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Nasdaq closed roughly where it was at 10:30 a.m. There was a little selling in that first hour, but nothing substantial and nothing sustained. The rest of the day was just day-trading with no net change. Yawn.
There was some concern that the terrorist attacks and responses in Israel could affect the flow of oil, but so far there is no evidence of that.
Taiwan Semiconductor (TSM) raised its 2001 profit forecast significantly. That's definitely a positive sign.
There is increasing talk that Micron (MU) will hook up with Hynix (Korean memory producer) and that this will help reduce the excess capacity in the DRAM memory sector. This kind of consolidation is a good sign.
Banc of America estimates that demand for Intel-based PC motherboards was stronger than expected in November. This is a good sign.
Morgan Stanley strategist Barton Biggs thinks the September market low will be retested. I don't agree with him, but he is a respected Wall Street pro, so his gloomy outlook added to the Monday morning pall that fell over the market.
Adding to the pall was JP Morgan's Doug Cliggott recommending that investors sell tech stocks and buy consumer staples stocks. But, that's one strategist's view. And remember that the overall objective of brokerage strategists is to keep you buying and selling so they can collect commissions. You don't have to follow along in their game, as long as you're willing to tolerate these occasional dips that come along. More than tolerating the dips, you can use them as great buying opportunities.
White House economic adviser Glenn Hubbard said he agrees with expectations that the U.S. economy is expected to shrink in the fourth quarter, but would grow modestly in the first quarter and growth would accelerate from there. I'm comfortable with that.
The Personal Income and Outlays report for October was a mixed bag. Personal Income declined very slightly, but spending (Personal Consumption Expenditures) was up significantly. I'd rate this a positive report.
The National Association of Purchasing Managers (NAPM) Index for November bounced back better than expected. Unfortunately, it still indicates that the manufacturing sector is contracting, but at a slower pace. I'd rate this a positive report since the New Orders and Production components of the index are not too far below break-even. A return to growth of the manufacturing sector within three months is not out of the question.
The Construction Spending report showed a very nice rebound in October, back up to the June level. This was a very positive report.
The Semiconductor Billings report for October showed the first gain of the year. This was a very positive report. We still have a long way to go to get back to a healthy chip sector, but this is a very nice start. Even better, sales rose everywhere except Japan, including Europe, the Americas, and the Asia Pacific region.
The Vehicle Sales for November showed a decline from October, but was still very strong. This was a positive report.
Nasdaq has now closed above its 100-day moving average for 15 days straight, but slid back under its 150-day moving average. 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. The 200-day moving average continues to fall and is about 50 points above the current level. Within a week we could be above both it and the 2000 level as well.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, ROSE by 0.50% on Monday to 26.00, which is at the lower end of the moderately high anxiety zone (25 to 30). Anxiety did rise a little, but not by enough to suggest any significant change in sentiment. People are still prepared to hang in there.
The Nasdaq-100 After Hours Indicator showed little interest of any kind for the entire Monday evening session, closing down 0.16 points. It had actually been slightly positive for most of the session. Most people seem to be just waiting for something, anything to happen.
Fed Funds Futures suggest a 96% (up from 94%) chance of a quarter-point cut in interest rates at the December 11 FOMC meeting. The cut is now a virtual certainty. There's also now a 20% (up from 14%) chance of a second quarter-point cut at the January meeting.
I made my usual Monday dollar-cost averaging (DCA) purchase of S&P 500 Tech Sector "Spider" (XLK) LEAP call options.
I also picked up some more Nasdaq-100 Index Tracking Stock "Qubes" (QQQ) LEAP call options when the market was way down in the morning. Part of my rationale was that I saw no news that challenged the concept of a recovery around the middle of 2002.
Even without any news, Nasdaq could have ended the way it did. Once again, the resilience of the market continues to amaze the cynics.
The extent to which the tension between Israel and the Palestinian Authority will likely expand dramatically is very unclear. It could just be one of those occasional flare-ups, or it could become a very big deal. It's not possible to tell at this point. In any case, the heightened tension could cause the market some anxiety.
The bottom line: The Fall rally (49 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: The trough for the recession was probably the second half of October and the economy has slightly improved since, even if not yet noticeable by economists (they won't have a handle on November until January). As December and January progress we will gradually start to see more incremental signs that the economy is beginning to recover. Not a large improvement, 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. But, October and the first half of November were 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, probably late in Q1 of 2002. The manufacturing sector won't trend up from a trough until sometime in Q1.
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: December 03, 2001 11:20:15 PM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology