| Read Jack's "diary" of life in Washington, DC after the terrorist attack. Click here. |
My tech stock "safe" signal is still stuck at 0.0 since none of the major tech companies is yet publicly claiming that they have evidence (other than "hope" or "hints") that their business has started to accelerate out of the tech downturn. My "safe" signal requires at least 20% or 1 out of 5 of the top 25 tech companies to signal acceleration. Expect at least two quarters to elapse from the time of the first indications of an upturn and the return of solid growth. The theory is that the stock market should begin a sustainable rally six months in advance of the return of strong growth. Despite recent events, I continue to peg Q2 (May or June) of 2002 as the timeframe for the return of relatively strong growth for the bulk of the tech sector.
Current short-term economic outlook: Recent events will cause a sharp drop in economic activity, but those effects may be short-lived as pent-up demand needs to be satisfied. The economy will be completely up in the air until mid-October. November and December may show the beginnings of recovery, but only to the extent that the "response" to terrorism does not continue to drag down the economy. To get the "pulse" of the economy, focus on employment, income, and advertising spending. The government issues unemployment numbers every Thursday. But, don't waste time with these numbers until about mid-October after the new wave of layoffs subsides.
My read on Wednesday's Nasdaq market action is that the day traders were in control. With no major buyers or sellers, short-selling daytraders just piled on, driving Nasdaq down to almost 1450 at around 2:45 p.m. But since they're daytraders, they have to get out, so that required an equivalent amount of buying, thus the big, alleged "recovery". Obviously a little "real" selling did occur, but only 27 points worth. Overall, we can be thankful that tech stocks held up as well as they did.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, creaped up a mere 1.69% on Wednesday to 43.22, which is still well up in the "panic" zone. VIX started the day with a modest decline in anxiety, but by 11:00 a.m., was back on the rise. Anxiety rose steadily as Nasdaq gradually fell during the day until VIX peaked at 47.62 when Nasdaq made its low at around 2:45 p.m. Both Nasdaq and VIX reversed direction and "recovered". There was no clear "spike" that would signal capitulation. But it is possible that traders may have used that peak level of VIX as a signal to begin buying.
The Nasdaq-100 After Hours Indicator had a modestly negative bias in the Wednesday evening session, closing down 1.01 points. Airline layoffs and the anxiety of pending military "activities" were obviously keeping people's optimism in check. Note that it is not uncommon for the market to close in the opposite direction of the preceding before and after hours trading and futures.
3com (COMS) reported weaker quarterly results than expected, but they may in fact be reaffirming guidance for the coming quarter. It can be so confusing sometimes.
Fed Funds futures suggest a certainty of a half-point cut in interest rates at the October 2 FOMC meeting as well as a 4% chance of a three-quarter-point cut at the meeting (up from only a 52% chance of a half-point cut). Futures also suggest a 60% chance of three-quarters of a point (total) cut by the end of the year. The likely scenario is a half-point cut at the October FOMC meeting and then an additional quarter-point by the end of the year.
All eyes will be on the 10:00 a.m. hearing of the Senate Banking Committee on "The Condition of the Financial Markets". Witnesses include Treasury Secretary Paul O'Neill, Fed Chairman Alan Greenspan, SEC Chairman Harvey Pitt, NYSE Chairman Richard Grasso, Nasdaq Chairman Hardwick Simmons, and NASD CEO Robert Glauber. I'll be in attendance. Here's what they'll say: "The U.S. financial system, the finest in the world, held up remarkably well and is more than capable of dealing with coming challenges." Paul O'Neill will tell us that there won't be a recession and that there will be strong economic growth next year. And Dick Grasso will tell us how wonderful the NYSE is. Nonetheless, the hearing will be quite interesting, especially when the Senators use their opening statements and questions to show off.
Some of the recent market weakness could well be due to those who needed to raise cash to pay their estimated taxes last Monday.
Retail mutual fund investors hold a lot of the cards for this market. If they redeem fund shares, the market will continue to go down. We can't have a major rally until retail investors are convinced to switch some of their bond funds to stocks.
Some "market strategists" are suggesting that the market is now undervalued significantly enough to warrant buying. An alternative view is the market will decline or at least be limited to a "trading range" until their are some preliminary signs that the economy is stabilizing. With recent events, pending military "activities", and the coming impact of the new wave of layoffs, it's difficult to argue that the economy is going to turn up real soon. Still, a number of sectors were already well along in the "correction" process, so pent-up demand could stimulate growth in some areas in the next few months even as housing and overall consumer demand weaken somewhat. Quite a mixed bag. Use your investment money to "vote" for whether you're optimistic or hopelessly depressed.
Jack Krupansky
Updated: September 20, 2001 01:14:31 AM -0400
Copyright © 2001 John W. Krupansky d/b/a Base Technology