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Another mostly-wasted trading day. Nasdaq closed at the level it reached at 10:00 a.m. The entire rest of the day was up, then down, then back up again. It seemed like mostly day-traders trying to test the psychological 2000 level and sidelined money waiting for the test to finish. Once again, the cynics failed to break the back of the rally. That's twice in two days. This Fall rally just won't give up.
I'm quite happy to see the market creep up one inch at a time. It keeps the cynics at bay. I'm tired of listening to their "too far, too fast" refrain.
The Import and Export Prices report for November showed both import and export prices declining. This was a mixed report. It is disappointing that export prices are down. But the good news is that lower import boost the purchasing power (or profit margins) of businesses and consumers.
The weekly Mortgage Bankers Association (MBA) Mortgage Applications Survey showed a drop in both refinancing and applications for purchase. This was a negative report, but housing demand still remains very strong.
The weekly Oil and Gas Inventories reports were mixed, but there is plenty of crude oil, gasoline, and heating oil sloshing around. Prices should be moderate for some time to come. This will act as a tax cut for both businesses and consumers.
Nasdaq has now closed above its 100-day moving average for 22 days straight, above both its 150-day and 200-day moving averages for 7 days, and above 2000 for 2 days straight. The 50-day moving average continues to turn up. The 100-day moving average is close to flat and the 50-day moving average will cross above it any day now; this will be a bullish signal. Nasdaq is close to its 9-day moving average, so traders should be more willing to let Nasdaq rally. The fact that the 2000 level held up AGAIN is a good sign.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, FELL by 1.44% on Wednesday to 25.32, which is near the bottom of the moderately high anxiety zone (25 to 30). It was good to see this decline in anxiety in the face of just a modest rise in the market. Basically, people are growing more confident as the market holds up well despite all the "too far, too fast" cynicism and attempted (and failed) sell-offs. But VIX had risen significantly, to about the 27.25 level, until 3:00 p.m. when the market recovered. In other words, people are simultaneously worried that the market might sell off and content to hang in their in case it continues to rally.
The Nasdaq-100 After Hours Indicator had a negative bias for the entire Wednesday evening session, closing down 0.96 points. News was mixed, but with a slightly negative tone.
Applied Materials (AMAT) is cutting more jobs. I suspect that Q1 will still be their trough quarter, but that does mean they have to keep costs under control for now. This was negative news, but not beyond the realm of market expectations. The short-term cynics will try to ding the stock, but the six-month optimists will buy any significant dip.
Microchip (MCHP) reaffirmed guidance for this quarter. This is good news, but doesn't clue us in about the Q1 outlook or fully counteract the Applied Materials news.
Macrovision (MVSN) cut revenue guidance slightly for the current quarter and relatively significantly for 2002. This sounds negative, but maybe they're just being conservative in the face of uncertainty. Or maybe they just want to get the worst possible market reaction behind them.
Macromedia (MACR) cut revenue guidance significantly for the current fiscal year. That's certainly bad news, but their business is not so representative of most companies.
Fed Funds Futures suggest a 36% (down from 40%) chance of a quarter-point cut in interest rates at the January 30 FOMC meeting. In other words, another rate cut is unlikely unless the economy does worse than expected. The decline suggests that the bond market is growing more accepting of the short-term (Q1) recovery thesis.
The Senate Judiciary Committee hearing on the Microsoft (MSFT) settlement (not the private settlement) was kind of a joke. It started out fine and the Department of Justice antitrust chief did a fine job of rebutting some of the criticisms of the settlement, but then the hearing was abruptly ended before they finished with even the first witness. Why the abrupt ending? This would be funny if it wasn't so serious. Evidently, Senator Byrd was unhappy with the way the Senate Finance Committee was handling the Fast-Track Trade Promotion Authority (TPA) bill and he invoked an obscure parliamentary maneuver that had the effect of immediately shutting down ALL Senate hearings. The maneuver allows ANY Senator to object to the holding of committee hearings beyond the first two hours of the daily session. The Senate opened at 9:30 a.m., so ALL hearings ended at 11:30 a.m. Unbelievable. And nobody (except Byrd) was happy about this. But the good news was that the final minutes of the hearing were mostly positive comments for Microsoft. The committee can't do much more than raise questions and make suggestions, but the negative tone of the questions is bad PR for Microsoft.
The fiscal stimulus plan is creeping along. Somebody told me it might not get finalized until next Friday, but I suspect they would have verbal agreement in less than a week (if not today or tomorrow). This will happen since nobody can afford to take the blame for preventing it.
The "war" is grinding along. There have been conflicting news reports lately, so it's not clear what's really going on other than the fact that a B1-B bomber had problems and got ditched in the Indian Ocean. But it wasn't a combat casualty. There was also talk of additional phases of terrorist attacks (according to "American Taliban" John Walker), but officials don't give them much credence. The appearance is that al-Qaida terrorist operations and planning have been very seriously disrupted even if they still have some potential.
The escalating conflict in Palestine is somewhat disturbing. Yes, it is escalating and real people are being hurt and killed, but much of the rhetoric is posturing. The Palestinian Authority simply does not have the resources to go to war with Israel. They don't even have the resources to reign in the local terrorist organizations. It is almost as if Arafat is simply waiting for Israel to come in and finish the cleanup job that he can't do himself or that he feels politically unable to complete. Afterwards, he can raise a big, face-saving stink about the Israeli intervention, but at least the immediate terrorism problem will be solved and "peace" talks can resume. One wildcard is whether Iraq might consider making a move to "protect its Arab brothers". But we wouldn't let that happen, and it would be a perfect excuse to proceed with action against Iraq which Iraq does not want. So, Iraq will likely just sit and watch. So, despite the level of violence, I am optimistic that a resolution, of sorts, will occur in the near future.
The market will be anxious all day concerning the quarterly report from Oracle (ORCL) that will come out after the close. Oracle has already warned us that the quarter (September, October, and November) was going to be difficult. But, the stock has rallied anyway in recent weeks, reaching high of almost 16 on Monday before falling off slightly since. Nobody knows if Oracle will surprise us or even drop a bombshell, or whether the news will be positive or negative. But I am heartened by the way the stock dropped off ahead of the report. That means that the stock has a better chance of rallying if we get either expected or positive news and the stock could hold up even under moderately negative news.
Anything is possible over the next two and a half weeks, and the holidays may only encourage thinner, more volatile trading. There is still the possibility of additional tax-loss selling, but there's also the possibility of fund window-dressing as well. The cynics would love to be able to short this "excessive" market, but there are plenty of dip-buyers and lots of sidelined money that would quickly fill any dip. Everything points to a trading range, but really good or really bad news could change everything.
Today we're facing that traditional wall of worry that the bull market loves to climb. Mostly it is the apples versus oranges tug of war. There are the bad apples short term cynics versus the optimists with their six-month sunny orange outlooks. Or, some would say its a grudge match between cynical Cassandra and optimistic Pollyanna.
The bottom line: The Fall rally (56 days old) is still intact. 4 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 (or at least 2020) for at least a week 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 12, 2001 11:53:17 PM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology