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I forgot that Monday was a half-holiday due to Columbus Day with the stock market open but the bond market closed, resulting in a very slow day.
Traders managed to push Nasdaq down in the pre-market and open, but it just wouldn’t stay down. Sure, the gain for the day was small, but it looked more like people trying to force the market down, while some ‘real’ buyers were helping to push it back up.
According to Thomson I-Watch, institutional investors were net buyers of Sun (SUNW), Cisco (CSCO), Lucent (LU), Nortel (NT), Oracle (ORCL), EMC (EMC), JDS Uniphase (JDSU), Microsoft (MSFT), and Intel (INTC).
Volume was very light (1.03 billion shares). Breadth was slightly positive, with 1.12 gainers for each loser.
There were no economic reports due to the government holiday.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 1.91% on Monday to 42.61, which is slightly above the midpoint of the extremely high anxiety zone (40 to 45). People were slightly relieved that the recent rally gains didn’t evaporate, but anxiety is still rather intense as people have little optimism that the rally will ultimately continue.
As usual, a high level of anxiety (VIX) is a bullish contrarian signal. A bull market loves to climb a wall of worry.
The Nasdaq-100 After Hours Indicator had a slightly positive tone for the Monday evening session, closing up 0.35 points, basically flat. It’s almost surprising that people are as optimistic as they are given the recent rally and potential for serious profit-taking.
Fed funds futures suggest a 45% (unchanged) chance of a quarter-point rate cut in November. In other words, futures indicate that the Fed will not 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 was unchanged against the yen and 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 moderately, and is now slightly above the psychological $30 level. The most plausible rationale for the rise was heightened concerns over terrorist attacks and worry that the incident with the French tanker might be repeated. This anxiety causes the oil shorts to buy to cover their short positions.
One alleged rationale for the rise was concern over a new weather system developing in the Caribbean that allegedly could disrupt oil production and refining. But, the expected track of Tropical Depression Fourteen is well away from the oil-related areas and is headed over Cuba, the Bahamas, southern Florida, and then out to sea instead.
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 moderately.
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 may continue to be attacks or alleged attacks abroad, but the U.S. “homeland” may be relatively immune, at least for now.
A written statement praising recent attacks is purported to be from bin Laden, but there has been no authentication.
Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
The U.S. will continue to build up military forces in the Gulf region, but that does not in any way suggest that an all-out military conflict with Iraq is imminent. It’s all part of putting enough pressure on Iraq so that they give up their weapons of mass destruction.
The U.S. may delay the UN resolution as well as the start of inspections until U.S. forces in the Gulf region are credible enough for Iraq to clearly see that the U.S. is ready to enforce an “or else” provision of the ultimate UN resolution.
[UPDATED 10/11/02] 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.
Utility TXU (TXU) is cutting its dividend by 80%, further illustrating the folly of using dividends as an indicator of the health and prospects of a company. Chasing yield is a bad idea.
I made my weekly dollar-cost-averaging purchase of January 2004 S&P 500 Tech Sector ‘Spider’ (XLK) LEAP call options with a strike price of $14.
The primary focus of the market will be anticipation of quarterly reports. There is still the possibility that the market has been rallying in anticipation of the reports, but may fall on the actual reports, even if they’re fairly decent. Still, the market could continue to rally if we start to see at least some sense of hope in the reports.
The simplified schedule is: Intel (INTC), Motorola (MOT), and Novellus (NVLS) on Tuesday, IBM (IBM) and Siebel Systems (SEBL) on Wednesday, and Broadcom (BRCM), Lam Research (LRCX), Microsoft (MSFT), and Sun (SUNW) on Thursday.
Reports due on Tuesday: Applied Micro Circuits (AMCC), Intel (INTC), Internet Security (ISSX), Linear Technology (LLTC), Motorola (MOT), Novellus (NVLS), RF Micro Device (RFMD), and Teradyne (TER).
Reports due on Wednesday: ATMI (ATMI), Ultratech Stepper (UTEK), Harris (HRS), Advance Micro Devices (AMD), Akamai (AKAM), Apple (AAPL), CDW Computer (CDWC), Celestica (CLS), Electronics for Imaging (EFII), Extreme Networks (EXTR), IBM (IBM), Interwoven (IWOV), Macromedia (MACR), Polycom (PLCM), QLogic (QLGC), RSA Security (RSAS), SanDisk (SNDK), Siebel Systems (SEBL), Symantec (SYMC), Vignette (VIGN).
Reports due on Thursday: Cypress Semiconductor (CY), EMC (EMC), Nokia (NOK), SprintPCS (PCS), StorageNetworks (STOR), Advance Fibre Communications (AFCI), Atmel (ATML), Avid Technology (AVID), Broadcom (BRCM), Checkpoint Software (CHKP), CNET (CNET), Compuware (CPWR), Cree (CREE), DigitalThink (DTHK), E.piphany (EPNY), eBay (EBAY), Fairchild Semiconductor (FCS), Gateway (GTW), Handspring (HAND), i2 Technologies (ITWO), Integrated Device (IDTI), Iomega (IOM), Ixia (XXIA), Kana Software (KANA), Lam Research (LRCX), McDATA (MCDT), Mercury Interactive (MERQ), Microsoft (MSFT), National Instruments (NATI), Nortel (NT), PeopleSoft (PSFT), PMC-Sierra (PMCS), Rational Software (RATL), Scientific-Atlanta (SFA), Secure Computing (SCUR), Sprint (FON), Sun (SUNW), Sybase (SY), Western Digital (WDC), Xilinx (XLNX).
Reports due on Friday: Tellabs (TLAB).
My forecast for today is that Nasdaq will close in the range -30 to +60. Nasdaq came in at +10 on Monday, moderately below the midpoint of my range of -30 to +60. 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 10/15/02] Thanks to Nasdaq being able to maintain all its recent gains, I’ll give the market three more 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, 9/23) 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 15, 2002 12:20:03 AM -0400
Copyright © 2002 John W. Krupansky d/b/a Base Technology