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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.
Short-term economic outlook: As November progresses we will gradually start to see the first signs that the economy is beginning to recover. Not a large increase, but at least the trend will not be downward. Some indicators will continue to decline, even as others begin to stabilize and some even begin rising. December will be a little better. But, October was probably bad enough that Q4 will "print" as a decline in GDP. Employment will continue to fall until GDP finally breaks above the rate of productivity growth, sometime in Q1 of 2002.
Breaking above the Nasdaq 100-day moving average was just a little too much to swallow for one day. Nasdaq did manage to spend almost half the day above that level before some people engaged in a little profit-taking. Mostly the day looked like just a bunch of day-traders bouncing between short and long positions, especially since there was almost no net change after a negative opening and a big rally in the early afternoon.
The ABC News/Money Magazine Consumer Comfort Index for the week ended November 4 was unchanged at -5 (on a scale of -100 to +100) from the prior week. That makes this a neutral report. Slightly fewer people believe their personal financial situation is positive. But slightly more people believe the buying climate is positive. No overall improvement, but that's a lot better than a decline. This suggests a slight stabilization.
The Consumer Credit report for September showed a further slowing in the growth of consumer debt. This was a slightly positive report. Consumers are behaving in a rational manner. No real harm in that.
The Mortgage Bankers Association (MBA) Mortgage Applications Survey for the week ended November 2, surged to a record level of mortgage financing, showing improvement in both purchases and refinancing. This is a very good report. Housing demand is holding up better than expected.
The Oil and Gas Inventories report for the week ended November 2, showed a big increase in the amount of crude oil and heating oil, but a slight decrease in gasoline. This was a positive report, except for the oil guys. Cheaper oil is like a tax cut.
The Productivity and Costs report for Q3 showed surprisingly strong productivity growth and a moderation of unit labor costs. This was a very good report.
The Wholesale Trade report for September showed a larger than expected decline in wholesale sales and just a slight decline in inventories which translate into a slightly more bloated inventory to sales ratio. This was a somewhat negative report. October could go either way and November may show a slight improvement.
Overall, the economic data on Thursday wasn't too bad. No reason to scale back on expectations for a stabilization sometime in the next few months.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, ROSE by 2.08% on Wednesday to 30.47, which is back at the lower end of the high anxiety zone (30 to 35). This increase in anxiety is not a surprise given how far the market has come over the past month. VIX spiked up to 31.72 at 10:00 a.m., but quickly fell back below 31. VIX was back up above 31 between 11:30 a.m. and 12:30 a.m., but slid off to a day low of 29.67 around 1:15 p.m. VIX was on the rise again by 2:00 p.m. and bounced in a range between 30.25 and 30.9 until the close. The VIX action suggests that people are almost expecting that the rally is over, but are not even sure of that. We need a couple more days to settle that issue.
The Nasdaq-100 After Hours Indicator kept a positive bias for the entire Wednesday evening session, closing up 1.33 points. That's not a lot of optimism, but it's not cynicism either.
Fed Funds Futures suggest an 80% chance (down from 100%) of a quarter-point cut in interest rates at the December FOMC meeting. These guys are beginning to think the economy really could start to recover fairly soon.
Are you waiting for the long-awaited economic stimulus package from Congress? Well, keep waiting. The parties are squabbling and no end is in sight. But, that's okay, because in truth, the economy just doesn't need any more money. The economy needs to see confidence improve and that will just take a little more time. Basically, people will get tired and bored of being depressed and they'll shop and spend and travel to make themselves happy. That's the American Way. Let's keep the government out of it, if at all possible. I'm not worried in the slightest about the hold-up of the stimulus package. Besides, it really messes up the Federal budget.
I didn't buy any QUALCOMM (QCOM). I decided to put in a limit order 15% below the Tuesday closing price. Never even got close. And QUALCOMM even closed up for the day. That's fairly impressive.
Nothing happened in the Wednesday Nasdaq trading to suggest that the November rally is over. Even if there is some weakness over the next couple of days, that's acceptable given how far the rally has come. Short-sighted traders will try to push the market around at their whim, but unless they really manage to push Nasdaq down a lot, the rally could continue on the strength of a lack of significant real selling. Sidelined money will note carefully how the market holds up on each attempt by the traders to weaken the market. A little "breather" never hurts. And Wall Street hates when the market "goes up in a straight line". A little up and down trading range action helps establish a "base" on which a larger rally can be built. Also, the Nasdaq 100-day moving average is still falling, so it will actually be easier to breach in coming days.
Jack Krupansky
Updated: November 07, 2001 11:24:15 PM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology