funds raising their own money, not the investments that they will make with that money in the coming quarters and years.
[10/25/05] The VentureOne/Ernst & Young LLP Quarterly Venture Capital Report for Q3 registered a moderate decline (-6.4% vs. +14.1% last quarter) in the amount of money invested from last quarter, but a moderately sharp rise (+9.4% vs. -6.4% last quarter) from a year ago in equity investment in companies who have received at least one round of venture funding. This was a mixed, but reasonably positive report. Information technology (IT) continues to get the lion share of investment (57%) compared to distant second healthcare (30%). There was a modest rise (+1.0%) in the amount invested in information technology companies since last quarter, and a moderately sharp rise (+10.6%) compared to a year ago. Computer software continues to be the largest sub-sector, with 22.8% of the money invested in Q3, and rose +1.5% from Q2 and rose +0.2% from a year ago. The bottom line is that a healthy amount of money is being invested in new ventures, but it's not what could be called a real "boom". The top ten states in terms of amounts invested were California (46%), Massachusetts (12%), Florida (4%), Washington (4%), Texas (4%), North Carolina (3%), Virginia (3%), New Jersey (3%), New York (3%), and Colorado (3%). The top ten deals were FiberTower ($150 million), provider of a service that eliminates legacy copper backhaul, Replidyne ($62.5 million), developer of anti-infective biopharmaceuticals, TARGUSinfo ($60 million), provider of on-demand data to optimize customer interactions, Affymax ($60 million), developer of peptide drugs for the treatment of various blood, cancer, and kidney diseases, Amicus Therapeutics ($55 million), developer of small molecule, orally-active pharmacological chaperones for the treatment of human genetic diseases, MetroPCS ($50 milion), provider of wireless local and long distance communications services, Cerexa ($50 million), provider of hospital based anti-infective therapies for the treatment of patients with serious, life threatening infections, Force10 Networks ($46.1 million), provider of gigabit and 10-gigabit Ethernet routers and switches, Alinea Pharmaceuticals ($45 million), developer of treatments for diabetes and metabolic disorders, TherOx ($40.3 million), developer of site-specific systems for the delivery of oxygen-supersaturated solutions to oxygen deprived (ischemic) tissues. Note the dearth of software companies on that list, since the actual amount needed to fund a software business is relatively small.
[10/11/04] For some background information on venture capital, click here.
The Fidelity FPRXX taxable money market fund is up to 3.36% and the FDRXX money market fund (for non-taxable accounts) is up to 3.88%. I would expect FPRXX to be up to 3.50-3.60% by the end of the year and FDRXX up to 3.90-4.10% at that time as well, with further gains beyond that as interest rates continue to rise. There is a lag between Fed rate hikes and money market yields since the money market funds hold debt that will continue to have its original yield until that short-term debt matures and the proceeds are rolled into newer and higher-yielding debt. Sometimes you see declines in the yield, but they may simply be due to people putting fresh money in or taking money out of the funds, which may result in selling higher-yielding securities in some cases. With rates rising every FOMC meeting, it can make sense to leave fresh funds as cash until after the next FOMC meeting, but that can lower the short-term yield. Click here for the top Prime Retail Money Market Funds from iMoneyNet. iMoneyNet says the average 7-day taxable simple yield is 3.56%.
[10/14/05] I continue to struggle with whether or when to dip my toe back into the investing waters, especially with what sort of asset allocation model I should use and whether to take an index approach to try to do some old-fashioned stock picking. I may simply start using my old Muriel Siebert account since it uses Fidelity for its money funds, which pays a fairly decent interest rate, and then incrementally buy the S&P 500 index tracking stock (SPY) or the S&P 500 Tech Sector Spider (XLK) with a relatively small fraction of the cash (maybe 20%), and then buy and sell on a monthly basis to maintain a fixed percentage asset allocation (i.e., sell if the market is up or I have less than 80% cash, and buy if the market is down or I have more than 80% cash). My fixed asset allocation would become more aggressive once I accumulate enough cash to feel that I have a sufficient rainy day fund. I'll also start doing the same with a Roth IRA once I've got a sufficient short-term financial cushion in place. I'm thinking of eventually running my Roth and taxable accounts in parallel with the same strategy, although the Roth could have a much more aggressive stock allocation (maybe 70-85%). My feeling is that individual stocks won't be worth the hassle until I have a large enough portfolio where a 3% position in a stock (that's 3% of the stock allocation) would be at least $1,000, with a 3% position meaning that I could have 20 stocks comprising 60% of my stock allocation, leaving 40% for index investment. That might take me a couple of years since I also have to pay down a lot of back taxes, but at least I'd have a credible plan that can start small and not get too unwieldy as my savings grow.
[9/24/05] I've started to think about starting up a new small investment plan once my bankruptcy case finally gets discharged in early December. I may just restart my previous small plan. I really haven't given it any intensive thought yet, and won't until I really am free and clear. I also need to give thought to resuming a Roth IRA plan as well. Unfortunately, I won't have a lot of money to work with anyway. My priorities right now are 1) getting back onto a sane, balanced budget, and paying down my back taxes over the next four years, 2) accumulating some money in a classic rainy day fund, part cash and part stock, 3) bulking up my Roth IRA, and 4) accumulating a little money I can speculate with.
[6/23/05] I continue to have a very, very modest portfolio in two rollover IRA accounts, but not enough to be worth speaking about.
Expect it to take another day or two for the dust to settle after the Fed FOMC statement.
The holidays are coming, so don't pin too much significance to anything the market does between now and the end of the month. And then expect some interesting volatility in the first trading week of January.
[12/14/05] There have only been two closes above the current NASDAQ level recently, so we really are set up for either a breakout to the upside or poised to dive off the cliff, with some possible meandering while the market decides which way to go.
[12/9/05] The good news about the market weakness in recent days is that the market is no longer heavily overbought on a short-term technical basis. We're setting up for either a correction or a new up-leg, but we could see some extended meandering while we wait for the move, whatever it is.
[12/8/05] The big question confronting market participants is the market outlook for early 2006. If we're likely to see a repeat of 2005, people will be itching to exit the market over the next couple of weeks. If not, people should be itching to get into the market over the next couple of weeks.
[12/7/05] NASDAQ is once again looking like it has reached a near-term "top" and may be poised to roll over and decline, or maybe it's simply pausing in advance of another leg of the advance.
[12/3/05] We're back to square one, with people trying to discern whether the market will continue up or is preparing to fall off a cliff like last year. It really does depend on where the economy goes, and some people are predicting weakness in the face of additional Fed interest rate hikes, while other (including me) expect the economy to perk along relatively fine for the foreseeable future.
[11/22/05] Clearly the market is bullish of late, but the big question is how much of that is due to "hot money" and market timing, the kind of money that can (and usually does) race away from the market even faster than it sloshes in, as we saw with the run-up last fall. My view is still that the market will continue to climb gradually over the long run, but that we'll see lots of volatility along the way. So, it's a bull market, but a very volatile bull market. In fact, the road will be incredibly bumpy over the next couple hundred points due to significant technical resistance. It will be quite a dramatic milestone if NASDAQ clears 2,500 and can stay there for the next six months. I'd be a lot more sanguine if we were seeing significant stock mutual fund inflows, but we're not, yet. Stay tuned.
[11/3/05] We could in fact see a seasonal rally over the next few months since traditionally the period from November through February is considered the most bullish part of the year for stocks. Unfortunately, such rallies frequently attract a lot of hot money engaged in market timing that is likely to leave the market at any time as quickly as it arrived.
[11/23/05] Overall market outlook: quite confused and susceptible to volatile swings, but a gradual drift up, over time, although short-term progress may be at risk to the downside until we see some renewed inflows into domestic equity mutual funds. There appears to be too much hot money flowing into the market for the recent gains to be sustainable for more than another month or two.
[12/9/05] The fact that there was a net outflow from domestic equity mutual funds over the past week after an inflow after two weeks of outflows after an inflow after thirteen consecutive weeks of outflows and the fact that we've seen inflows for 25 of the past 44 weeks, suggest that the market will continue to be quite volatile, but likely to maintain a gradual drift upwards.
[1/1/05] Click here for Market Outlook for 2005.
[12/13/05] NASDAQ is moderately bullish over a one-month timeframe and a moderately bullish over a 10-day period.
The major advance of NASDAQ off the October 10, 2002 low of 1,108.49 is 8 days off its closing high of 2,273.37 on Friday, December 2, 2005, and 6 days off its intra-day peak of 2,278.16 on Tuesday, December 6, 2005. Technically, we did set yet another "higher high" (above the peak in early August) last Friday, which indicates a bullish trend, but I insist on seeing another two highs (both intra-day and closing) separated by at least three days before I'll say that we have established a true breakout from the recent (since August) trading range.
[11/11/05] We're actually provisionally out of the bear market since the current closing level is higher than three months ago, but we need to see that relationship hold for at least a month before we say that we are clearly in a bull market. In particular, there was a rally that peaked two months ago only slightly below the current closing level, so until we get well above that level, we should simply be considered to be in a trading range. By my own standards, I'd measure the market from the low over the past three months, and that was only 21 days ago. I'd prefer to see an advance of at least three months from such a low before calling a durable bull market. Another standard to use is the classic "higher highs and higher lows", meaning we'll be back to a bull market as soon as we clear the old peak from August 2-3. I would prefer to clear that peak as well, but I feel that it is only necessary to have higher highs and lows over a three-month period to indicate that we're in a bull market. So, I'll indicate that we are clearly in a bull market once we get three months past the October intra-day low, and we'll be in a strong bull market once we clear the August peak at least three months past the October low. Of course, being in a bull market doesn't mean we'll stay there.
The sharp gain of 29.16 points on Wednesday, May 4, 2005 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 1,889.83 on Friday, April 29, 2005. This up-leg is now 158 days old, 8 days off its closing high of 2,273.37 on Friday, December 2, 2005, and 6 days off its intra-day peak of 2,278.16 on Tuesday, December 6, 2005. The key signal to watch for now is a day on which the market opens sharply higher but closes sharply off the intra-day peak, which could indicate a "market top".
The sharp gain of +35.24 (+1.71%) points on Wednesday, October 20, 2005 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 2,025.58 on Thursday, October 13, 2005. This up-leg is now 43 days old, 8 days off its closing high of 2,273.37 on Friday, December 2, 2005, and 6 days off its intra-day peak of 2,278.16 on Tuesday, December 6, 2005. The key signal to watch for now is a day on which the market opens sharply higher but closes sharply off both the open and the intra-day peak, which could indicate a "market top". Presently, this is technically a rally (since October 13, 2005) within a trading range (back to August), within a bull market (back to 2002), within a bear market (back to 2000), within the long-term bullish trend, at least until this leg extends for three months.
[12/2/05] NASDAQ closed at 2,267.17 on Thursday, December 1, 2005 at its highest closing level since it closed at 2,282.02 on May 24, 2001.
[11/24/05] The NASDAQ intra-day peak of 2,269.30 on Wednesday, November 23, 2005 was its highest intra-day peak since the peak of 2,281.18 on May 25, 2001.
NASDAQ is now bullish on all timescales except the 5-year and 6-year charts (and 1 and 2-day charts).
[12/15/05] Short-term (1-day): Modestly bearish.
[12/15/05] Short-term (2-day): Flat, trading range.
[12/15/05] Short-term (5-day): Modestly bullish.
[12/13/05] Short-term (10-day): Moderately bullish.
[11/11/05] Short-term (1-month): Moderately bullish.
[12/13/05] Short-term (2-months): Moderately strongly bullish.
[11/18/05] Medium-term (3-months): Moderately bullish.
[11/5/05] Medium-term (6-months): Moderately strongly bullish.
[11/19/05] Year-to-Date: Modestly bullish. [NASDAQ closed 2004 at 2,175.44]
[11/18/05] Medium-term (9-months): Moderately bullish.
[12/1/05] Longer-term (1-year): Modestly bullish.
[11/5/05] Longer-term (2-years): Moderately bullish.
[10/22/05] Longer-term (3-years): Moderately strongly bullish.
[10/18/05] Longer-term (4-years): Modestly bullish.
[11/15/05] Longer-term (5-years): Moderately bearish. About a 7.2% decline each year.
[4/23/05] Longer-term (6-years): Moderately bearish. This was the big run-up for the "boom" in 1999.
[10/15/04] Longer-term (7-years): Modestly bullish.
[10/15/04] Longer-term (8-years): Modestly bullish.
[10/15/04] Longer-term (9-years): Modestly bullish.
[10/15/04] Longer-term (10-years): Modestly bullish.
[1/1/05] The NASDAQ "bubble" (above the 3,000 level, including intra-day "flirtations") lasted from November 2, 1999 through December 13, 2000, a year and six weeks.
[11/28/05] The post-boom bear market that started in 2000 was signaled by the Dow Industrials closing at a high of 11,722.98 on January 14,2000 after hitting an intra-day peak of 11,908,50, by NASDAQ closing at a high of 5,048.62 on March 10, 2000 after hitting an intra-day peak of 5,132.52, and by the S&P 500 closing at a high of 1,527.46 on March 24, 2000 after hitting an intra-day peak of 1,552.87.
[11/28/05] The end of the post-boom bear market that started in 2000 was signaled by the Dow Industrials closing at a low of 7,286.27 on October 9, 2002, with an intra-day low of 7,181.47 on October 10, 2002, by the NASDAQ Composite closing at a low of 1,114.11 on October 9, 2002, with an intra-day low of 1,108.49 on October 10, 2002, and by the S&P 500 closing at a low of 776.76 on October 9, 2002, with an intra-day low of 768.63 on October 10, 2002. Some people claim that the market bottomed in March of 2003, but that is not the case. The intermediate lows in March 2003 attempted to test the market and instead proved that the bear market was over with the Dow Industrials closing at a low of 7,524.06 on March 11, 2003 and an intra-day low of 7,397.31 on March 12, 2003, with the NASDAQ Composite closing at a low of 1,271.47 on March 11, 2003 and an intra-day low of 1,253.22 on March 12, 2003, and with the S&P 500 closing at a low of 800.73 on March 11, 2003 and an intra-day low of 788.90 on March 12, 2003.
[12/14/05] The latest monthly retail sales report was mixed and lackluster, but still consistent with a reasonably healthy zigzag economy that continues to plug along on a gradual upwards path.
[12/1/05] Based on the latest economic data and preliminary initial holiday shopping reports, the economy appears to be growing at a moderately strong pace, not truly strong or a real boom, but reasonably decent nonetheless. I expect this pace will continue for the foreseeable future (one to two years), albeit with occasional zigs and zags.
[12/2/05] One of the disturbing readings in the October personal income and expenses report is that savings has been in negative territory for five consecutive months. I'm willing to blame that on elevated oil and gasoline prices, but we need to see savings pop back up into positive territory before we can really say that the economy is truly healthy. The good news is that the savings deficit has shrunk each month since July and shrank from $70.9 billion in September to $61.5 billion in October.
[10/22/05] The recent decline in oil and gasoline prices should help to provide some additional boost to the economy. There is lots of talk about higher heating and electricity bills this winter, but it remains unclear how that drag will really play out.
[10/3/05] Some supposedly competent economists are now actually chattering about the prospects for a recession. Sorry guys, but the odds of a recession over the next year are close enough to zero to suggest that it's not a topic worthy of discussion. These recession-mongers crawl out of the woodwork every time there is even a slight bit of stress on the economy and they are almost always wrong. This time is no different. What these guys do know with certainty is that if they even bring up the "R" word, they get lots of press attention, and that's all they're really after anyway
[9/19/05] The latest economic data continues to support the thesis that the U.S. economy remains in the early stages of a protracted recovery. Some people are talking as if the economy is nearing the end of a business cycle, when we are really only in the early stages of a protracted business cycle. It will be another THREE years before the economy is fully back on track. Unemployment will decline only gradually. Creation of new businesses which will be the titans of tomorrow has yet to even commence, let alone take off. The bankruptcy rate will decline off recent highs (after a temporary blip for the October 17 deadline before the law changes go into effect), but remain at a fairly high level for another two years. There are still quite a number of businesses (and entire sectors) that will need to be restructured over the next two to three years as well. The sad thing is that a number of them don't yet know it or are afraid to admit it. Cost cutting and head count reductions will be ongoing mantras for the next two to three years. That said, there will be plenty of corporations that see increasing profits over the next few years as consolidation boosts their efficiency.
[4/2/05] For the record, we simply are not going to see consistently large payroll employment rises (200K/month or 2.4 million per year) until the vast bulk of "old economy" companies have finally worked their way through the restructuring process, which could be another two or maybe even three years. We still have quite a number of companies "hanging in there", resisting further (and inevitable) restructuring as they wait for the economy to turn up more strongly. This includes the old major airlines, the car companies, retailers, a fair number of technology companies, etc.
[2/18/05] Clearly higher interest rates will have some negative impact on the economy, but the extent of the impact is not so certain. First, the Fed is not trying to constrain demand, but simply getting rid of excessively cheap money that has the potential for causing speculative excesses. In other words, raising interest rates to roughly "neutral" won't cause normal economic demand to decline significantly, but could, for example, help to curb speculation on commodities and foreign exchange. Second, the Fed essentially sets only some short-term interest rates, but the market and the law of supply and demand set longer-term rates. The key factor right now is that there remains a credit glut; corporations remain more interested in trimming their debt load rather than expanding it.
[8/23/04] Clearly the elevated price of crude oil has to have some negative impact on the economy, but the big question is how much impact. Overall, the economy is less sensitive to the price of oil and “oil shocks” than in past decades, but some sectors (such as airlines and chemical companies) are significantly more sensitive, whereas most sectors are only modestly sensitive. The current price escalation in fact has not been caused by any supply shortage or any excess demand by end users, but is merely due to a dramatic level of speculation in crude futures. The bad news is that we don’t know how much longer that speculative ‘bubble’ will continue to grow. The good news is that oil at these prices is not as attractive an ‘investment’, so the speculation will be increasingly susceptible to profit-taking and renewed interest in short-selling. Besides, if oil really were expected to rise dramatically from here, we’d see it in the price of futures in coming years, and we don’t. In fact, futures ‘predict’ that the price of crude will decline in coming years. In any case, elevated oil prices will be a moderate drag on the economy, but not so much as to spur accelerating inflation or to trigger a recession. Maybe it will trim a quarter to half-point off GDP, but that’s about it. Besides, people and businesses will adjust their lives and operations to further reduce their dependence on expensive oil. And finally, high-efficiency hybrid-electric vehicles are beginning to debut and anxiety over the price of gasoline will simply accelerate the development and introduction of such innovative products, which will dramatically moderate the demand for oil a few years from now.
[5/21/05] I heard that Greenspan says oil prices may be taking 0.75% off of GDP, but prices have risen significantly since last August.
[7/6/04] Some people are protesting that company profits could suffer as companies run out of costs that they can cut. That’s complete nonsense. First, companies will never run out of costs to cut. But more importantly, one of the factors that has been holding back growth of business revenues (and profits) over the past three years is the fact that companies have been dramatically cutting costs and the cutting of a cost for one company is the cutting of the revenue of one or more other companies. That cost-cutting binge was exerting a distinct headwind on businesses, but that headwind will in fact fall off as the cost-cutting moderates. And as revenues begin to grow more strongly, companies will begin to reverse the process and both spend more and hire more workers. Continued technological advances will spur further cost-cutting, but on a more moderate basis.
[12/29/03] 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.
[3/12/05] A continuing big wildcard in 2005 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)
Updated: December 14, 2005 07:17:31 PM -0500
Copyright © 2005 John W. Krupansky d/b/a Base Technology