| Read Jack's "diary" of life in Washington, DC after the terrorist attack. Click here. |
Opinion will remain divided as to whether Monday was a really bad day for the market or whether the markets held up better than expected. The Japanese stock market actually rallied a modest amount overnight in relief that Wall Street didn't do worse.
The surprise half-point cut in interest rates by the Fed didn't SEEM to help the markets, but the markets could have been worse without the cut. The lower rates will help the real economy. And now the Fed is not as far behind the curve as they were. Fed Funds futures trading suggests another quarter-point cut at both the October and November FOMC meetings.
The CBOE Volatility Index (VIX), which "measures" the anxiety level of the market, rocketed up over 32% on Monday to 44.94, which is well up there is the panic zone. Despite the leap on the open, VIX actually tapered off a little from its 10:30 a.m. high of 47.70. But there was no clear "spike" that would truly signify a "capitulation". On the other hand there may also have been a lot of dip-buying that "rescued" the market from even worse selling. Some market analysts may take the jump in VIX coupled with the very heavy volume of the day as a possible "buy" signal. But when the market is having a "spasm", there can be short periods of "relief" mingled in with continued surges in selling.
Washington will deliver additional economic stimulus in coming months. I would expect either another wave of tax rebate checks or a cut in the social security tax that is taken from paychecks.
It is worrisome that the administration keeps talking about a "long war" when I think people want solid results in the not too distant future. Sure, terrorism will always be a never-ending struggle, but that does not mean it has to be a high-intensity, high-anxiety "war" for an extended period of time. The difficulty is that the administration is divided on whether and how to go for "regime change" in fighting terrorism. In any case, until people (consumers and businessmen) can see light at the end of the tunnel, spending could be curtailed, at least somewhat.
Whether the markets will continue to fall or rally a bit before declining further or begin a major rally is anybody's guess. If retail mutual fund investors take even a moderate amount of money out of the market, those redemptions could force serious further declines. On the other hand, now that the cynics have had an opportunity to do their selling, maybe the market will decide that the economy may not be as bad off as was anticipated.
Once "weak hands" have finished their selling, the market should stabilize. But it may take several more days or even a couple of weeks for all the dust to settle. The markets may also need to see President Bush's "game plan" to decide what the impact on the economy will be over the next six months. Right now the market is focusing on "the here and now". After all the short-term negativity is "discounted", the market will once again focus on trying to anticipate economic fundamentals six months out.
I didn't get to successfully complete my usual dollar-cost averaging (DCA) purchase. The options I wanted to buy simply were not available. They were not "pricing". Instead, I bought January 2003 LEAP call options for the Nasdaq-100 tracking stock (QQQ). They have a pricier premium, but that was the best I could do. I tried to buy some shorter-term (March 2002) options on the S&P 500 Tech Sector "Spider" (XLK) which were pricing, but even with a limit order right on the asking price the order wouldn't execute. Near the close, I also bought a small amount of the XLK stock itself for long-term holding, but that is separate from my DCA investment plan.
Once again, be prepared for ANYTHING and everything, all at once.
Jack Krupansky
Updated: September 19, 2001 08:20:41 AM -0400
Copyright © 2001 John W. Krupansky d/b/a Base Technology