| Read Jack's "diary" of life in Washington, DC after the terrorist attack. Click here. |
It could have been worse. Nasdaq did fall 1.09%, but that's not much of a dip for all the bad news we had on Tuesday evening. So, I'd say the modest nature of the dip indicates that the market is reasonably comfortable with tech business still being a little soft, for right now.
Nasdaq fell sharply at the opening and then recovered a little. In fact Nasdaq closed only 1.24 points above its opening level. An entire day of useless trading. Not even one minute. Nasdaq had managed to recover into positive territory just before noon, but gave almost all of it back in the afternoon. Either this was day-traders bidding up the stocks and then cashing out, or it was dip-buyers coupled with Wall Street pros selling into that little recovery rally. Either way is useless.
There was a sharp little downward tail at the close which usually suggests that a lot of day-traders were active on the long side and finally had to close out their long positions by selling them.
There was also talk of the traditional sector rotation, which is just another way of saying that the overall market went nowhere. Overall, it's just a volatile, pre-holiday week with nobody really focused on anything.
But it was a good sign that Nasdaq closed well above the early-morning low.
The Conference Board’s U.S. Index of Leading Indicators rose 0.5% in November, which is a very good sign for the economy. This was a positive report. This strongly suggests that an economic recovery is just around the corner.
The weekly Mortgage Bankers Association (MBA) Mortgage Applications Survey showed a significant decline in both refinancing and applications for purchase. This was a slightly negative report, but the absolute levels of mortgage activity are still very high. Nothing to worry about.
The weekly ABC News/Money Magazine Consumer Comfort Index fell unexpectedly from -3 to -6 (out of a range from -100 to +100). The was a negative report, but one week does not establish a trend. The survey showed that people felt the same as last week about the national economy, but worse about their own finances. It may well be that the cumulative effects of unemployment are starting to sink in. This survey is worth watching carefully.
Nasdaq has now closed above its 100-day moving average for 26 days straight, above its 200-day moving averages for 11 days, but we're back below the magic 2000 level. The 50-day moving average continues to rise. The 100-day moving average is almost flat and the 50-day moving average recently crossed above it; this sometimes suggests that a rally could be imminent. The 200-day moving average is also starting to flatten out. This is all setting up for a strong rally.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, FELL by 2.44% on Wednesday to 23.57, which is in the moderate anxiety zone (20 to 25). This was despite the dip in Nasdaq, so maybe the rise is the Dow above 10K was a factor in reducing anxiety. For whatever reason, anxiety declined. This is good. The good Leading Economic Indicators report may have helped. In any case, we're in good shape.
The Nasdaq-100 After Hours Indicator spent the first half of the Wednesday evening session with with a confused tone, but then took on a distinctly, but very mild, positive tone, closing up 0.47 points. The daytime decline got people spooked and they held their breath in fear of new tech warnings. But there were none.
Palm (PALM) beat both earnings and revenue expectations and offered a modestly upbeat outlook.
Fed Funds Futures suggest a 30% (up from 26%) 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 looks likely. The bond market is reasonably convinced that the recovery is a done deal. I expect the stock market will realize the same, real soon.
The perpetual fiscal stimulus negotiations drone on. Yesterday there was news of a possible deal and then a disclaimer of the deal. Something still should happen, but they've got only two days to seal the deal. Part of the negative posturing is likely just a last ditch attempt to force the other side to cave before the inevitable compromise sets in. It's a game of political chicken that neither side can risk losing.
The "war" is suddenly in a very confused state. That could cause a little anxiety for the market. But we should be fine as long as no additional terrorist attacks occur.
There does seem to be a little progress on the Palestinian front. Too soon to be very confident, but at least the situation has not deteriorated further and people are talking.
Nasdaq is in a trading range, but that's okay, for right now. This helps to build a stronger base for subsequent rallying.
The bottom line: The new bull market (62 days old) continues. I don't expect much of a dip (3%, if at all) until after we've rallied well above 2100.
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 19, 2001 11:32:04 PM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology