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Nasdaq might well have had a flat or down day anyway on Tuesday, but a lousy consumer confidence report kept a strong damper on the market. After the strong rally on Monday, a little profit-taking was perfectly reasonable. Nothing here for investors to worry about.
The market seemed to be run by the day-traders. They run the market back and forth and then close out their positions at the end of the day for little net change in the market.
There may have been a few nervous people taking some profits after the big run-up. Maybe some of these people looked at the relatively low level of VIX (possible complacency) and decided they would rather be cautious than sorry.
There was a rumor of positive comments from Veritas Software (VRTS), but I couldn't find anything of substance. They're in my Tech Stock "Safe" Index.
The Conference Board's Index of Consumer Confidence fell more than expected in November. Superficially, this was a negative report, especially since the market was expecting to see some improvement. But, there was some good news in there too. First, the Expectations component of the index actually rose to 74.6 from 70.7 in October. That's the part that REALLY matters, the outlook for the future. Although the confidence level of those over 55 years of age fell to 73.5 from 83.1, the good news is that the confidence of consumers under 35 years of age actually ROSE to 97.4 from 91.9. The real bottom line is that confidence probably has already bottomed and the December report is probably going to show significant improvement.
The Existing Home Sales report for October showed a nice rebound from the sharp decline in September. This was a positive report. Lower interest rates were an obvious factor.
After the close: The ABC News/Money Magazine Consumer Comfort Index rose to -2 from -5 last week (on a scale from -100 to +100). That's a small improvement, but an improvement nonetheless. The THREE positive factors in this latest poll were more Americans believing the economy is in good shape (up to 36% from 35% last week), more Americans believing now is a good time to buy things (up to 48% from 45%), and more Americans believing their personal finances are in good (or excellent) shape (up to 63% from 62%). This was a positive report. Since it is a weekly poll, I'd say it provides a more timely perspective than the monthly Conference Board survey.
Nasdaq has now closed above its 100-day moving average for 11 days straight and above its 150-day moving average for two days straight. And, the 50-day moving average has turned up even further. The 100-day moving average is still declining and will need another week of gains to begin turning up. Traders insisted on testing Nasdaq to see if it could be pushed back under the 150-day moving average, but they failed. We actually managed to bump into the 200-day moving average, but just barely and then retreated very quickly. The big 2000 is a mere 64.03 points above us. It won't be hard to break through these levels as long as even just a little new money continues to flow into the market. But without new money, profit-takers and short-term traders will try to hold us back.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, FELL by a slight 0.12% on Tuesday to 25.21, which is still near the bottom of the moderately high anxiety zone (25 to 30). VIX was somewhat unstable despite the slight net change. It ran up to a day high of 26.35 at 11:00 a.m. and then trended down to a day low of 24.08 shortly after 1:00 p.m. and then rose into the close. Despite the fall in the Dow and the slight drop in Nasdaq, people started feeling a little more comfortable about the market, probably because Nasdaq has hung in there so well. Still, we need to give the market at least another day to fully recover from the holiday week. VIX is relatively lower than where it was last month, but still relatively high. It would have to drop another 20% (unlikely in the next few weeks) before I would say we're being overly complacent.
The Nasdaq-100 After Hours Indicator bounced around but had a definite positive tone for almost the entire Tuesday evening session, closing up 1.96. The optimists are hanging in there.
Texas Instruments (TXN), Celestica (CLS), and Flextronics (FLEX) all reaffirmed guidance for the current quarter. That's good news.
Fed Funds Futures suggest a 66% (up from 44%) chance of a quarter-point cut in interest rates at the December 11 FOMC meeting. Comments in a speech by Fed Governor Laurence Meyer suggested that the economy may need further stimulus. Although this factor was not mentioned, I'm suspecting that the Fed may have assumed that fiscal stimulus would be here and it's still in limbo and so now additional Fed monetary stimulus may need to take the place of some of that fiscal stimulus. Still, unless futures price in at least a 75% chance of a cut, we probably won't get the cut. People need to see the economic data over the next two weeks to decide.
Will Nasdaq break through 2000 (and stay there) within two weeks? It looks very possible, almost inevitable. In fact, I would not be surprised if the breakout happened this week.
The bottom line: The Fall rally (46 days old) is still intact. A modest dip (say, 5%) is to be expected, but any significant dip should be bought.
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.
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.
Jack Krupansky
Updated: November 27, 2001 11:34:51 PM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology