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Okay, so we had a day of "consolidation" after a very strong rally. This is perfectly acceptable. Nasdaq had no clear trend all day, just a bunch of day-traders pushing the market around. It was a real struggle with the 2050 level of resistance, but in the end, the bulls won out and Nasdaq squeaked above 2050. Still, there was no serious buying or selling. People were just waiting to see if the rally would take flight again or reverse and it did neither.
The weekly Jobless Claims report showed some improvement over the previous week. This was a positive report. Initial Claims were down slightly. The big surprise was that Continuing Claims were down as well. But, these good results might just be a statistical fluke caused by the way seasonal adjustments are made.
The Chain Store Sales report for November was down from October. This was a negative report. Some people blame it on the incredibly warm weather we've been having which tends to keep people out of stores.
The Factory Orders report for October bounced back nicely from September. This was a positive report. Chip equipment orders had been down, but computer and communications equipment orders were up strongly.
The Productivity and Costs report for Q3 showed productivity growing at a slower rate than expected while labor costs also grew at a slower rate. This was a slightly positive report. Since productivity growth was greater than output growth, a fall in employment was necessary. In any case, this is all ancient history now. But it does help to explain what was happening in Q3.
Nasdaq has now closed above its 100-day moving average for 18 days straight, above both its 150-day and 200-day moving averages for 3 days, and above 2000 for 2 days. The 50-day moving average continues to turn up. The 100-day moving average is still declining and will need a few more days of gains to begin turning up. As long as Nasdaq does not get too far above of its 9-day moving average, traders should be happy to allow it to rally.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, ROSE by 1.13% on Thursday to 25.07, which is at the lower end of the moderately high anxiety zone (25 to 30). VIX bounced around all day as the market tried to find its feet after a strong two-day rally. Anxiety may have risen a little simply because the rally did not continue strongly. People are a little worried that the rally might reverse after petering out.
The Nasdaq-100 After Hours Indicator had a strong positive bias for the entire Wednesday evening session, closing up 7.35 points after several top techs had relatively good news.
Intel (INTC) raised it's sales guidance for the quarter slightly and says that business appears to have returned to seasonal patterns. That's not the acceleration that my tech stock "safe" signal is looking for, but it should make the market happy, for now. Stabilization and improving visibility are what the market needs right now. But in three months, we'll be looking for more emphatic signs of growth.
AMD (AMD) also raised sales guidance for the quarter.
Sun Microsystems (SUNW) said that orders are hitting internal targets and that business has become more predictable.
AMG Data Services reported Thursday evening that for the week ended Wednesday, December 5, $2.1 billion flowed INTO equity funds, but most of that went to international and small-cap funds. $1.0 billion flowed INTO taxable bond funds. $602 million flowed INTO municipal bond funds. $6.7 billion flowed INTO money market funds. Lots of money is sloshing around. Tech stocks should have no trouble attracting a lot of it as soon as growth resumes.
Fed Funds Futures suggest a 88% (up from 84%) chance of a quarter-point cut in interest rates at next Tuesday's FOMC meeting. This means the cut is still very likely. There's no longer any chance of a second quarter-point cut at the January meeting.
Today is a Friday, so short-term traders will tend to close out positions to avoid risks due to events that could happen over the weekend. Given the strong rally, this would suggest momentum traders lightening up on long positions. On the other hand, Thursday's market weakness may have been due to short-sellers (expecting the rally to fall apart) who now must buy back shares to close out their positions.
Although Thursday's performance was somewhat disappointing, it did show that the market could hang in there without falling apart. That's a bullish sign and could encourage traders to push the market higher (until it does get to the point where a little weakness leads to a significant pullback).
Although Intel did raise its guidance, the market may have already factored that (and possibly more) into stock prices already. So, despite the good news, the market could respond negatively. On the other hand, the market could rally again on relief that Intel didn't disappoint us. I'd bet on the latter.
The bottom line: The Fall rally (52 days old) is still intact. 8 more days of Nasdaq above its 50-day moving average and I'll "officially" label it a genuine bull market. I'd also like to see Nasdaq above 2050 for at least a week (4 more days) before blessing the new bull. 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 06, 2001 11:34:24 PM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology