| Read Jack's "diary" of life in Washington, DC after the terrorist attack. Click here. |
Also read my Monday column in case you took the day off.
Nothing much really happened on Monday other than a bunch of day-traders taking the market up, down, and finally almost back to where it closed on Friday.
Nasdaq trading may have been somewhat confused as a bunch of companies were removed from the Nasdaq-100 index and a bunch of bio-tech companies were added in their place. And this happened just as last weekend's Barron's warned that there may be a bubble in the bio-tech sector. People don't like being confused. Some people may have bought those bio-techs in anticipation of the Nasdaq-100 additions and then sold them on Monday, expecting that some index funds that try to mimic the Nasdaq-100 would be forced to buy them. And then Barron's followers may have shorted them.
Nasdaq has now closed above its 100-day moving average for 29 days straight and above its 200-day moving average for 2 days. 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, sometime soon.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, FELL by 0.34% on Monday to 23.21, which is still in the upper half of the moderate anxiety zone (20 to 25). People are fairly comfortable with the risk in the market.
The Nasdaq-100 After Hours Indicator started the Monday "evening" session (1:15 to 3:30 p.m.) with a very slight positive bias and then rose strongly by 1:45 p.m. and held that gain, closing up 5.83 points. I don't know what news could have caused that jump or whether it was just the lack of bad news, but it does show some optimism.
Fed Funds Futures suggest a 26% (unchanged) 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. I believe the Fed's rate-cutting campaign is over. And given the tentative state of the economy, it's unlikely that interest rates will start to rise until the Summer or Fall.
I stopped by Macy's department store here in New York City on Monday and there seemed to be quite a crowd and lots of people carrying multiple bags. Yesterday evening there was quite a mob at Radio City and Rockefeller Center, especially around the tree. There were lots of tourists (people with maps and guidebooks who weren't speaking English). If I wasn't paying attention to the media, I'd assume the economy was doing great. Maybe all the people I saw haven't been listening to the media or for some reason distrust the competence of the media in economic matters.
There's nothing dramatically new and negative concerning the "war", Argentina, Japan, Palestine, anthrax, the shoe bomb, tech warnings, etc. to cause the market any significant additional anxiety. If anything, the relative quiet on all these fronts could help soothe the market even further.
I made my latest dollar-cost averaging (DCA) purchase of S&P 500 Tech Sector "Spider" (XLK) LEAP call options on Monday. I used a higher strike price so that I could buy twice as many contracts. It's precisely that kind of leverage that makes options a (potentially) more profitable investment than buying actual stock, assuming the market goes up over the coming year.
People can continue to hesitate about jumping into the market and staying there, but how long can they afford to sit on the sidelines with lousy money market rates and bond fund yields at risk of going negative? For a while, I suppose, but as the market creeps higher (or at least holds on to most of the Fall gains), the market will begin attracting more of that semi-cautious money. Junk bond funds will also have some short-term potential as the economy improves, but only the stock market will offer big longer-term gains.
Nasdaq continues to build a strong base due to its trading-range action. This is good and will make many more people less anxious about getting into and staying in the market. Nasdaq is just about at the same level it was 20 days ago. That may sound like lousy performance, but it does indicate that the market has some real strength under it.
It's risky to try to predict the near-term performance of Nasdaq, but the underlying trend is definitely upwards even if there are occasional periods of weakness. As the days and weeks tick by, the probability of good news inches upwards and the risk of bad news inches downwards. The same is true for both news about the economy and news about business in the tech sector.
The bottom line: The new bull market (3 months and 1 week old) continues. I don't expect much of an additional dip 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 25, 2001 11:31:30 PM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology