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Well, at least Nasdaq hung in there for yet another gain. It seemed silly to me the way the pre-market was up so much just on HP (HWP). How silly? Well, Nasdaq peaked for the day less than ten minutes after the opening and then quickly turned and headed south until just before 11:00 a.m. I think the cynics saw their opportunity and took it. In this case, I can't blame them. Nasdaq limped along until about 1:45 p.m. and then began it's recovery. There was a telltale sharp upwards spike just before the close, which typically suggests that daytraders had been making a serious attempt to short the market and then had to buy at the end to close their positions for the day. Overall, I'd say that all the gyrations were mostly just day-traders playing games and there's no need to get alarmed that Nasdaq didn't rally more strongly.
We're lucky the market wasn't sold off. It sure looked like either somebody shorting the market or somebody selling into the rally. A few buyers made all the difference. In any case, the trading was not a pretty sight.
Nasdaq has now closed above its 100-day moving average for three days straight. Traders will be wondering how long this can last. The answer is that it will last as long as new buyers keep coming into the market. And the longer the market can hang in there, the safer it will seem to all those people sitting on cash or bond funds.
The Mortgage Bankers Association (MBA) Mortgage Applications Survey for the week ended November 9 showed a another record level of mortgage applications. Mostly this was refinancing. Mortgages for purchases were down. Still, this was a very positive report.
The Retail Sales report for October show a huge jump from September. This was a very positive report. Even factoring out zero-percent auto loans, the monthly gain was impressive.
The latest economic reports are consistent with my short-term economic outlook that says we should see incremental signs of improvement in November and December.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, ROSE by a very slight 0.07% on Wednesday to 28.60, which is in the moderately high anxiety zone (25 to 30). VIX opened reasonably steady, but did spike up to 30.08 just before 11:00 a.m. as Nasdaq was bottoming for the day. Traders may have used that spike as an indication of capitulation for the day (everybody who was going to sell had already done so). VIX stayed above 28.75 for most of the day. It was only below the Tuesday close from about 2:50 p.m. until just before the close. It's actually a good sign that VIX closed just about the same as the day before. All the gyrations in Nasdaq were just trading noise, so there was no net change in the anxiety level.
The Nasdaq-100 After Hours Indicator started the Wednesday evening session with a slight positive bias and then reversed and headed deep south, closing down 8.75 points, as traders were disappointed that Applied Materials (AMAT) wasn't able to offer us a rosy enough outlook.
Brooks Automation (BRKS) beat guidance and offered better guidance for the coming quarter. Now that's impressive. Their report came out too late to affect the evening trading session and they're a smaller company anyway.
The long-awaited Microsoft (MSFT) Xbox game console is finally out. I went by the Toys "R" Us store in Times Square here in New York City last night around midnight. The line went all the way down the block and around the corner. Hundreds of people. Many of the video display signs, including the Nasdaq Market Site were running Xbox promotional clips. Around 12:10 a.m. people started going in the front door and came out the side door with large plastic bags containing the Xbox box and other goodies. Over on Avenue of the Americas, a Software Etc store had a shorter line of two dozen people, but it was Reservations Only.
Fed Funds Futures suggest an 56% (down from 70%) chance of a quarter-point cut in interest rates at the December FOMC meeting and NO cuts after that. Better than expected retail sales reports caused bond market economists to become even more enthusiastic about a strong recovery in 2002.
Traders will continue to try to push the market around, but sidelined money will continue to control the market. A little buying and the market will move up. But if sidelined money sits tight, traders and cynics will use that as an excuse to push the market down. But even then, traders can only push so far and if their push doesn't instigate significant selling, the dip will be bought and the rally will continue.
The situation in Afghanistan is very "fluid". Too much is happening too quickly for anybody to have a handle on everything. The only reasonable thing for us to do is just remain calm and wait for the dust to settle. The thing that is clear is that progress is being made.
The status of Monday's plane crash is still up in the air. Every day brings a new theory. The best thing to do is simply wait for the professional investigators to finish doing their job. There are way too many political hacks, bureaucrats, and "experts" opining about what may have happened. About the only thing they know with anything resembling absolute certainty is that it was not an attempted hijacking. They think they might be sure it wasn't a bomb, but even that has not been definitively ruled out by the investigators. Unfortunately, there is still a chance that the crash was caused by an act of terrorism. What the market is saying is that the odds are low that the crash was the result of an act of terrorism.
I continue to believe that the underlying market bias is bullish and that the Fall rally is intact. Dips of varying depth and duration will occur from time to time, but optimism about an economic recovery in 2002 still holds sway with aggressive investors. Tech stocks will look increasingly attractive to money managers who need to do a little better than sit on cash or old economy stocks that are past their peak.
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.
Jack Krupansky
Updated: November 15, 2001 01:34:39 AM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology