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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 after mid-October (end of this week) when the new wave of layoffs peaks.
Nasdaq had already fallen from it's 10:45 a.m. high of 1739 and was already struggling for "technical" reasons before the latest "episode" in the anthrax "saga" hit the wires. I wouldn't blame the decline solely or even primarily on anthrax. There just wasn't enough buying interest and the big pop between 10:00 and 10:45 was probably just a bit of momentum day-trading that would have sold off by the end of the day anyway. In any case, a loss of 3 points for the day is nothing to lose sleep over, especially after the nice rally on Monday.
The "technical analysis" guys put a lot of faith in breaking out above the 50-day moving average for the Nasdaq index. It's kind of bad news that we didn't "take it out decisively" yesterday, but it's not really a big deal. If the market tries and fails for another two days, it could be a problem, causing the momentum traders to switch to a bearish bias. Even though Nasdaq fell yesterday, it's actually a bit above the moving average now since the market was so much higher 50 days ago that each passing day lowers the moving average a bit more. In any case, the traders will want Nasdaq to move well above the moving average to convince them that they should keep betting on the recent rally.
Retail Sales reports for the past week showed a slight improvement. These were positive reports.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, ROSE a slight 0.24% on Tuesday to 33.19, which is in the middle of the high anxiety zone (30 to 35). VIX rose a little on the open, then fell off. But by 11:30 a.m., VIX began to rise again. From noon to 3:00 p.m., VIX bounced up and down a fair amount with no clear bias. Then it began to fall again, but jumped a moderate amount right at the close. Nothing definitive to conclude here. The market did some "consolidating" after recent gains and people are now unsure what's next.
The Nasdaq-100 After Hours Indicator bounced up and down during the Tuesday evening session and ended down 0.04 points (4 cents). Kind of a "steady as she goes". The risk is that if additional buyers don't show up quickly, short sellers will begin attacking with earnest, causing momentum players to throw in the towel, which in turn inspires more short selling, and the whole process becomes a vicious cycle.
The Semiconductor Equipment and Materials International (SEMI) book-to-bill ratio for chip equipment rose slightly in September. But both orders and shipments fell significantly, partly due to the aftermath of the events of 9-11, but partly due to the ongoing contraction in the chip sector. This is a negative report, but not unexpected. I'd wait for the November report, due out in late December, before expected to see much, if any, improvement. Because September was so bad, we could see a little improvement in November, or even October.
The ABC News/Money Magazine Consumer Comfort Index is unchanged at -3. Although the report is negative, I consider it neutral since it has not deteriorated since last week. The index is computed every week from a "rolling" one-month survey of consumers. My suspicion is that the latest week of the data may be somewhat better than the oldest week, but they average out.
Fed Funds Futures continue to suggest a 100% chance of a quarter-point cut in interest rates at the November 6 FOMC meeting.
The best thing that could happen right now is that Nasdaq stay relatively flat (in a "narrow trading range) to help convince sidelined money that the water is "safe". Yes, a big rally would be nice, but a little stability here could provide the kind of "base" that the old-timers like to see before a rally really takes off. But as soon as it "looks" like a base may be starting to form, aggressive money will start a rally anyway, before the base is firmly established.
The market may continue to "respond" to anthrax-related news, but it just seems to me that the story has played out enough and everybody has a fairly good idea about the risks, so it should be priced into the market by now. Same with the progress of the "war". The BIG uncertainty is what other, unanticipated forms of terrorist attacks might be lurking out there. But since not a lot has changed in the past week, so you would think that the risks and uncertainties would have been priced into the market by now.
I'm in a "buy on dip" mode. If Nasdaq falls more than 25 points, I'll buy a few more 2003 or even 2004 LEAP "call" options on the Nasdaq-100 Index Tracking Stock "Qubes" (QQQ).
Jack Krupansky
Updated: October 24, 2001 12:01:10 AM -0400
Copyright © 2001 John W. Krupansky d/b/a Base Technology