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Another 10-minute market on Thursday. Nasdaq reached its closing level by 9:40 a.m. It struggled to stay above the 1975 level until 1:00 p.m. when it started to sell off sharply. But by 3:00 p.m. it managed to begin a recovery rally. All that work for a measly 15.72 points. But I'll take the gain. The net result is that the cynics just aren't able to muster a decent sell-off. Either they've sold most of what they have to sell or they're afraid to short the market. Either way is fine.
The Nasdaq rally may have been attributable to a handful of stock analyst comments, but that just shows how slow a week it is. Nothing dramatic happened to drive the market higher. Or, more importantly, no major tech warnings hit the market to drag it down. That's a good sign. It really could be that the worst finally is behind us.
Thursday's market action was not a clean rally. Too many people are trying to sell into the rally even as others are trying to get into the market.
The weekly Mortgage Bankers Association (MBA) Mortgage Applications Survey was mixed with another sharp decline in refinancings, but a nice rise in applications for purchase. This was a mixed report, but the rise in applications for purchase a distinct positive. The decline in refinancing was inevitable.
The Conference Board Help Wanted Index for November declined in November, but just slightly. This was a negative report, but almost hints at a bottoming of help-wanted advertising. Several cities actually reported increases in help-wanted ads.
Nasdaq has now closed above its 100-day moving average for 31 days straight and above its 200-day moving average for 4 days. The 50-day moving average continues to rise, but is flattening a little. 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. Some pros use the 50-day moving average crossing the 200-day moving average as the rally trigger. That may be a week. Incidentally, on only 9 days of the Fall rally has Nasdaq closed above the current level. That's a good sign as we're starting to creep up on the recovery high.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, FELL by 2.83% on Thursday to 22.28, which is down to just below the middle of the moderate anxiety zone (20 to 25). There was a bit of a spike at 3:00 p.m. as Nasdaq broke below the 1965 level, but VIX settled back down as Nasdaq quickly recovered. People are fairly comfortable with the risk in the market. The cynics will suggest that this is excessive complacency, so they will feel compelled to try to sell off the market. I know they'll try. I doubt if they'll succeed.
The Nasdaq-100 After Hours Indicator spent the first half of the Thursday evening session bouncing both positive and negative, but then took on a positive tone, closing up 0.82 points. Given recent weakness, people are a little reluctant to put too much more into the market right now. The good news was that there were no major tech warnings.
AMG Data Services reports that for the 4 trading days ending December 26, $1.8 billion flowed out of equity funds, but most of that was from non-domestic funds. So, we made no forward progress, but we didn't lose any ground either. Very little went into bond funds. Money market funds reported outflows of $13.6 billion.
Fed Funds Futures suggest a 26% (unchanged) chance of a quarter-point cut in interest rates at the January 30 FOMC meeting. The Fed rate-cutting campaign is over. Given the tentative state of the economy, it's unlikely that interest rates will start to rise until the Summer or Fall.
If you are invested in technology mutual funds, make sure to check to see whether they're REALLY investing in tech stocks. So many many funds got burned in 2000 (and 2001) and diversified to get away from tech stocks and recently missed out on the tech stock gains since September 21. If you're hoping to invest in tech stocks for the coming year, check your fund carefully. Or, just put your money in either (or both) the Nasdaq-100 Index Tracking Stock "Qubes" (QQQ) or the S&P 500 Tech Sector "Spider" (XLK). The former is mostly, but not exclusively tech. The latter is pure tech and includes non-Nasdaq stocks like IBM, AOL, and EMC. If you want some diversity, go for the S&P 500 "Spider" (SPY) which has everything in the S&P 500 index. Although QQQ now includes additional biotech stocks since Monday.
The tentative nature of this week's gains leaves the market a bit vulnerable to bad news or to traditional Wall Street games designed to get you to sell at the worst possible times. But the way the market has hung in there for the past two weeks despite some nasty tech warnings is a good sign.
Today's a Friday, so short-term traders will tend to close out positions. I would expect the market to creep up some more, unless there is bad news. But, traders might find some excuse to sell off the market even in the absence of bad news.
The bottom line: The new bull market (3 months, 1 week, and 2 days 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 27, 2001 11:27:32 PM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology