This site works under the Honor System. Click here for payment instructions. Payment is much appreciated! |
No one can take the ultimate burden of decision-making off your shoulders, but the more you know, the lighter that burden will be.
[ Market Activity | Economic Reports | Anxiety (VIX) | After Hours | Fed Futures | Dollar | Oil | Gold | Geopolitical Situation | Terrorism | Iraq | Technology | Microsoft Antitrust | Books | Reform | Telecom | Miscellaneous | My Investments | Outlook for Today | Bottom Line | Economic Outlook | Tech Stock 'Safe' Signal | Resources | Disclaimer | Archive | Charts | Adages | Search | Payment | Contact Us ]
Under the current “rules of the market”, Thursday’s rally was of course nothing other than short-covering. I’m sure there was a lot of short covering, but there was probably also a little ‘real’ buying that kept the rally going through the day. There are a fair number of people willing to believe that the market is in a bottoming process.
The market was technically due for a bounce, so good results from Yahoo (YHOO) may have been all the incentive that was needed.
A minor capitulation in the Market Volatility Index (VIX) may have been the true rally trigger as VIX briefly spiked up into the moderate panic zone just minutes before the rally took off.
The rapid progress on the congressional Iraq resolution was probably heartening to market participants. Some see a hard line against Iraq as the best chance to get Iraq to disarm.
And finally, the market may have been relieved that the West Coast longshoremen are now back to work.
Volume was moderate (1.84 billion shares), which is heavy compared to most sessions over the past two months. Breadth was fairly decent, with 1.62 gainers for each loser.
Not to rain on our parade, but according to Thomson I-Watch, institutional investors were net sellers of Cisco (CSCO), Sun (SUNW), Nortel (NT), Intel (INTC), Lucent (LU), Oracle (ORCL), Yahoo (YHOO), Ericsson (ERICY), and Applied Materials (AMAT). There was a fair amount of interest in buying as well, but the institutional emphasis was on selling into the rally.
The Unemployment Insurance Weekly Claims report registered a sharp decline in initial claims and a moderate decline in continuing claims. This was a positive report. Unfortunately, unadjusted, actual initial claims rose by a little more than the seasonally adjusted claims fell, but that’s okay since the unadjusted claims are still well below 400,000 and the unadjusted continuing claims did fall by slightly more than the seasonally adjusted continuing claims. It’s risky to read too much into one data point, but this was a good report.
The Import and Export Prices report for September registered a moderate gain in import prices and a modest gain in export prices. This was a slightly negative report. Rising oil prices contributed to the gain in import prices. Next month’s report will be interesting with the impact of the West Coast port problems.
The Wholesale Trade report for August registered a modest gain in inventories, a moderately sharp gain in wholesale sales, and a slight decline in the inventory-to-sales ratio (to a record low). This was a positive report. It is healthy that inventories are growing a bit, as long as sales are growing faster.
The monthly Bank of Tokyo-Mitsubishi (BTM) Chain Store Index registered only a modest gain compared to a year ago, and that’s even when compared to the weak 9-11 performance. This was a negative report, but chain store sales have actually improved in the latest week. Warm weather was partly to blame.
The Manufacturers Alliance MAPI Survey for Q3 registered a modest decline, but is still indicating growth for the manufacturing sector. This was a fairly positive report. Shipments and new orders are still growing. The backlog of unfilled orders is just barely growing. This report seems to conflict with the ISM reports, but this is a quarterly report, and each survey has its own methodology and sample of companies which hopefully mimic the total population of companies, but not with any great precision.
After the close: AMG Data Services reports that for the week ended Wednesday, October 9, $5.0 billion flowed out of equity funds. This was a negative report, but mostly just confirms the market decline over the past week. Real estate funds reported their third consecutive week of outflows. $2.3 billion flowed into taxable bond funds. $380 million flowed into municipal bond funds. $16.9 billion flowed into money market funds.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 6.45% on Thursday to 46.29, which is in the lower half of the near-panic zone (45 to 50). We finally had at least a minor capitulation. The market started out with a modestly positive tone, moved up sharply, but then down sharply into negative territory. That dive and the volatility scared some people more than usual, causing VIX to spike up to 50.48 around 10:00 a.m. But the selling quickly petered out, causing a rally to begin. VIX fell off sharply to 47.5 by 11:00 a.m., but stabilized until 3:00 p.m. when it quickly fell-off to its closing level as it became clear that the rally was not going to sell off.
VIX is still quite high, so people will be very leery of buying into the rally. Still, such a high level of VIX is a contrarian bullish signal, but don’t be surprised if the market remains extremely volatile for a while longer.
The Nasdaq-100 After Hours Indicator had a negative tone for the Thursday evening session, closing down 1.19 points. This is the usual modest profit-taking after a strong rally.
Fed funds futures suggest a 63% (down from 68%) 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 fell moderately, and is now moderately 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 slightly.
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.
There was a suicide attack in Tel Aviv, but intervention by an alert bus driver threw off the bomber’s plans, so only one person was killed.
Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
The eerie calm continues.
There is increased “chatter” about potential attacks, but they seem focused on “U.S. interests”, mostly abroad rather than domestic attacks. Not that attacks abroad are any more acceptable than domestic attacks, but there is a big difference nonetheless.
Investigators are gaining confidence that the explosion on the French tanker off Yemen was most likely a Cole-like attack. Although it’s far from clear that al Qaeda is behind the alleged attack, as opposed to some local, free-lance fanatics. Of course, just about every Islamic fanatic group is considered ‘linked’ to al Qaeda.
Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
Instead of “war with Iraq”, we are going to have “war with Iraq (if it becomes necessary)”. Yesterday President Bush thanked the House for “the very strong bipartisan vote authorizing the use of force in Iraq if it becomes necessary.” In investment banking terminology, this would be known as a “shelf filing”. In any case, this is definitely forward progress.
The Senate is debating their (hopefully identical) version of the resolution as I write this, and hopefully will have voted for it by the time you read this. I’m not sure how long it takes to get the paperwork completed and delivered to the White House so that the diplomatic team can then go to the UN Security Council members and start hammering out their version.
My assessment remains that there is virtually no chance of an all-out military conflict with Iraq 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.
ICG Communications is the latest telecom to get court approval for bankruptcy reorganization. New investors pumped in only $25 million, but the company already had $94 million in cash. Most of their former debt is now wiped out, so the company can actually operate profitably.
Click here for our more extensive commentary on The Telecom Problem.
I attended a foreign policy briefing session at the American Enterprise Institute on the topic of Challenges in South Asia. The briefing was by the Assistant Secretary at the State Department who is responsible for the region which includes India, Pakistan, Sri Lanka, Afghanistan, Nepal, and a couple other countries, but not Iran or Iraq. The briefing was short, basically summarizing the issues that the administration is worried about in the region. The question and answer session was more interesting, but was off the record. The good news is that the administration is following the situation in these countries very closely.
No activity.
We’ll have to see whether the rally has any staying power, or whether we’ll see profit-taking and a return of the shorts.
It is Friday, so traders will tend to close out positions in advance of the weekend when anything can happen.
My forecast for today is that Nasdaq will close in the range -30 to +60. Nasdaq came in at +49 on Thursday, well above 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 10/11/02] Since the market rallied, I’ll give the market yet another two days before concluding whether we’re truly back to a bear market or just at the lower edge of a trading range.
[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 11, 2002 01:03:29 AM -0400
Copyright © 2002 John W. Krupansky d/b/a Base Technology