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That wasn’t a very solid rally on Tuesday, but at least there wasn’t much selling going on.
Volume was light (1.61 billion shares). Breadth was slightly negative, with 1.09 losers for each gainer.
The Richmond Fed Manufacturing Survey for September registered a sharp decline, and has been negative for two consecutive months. This was a negative report. Declines occurred in shipments, new orders, and the backlog of unfilled orders. The good news was that the six-month outlook improved. There is no clear trend here. Next month could be worse or better.
The weekly Bank of Tokyo-Mitsubishi-UBS Warburg (BTM) Retail Chain Store Sales Index registered a moderately sharp gain over the prior week. This was a positive report, but there is a lot of volatility. The gain was said to be due to the weather.
The Reuters Instinet Redbook Retail Sales Average for September registered a moderately sharp decline compared to the prior month. This was a negative report, but the weekly BTM report already shows an up-tick and Redbook noted that the final week of September had shown improvement.
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered a sharp decline from -15 to -20 (out of a range from -100 to +100), its worst reading in eight years. This was a negative report, but consumer confidence reports are not leading indicators anyway. Consumers were feeling gloomier about their own finances as well as the overall economy. Luckily, gloominess causes consumers to go out shopping.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 5.53% on Tuesday to 46.46, which is in the lower half of the near-panic zone (45 to 50). People were quite relived that the sell-off stopped (at least for a day), but they are still mighty worried about what might be next.
The Nasdaq-100 After Hours Indicator had a slightly positive tone for the Tuesday evening session, closing up 0.39 points, basically flat. People would like to be optimistic, but given the fierceness of recent negativity, they are reluctant to stick their necks out too far, yet.
Fed funds futures suggest a 68% (down from 73%) chance of a quarter-point rate cut in November. In other words, futures indicate that the Fed will cut rates at the November 6 FOMC meeting.
December is still too far away for futures to reliably predict the actual fed funds rate (according to studies that the Fed itself has done.)
[UPDATED 9/25/02] I forecast that the Fed will hold interest rates steady through the Fall election (November 5) and likely through the November 6 FOMC meeting as well, unless some dramatic, new, unforeseen crisis erupts.
The dollar rose modestly against the yen and rose moderately against the euro.
[UPDATED 7/23/02] There are still no signs of any economic fundamentals that would make either Europe or Japan dramatically more attractive than the U.S. for long-term investment. Rather, the relative weakening of the dollar has been primarily driven by speculative currency trading and sentiment (such as the accounting scandals) and that sentiment will most likely reverse over the coming months as the forces depressing sentiment dissipate.
In any case, the dollar is still quite sound and no true investor should lose any sleep worrying about potential negative implications from a weaker dollar. And, a weaker dollar will boost U.S. exports.
The price of oil rose very slightly, and is still slightly below the psychological $30 level.
In any case, the price of oil price continues to be well-behaved and no true investor should lose any sleep worrying about it.
The price of gold rose modestly.
In any case, there is nothing about the current price of gold that should give any true investor any reason to lose any sleep.
The relative calm continues.
Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
The eerie calm continues.
There is still no clarity on whether the fire on the French tanker off Yemen was a terrorist attack.
The killing of a U.S. Marine in Kuwait may have been a terrorist attack. Certainly it was no accident, but it could have merely been a local incident unrelated to “global terror”.
Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
The debates in Congress are well underway. There is hope that the House will vote by Thursday. There was also hope that the Senate would also vote by Thursday, but they (i.e., Senator Byrd) may get hung up with procedural delays and not vote until next week, maybe.
The UN Security Council resolution seems stalled (actually, circling) until Congress gets its act together.
My assessment remains that there is virtually no chance of an all-out military conflict with Iraq this year, and only a 20% chance next year.
[UPDATED 9/16/02] The bottom line is that investor concern over the sluggish economic recovery and weakness in corporate revenue and earnings growth still weigh more heavily on the market than all the other non-economic factors. Traders merely use Iraq, et al as excuses for any market weakness.
Click here for our more extensive commentary on The Iraq Problem.
Click here for our more extensive commentary on Technology.
No activity.
[UPDATED 8/5/02] Check out our book list.
Absolutely nothing more is needed at this point other than to simply let the current market-driven corrective processes play themselves out.
Click here for our more extensive commentary on financial reform.
Click here for our more extensive commentary on The Telecom Problem.
I attended the latest (eighth) joint hearing of the House and Senate Intelligence Committees on 9-11 yesterday. The focus was “lessons learned” by looking at past terrorist attacks and counter-terrorist efforts. Witnesses included the previous FBI director, the U.S. Attorney from New York who prosecuted a number of high-profile terrorists over the past decade, former Senator Warren Rudman who headed a blue-ribbon commission (Hart-Rudman) which focused on terrorism (before 9-11), and a couple of intelligence experts. As reported in the media, parts of the hearing degenerated into members criticizing the FBI, and the former FBI director basically saying the equivalent of “Gee, but things weren’t THAT bad.” Overall, the tone was fairly tame with only an occasional moment of moderate tension. The real bottom line was the suggestion that even with all the suggested improvements, 9-11 would probably still have happened. A key highlight was the reading of excepts from a new letter from the Director of Central Intelligence (of which the CIA is the main part) in which he suggested that Iraq would continue to refrain from any terrorist attacks against the U.S. unless or until the U.S. was on the verge of attacking Iraq. That conclusion has to give the administration pause, and may account for the moderation of tone in President Bush’s speech on Monday.
No activity.
All the usual anxieties will weigh on the market, but we’re due for a strong bounce since the market is still so strongly technically oversold.
My forecast for today is that Nasdaq will close in the range -30 to +80. Nasdaq came in at +10 on Tuesday, well below the midpoint of my range of -20 to +80. The market continues to be so crazy that it could go either way, but I still believe there is a longer-term upwards bias even if the near-term bias is all over the map.
[UPDATED 10/1/02] The market performance in recent days suggests that maybe we aren’t back in a bear market (yet) and we could still be in a trading-range market. But if we can’t make much progress over the next several days, then we could easily fall back into bear market mode.
[UPDATED 9/25/02] Technically, we are back in a bear market (as of Monday) since we have broken below the July 24 low. But whether we continue downwards depends on whether the recent declines were driven by ‘real’ selling or simply due to short-selling. Short-sellers do eventually have to buy their borrowed shares back. The lofty level of the market Volatility Index (VIX) suggests that professional investors are bracing for the worst. That sounds bad, but frequently, those precautions are a harbinger of a turn in the market. The only question is whether the turn occurs within the next few days, a few weeks or a few months.
[UPDATED 8/22/02] The incredible level of disbelief in the current rally strongly suggests that a contrarian bullish view may be appropriate. It’s the exact flip-side of where we were in April and May of 2000 when people refused to belief that the bull market was over and that a bear market had begun.
[UPDATED 6/24/02] Regardless of how crazy the market behaves, the economic recovery is well underway. Market participants may not yet be ready to acknowledge the recovery, but it is inevitable, even if the timing is uncertain. There are more than enough differences in the current market cycle than any in recent memory, but inevitably the market will rise as people anticipate earnings growth down the road. Investing for the long term is still an excellent strategy even if it feels painful in the near term.
[UPDATED 6/24/02] The market will rally when the selling peters out. The market religiously obeys the law of supply and demand, but many buyers have a habit of waiting until the sellers exhaust themselves.
[UPDATED 9/14/02] I’ve decreased my estimate of the probability of a double-dip recession to 20% (from 25%) due to higher retail sales in August. I still think a double-dip is unlikely, but I do want to quantify my beliefs as well as risks.
[UPDATED 6/24/02] There is absolutely no question that the economic recovery in the U.S. is going at a somewhat slower pace than had been expected by this point in time, but the recovery is well along nonetheless. We are still winding our way through an extended turning point, but virtually every day brings news that we are making incremental progress, even as there are still plenty of negative data points as well. Impatient observers fail to recognize that turning points are bumpy affairs and that negative data points do not necessarily mean that something has gone wrong.
[UPDATED 6/24/02] Spending on technology has picked up only modestly, at best. And the telecom sector continues to decline. That said, the recovery is in fact well along, with the manufacturing sector leading the way. Manufacturers have plenty of excess capacity so that they can increase production without spending too much and without needing to hire many workers, yet.
[UPDATED 6/24/02] Even as unemployment continues to rise modestly, actual employment has already begun to rise, although at a very modest pace. The average paycheck has also been rising, and at a rate faster than inflation. That combination of more people working with larger paychecks means that overall national income is rising, which is a very good thing and will continue to fuel consumer spending.
[UPDATED 6/24/02] Companies are reluctant to dramatically increase their spending on technology until they become more comfortable that ‘final demand’ is increasing at a dependable pace. Demand is increasing, but at a slow enough pace that companies are proceeding with great caution. But as each day goes by, an additional increment of that caution evaporates. It may be as painful as watching grass grow or watching paint dry, but investors can be sure that their patience will be rewarded. Sure, it will take some time to get back to ‘normal’, but that result is inevitable even if the timing is uncertain.
[UPDATED 9/10/02] I still don’t have a forecast for Q3 GDP. The accounting is so inscrutable as to defy any rational forecast. At this point it does feel like Q3 is moderately worse than Q2, but the crazy accounting could take it either way. A Reuters poll of economists places Q3 GDP growth around 3%.
[UPDATED 6/24/02] Although the end of the recession has not been officially ‘called’ yet (by the National Bureau of Economic Research), March is the most likely candidate for the ending month of the recession since that was the last month that showed declining employment. Industrial production’s last decline was in December.
[UPDATED 8/14/02] We are still in the turning point where the view in front of your nose is mixed and confusing. Recent economic reports have been weak or mixed, so we probably need another month of data to be able to see where we are going. For me personally, it’s a no-brainer that we very close to the final edge of the turning point, but so many people have lost confidence that they need a truly monumental level of evidence to believe again. But that’s always the way it is with turning points: it’s darkest before the dawn.
[UPDATED 8/24/02] I’ve reset the Tech Stock ‘Safe’ Signal back to 0.00 since it has the last change is over six weeks old. There needs to be a sense of ‘freshness’ to the outlook for tech business that simply isn’t there right now.
[UPDATED 8/24/02] Our ‘safe’ signal requires at least 20% (1 out of 5, or 10 out of 50) of the top 50 tech companies to signal acceleration. Expect one or 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 four to six months in advance of the return of strong growth. Many companies are still trimming Q3 forecasts, and virtually nobody is beating the drum for a great Q4. A lot of people are saying that even Q1 of 2003 will be sluggish. That said, if you want to get the early stock market gains, you'll have to jump the gun and get in before our signal triggers. But if you do, you have to be prepared for some significant volatility and possibly some big losses. You have to decide for yourself whether you want safety in the short run or higher potential returns in the long run.
[UPDATED 9/14/02] For our complete list of resources, click here.
[NEW 5/25/02] DISCLAIMER: I cannot and do not offer any recommendations of stocks to buy or sell. I may on occasion discuss companies that I am considering or myself have bought or sold, but the reader must do their own research before making their own purchase or sale decision. It is never a good idea to buy a stock just because someone else tells you to or even merely mentions a company in a favorable light.
Jack Krupansky -- The Unrepentant Optimist (Click here for Jack's Bio)
Updated: October 09, 2002 01:15:36 AM -0400
Copyright © 2002 John W. Krupansky d/b/a Base Technology