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Monday was one of those ‘transition’ days where the market is not sure what the near-term trend is supposed to be. Trading was very choppy and a gain was not assured until the final half-hour of trading. In any case, we did get our bounce after the big sell-off on Friday, but it’s still too early to tell if this is the start of a move higher or simply a dead-cat bounce before a move lower.
Despite the modest gain for the day (13 points), Nasdaq actually closed 20 points higher than the intra-day low, strongly suggesting that quite a number of people felt strongly that the sell-off was exhausted at that low.
Volume was very light (1.53 billion shares). Breadth was slightly positive, with 1.04 gainers for each loser. The light volume suggests that most people decided to simply sit out the market until a clearer trend develops, or at least until volume picks up.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW), Nortel (NT), Cisco (CSCO), Microsoft (MSFT), AMD (AMD), and Oracle (ORCL), but net buyers of Intel (INTC), JDS Uniphase (JDSU), and EMC (EMC). It was another mixed day, with institutions mostly selling into the occasional rally, but doing enough dip-buying to strongly suggest that the market is not about to dramatically fall off a cliff any time soon.
The Conference Board Leading Index for September registered a modest decline after four consecutive month of gains. This was a modestly negative report. The report notes that “While it is not likely that September’s small decline indicates that the recent upward trend in the leading index has ended, a continuation of stronger economic growth would be called into doubt if the leading index does not turn up again.” The Leading Index is calculated using ten indicators, only four of which increased in September. The decline was blamed on “a large negative contribution from the money supply.” The indicators making a positive contribution – in decreasing order – were average weekly manufacturing hours, stock prices, manufacturers’ new orders for consumer goods and materials, and manufacturers’ new orders for nondefense capital goods. The six indicators dragging the leading index down – in decreasing order – were real money supply, interest rate spread, vendor performance, index of consumer expectations, building permits, and average weekly initial claims for unemployment insurance (inverted).
The Wal-Mart (WMT) Weekly Retail Sales Update indicated that sales are on track to meet its October forecast of 3-5% growth. This was a positive report. The company indicated that demand for Halloween merchandise had met its expectations. The best-selling categories included food, electronics, toys, paint and accessories, and pharmaceuticals.
After the close: The SEMI Chip Equipment Sales report for September registered a modest rise in billings (shipments), a moderate rise in bookings (orders), and a modest rise in the book-to-bill ratio (to 0.95 from 0.92 – and that was revised up from 0.91). This was a modestly positive report. Note that this data is based on three-month moving averages. Shipments are modestly below the level in May. Orders are their highest since March. The book-to-bill ratio is its highest since February, but still below 1.0, indicating that orders are less than shipments ($95 of new orders for each $100 of product shipped). The report noted that “September continues the conservative spending trends we've seen in 2003, especially in the front end equipment sector. Positive economic signs and rising fab capacity utilization levels, coupled with current cautious investments, points towards higher spending growth in 2004.” Please note that this report covers companies that produce chip equipment (such as Applied Materials (AMAT)), not companies that produce the chips themselves (such as Intel (INTC)). Also, the report covers only North American-based manufacturers.
NOTICE: I am still using the “old” VIX even though CBOE began offering the “new” VIX on September 22nd. The old VIX is based on options for the S&P 100 index whereas the new VIX is based on options for the more popular S&P 500 index. I’m still investigating how to switch over to the new VIX and how that relates to historical data.
The old CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 7.40% on Monday to 18.16, which is well below the top end of the low anxiety (moderate complacency) zone (15 to 20). People were quite relieved that the market hung in there and was able to bounce after the decline on Friday. The bears will continue to beat their drums about the market being filled with the kind of excessive complacency that frequently presages a dramatic market decline. I wouldn’t bet the farm on that outcome, but it is a yellow flag.
The new VIX fell by 3.29% on Monday to 17.04.
The Nasdaq-100 After Hours Indicator had a positive tone for the Monday evening session, closing up 7.53 points. Texas Instruments (TXN) had a very decent quarterly report.
Traders and speculators interpreted comments by Treasury Secretary Snow as implying that interest rates would be rising sooner than the market had been anticipating.
[10/21/03] The fed funds futures market suggests that the Fed will leave rates unchanged for the rest of the year, but possibly raise rates by a quarter-point in March. Fed funds futures are at best accurate no more than six weeks out, so those longer-term moves are purely speculative, at best.
The dollar rose moderately sharply against the yen but fell modestly against the euro. The dollar is quite sound and no true investor should lose any sleep worrying about whether the dollar is ‘weak’ or ‘strong’ on any given day, week, month, quarter, or year.
The price of oil fell sharply, and is now only modestly above the $30 “comfort” level. In any case, the price of oil continues to be relatively well-behaved and no true investor should lose any sleep worrying about it.
The price of gold rose moderately sharply. In any case, there is nothing about the current price of gold that should give any true investor any reason to lose any sleep.
[7/29/03] The relative calm continues. Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
[7/29/03] 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. Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents or rumors of incidents.
[7/29/03] As messy as the mopping-up phase of the war continues to be, great progress is indeed being made and there is little need for true investors to fret over the negative news that so captivates the media. Over time, the economic impact of the war will be a large net positive, even if there is some short-term negative impact.
I attended a presentation at the Heritage Foundation here in Washington, D.C. on the topic of “The Perils of the Precautionary Principle” which is a European approach to policy and innovation which requires a much higher burden of proof of safety before anything new can be approved. The classic example is genetically modified foods where critics claim that we don’t know enough to be assured of safety. The presenter also gave some examples where the Europeans continue practices even after they are clearly proven to be harmful (smoking, leaded gasoline, kids riding in the front seat of a car without restraints, etc.). The real bottom line is frequently not safety but simple using safety concerns as an excuse to protect internal commercial interests.
I also attended a panel discussion at the American Enterprise Institute on the topic of improving relations between the U.S. and India, with an emphasis on economic relations. India still has plenty of regulatory problems, but has made significant progress in recent years. A lot of people are targeting India (as well as Brazil, Russia, and China, the other members of the so-called BRIC sector) for dramatic growth in consumer demand in the coming decades. Nonetheless, significant impediments still need to be removed before economic relations can be considered ‘normal’.
I also attended a book forum at the American Enterprise Institute on the topic of the so-called racial gap in academic achievement. The authors of the book No Excuses: Closing the Racial Gap in Learning discussed many of the issues as well as the problems with most of the proposed solutions. There isn’t any magic solution, but the authors did have their own ideas about what approaches will have a better chance of success.
[6/25/03] I have suspended my dollar-cost averaging investment plan since my exposure to the market is now about where I want it to be.
It will be interesting to see whether the solid report from Texas Instruments (TXN) will be enough to get a decent rally going.
It will also be interesting to see whether the market continues to recover after the decline on Friday or whether the decline continues.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +13 on Monday, moderately above the midpoint of my range of -40 to +50.
The confirmed bull market for Nasdaq that began on October 9, 2002 (and was confirmed on June 16, 2003) has run for 259 days (1 year and 8 days). The market now has a longer-term upwards bias despite near-term volatility. The path of the market through the early fall is completely uncertain, but Nasdaq will likely be higher at the end of October than where it was at the beginning of August. The important thing is that we continue to see inflows into equity mutual funds while the economy, revenues, and earnings continue to incrementally improve.
Nasdaq is 3 days off its 52-week intra-day high of 1,966.87 on October 15. The previous intra-day highs were 1,943.33 on October 14, and 1,940.97 on October 13. Traders are acting as if that were a near-term ‘top’ for the market. It could take another four days to prove or disprove that thesis.
The confirmed up-leg for Nasdaq that began with the intraday low of 1,253.22 on March 12 (and was confirmed Monday, March 17) has run for 151 days. Nasdaq is 2 days off its closing peak of 1,950.14 on October 16 (previous peaks were 1,943.19 on October 14, 1,933.53 on October 13, 1,915.31 on October 10, 1,911.90 on October 9, 1,909.55 on September 18, 1,888.62 on September 8, 1,868.98 on September 4, 1,852.90 on September 3, 1,841.48 on September 2, 1,810.58 on August 29, 1,800.18 on August 28, 1,782.13 on August 27, 1,777.55 on August 21, 1,761.11 on August 19, and 1,754.82 on July 14) for the up-leg and for the overall post-October bull market. That closing peak is also the current 52-week closing high.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, August 8 with an intra-day low of 1,640.88 is now 50 days old and 2 days off its closing peak. This is a minor leg nested within the larger leg that started on March 12 which is itself nested in the larger advance that started on October 9, 2002.
Friday, October 17 was Day 1 of a potential up-leg, with Nasdaq closing slightly above the intra-day low of 1,910.24. Monday was Day 2, but the Nasdaq decline set a new intra-day low for this leg, so the potential up-leg is clearly invalidated and we revert to looking for a new up-leg. On days 4 through 10 we look for a confirmation of the new up-leg with a 1% gain on higher volume than the previous day.
Monday, October 20 was Day 1 of a potential up-leg, with Nasdaq closing well above the intra-day low of 1,905.39. Today will be Day 2, but it doesn’t matter what happens on days 2 and 3 as long as a new intra-day low is not set. On days 4 through 10 we look for a confirmation of the new up-leg with a 1% gain on higher volume than the previous day.
I would estimate that there were 50 to 125 points of ‘trading froth’ in Nasdaq at its intra-day peak of 1,966.87 on October 15, so I would estimate that as of Monday’s close there are up to 85 points of ‘trading froth’ left that short-term speculators could burn through without suggesting that a ‘significant’ correction was in progress. But it’s possible to lose more than that if a larger than typical crowd of short sellers crawl out of the woodwork.
[8/19/03] The latest economic data continues to support the thesis that the U.S. economy is solidly into a gradual, zigzag, underappreciated, stealth recovery. What’s different lately is that there is now a slowly rising chorus of people basically saying “You know, this economy does seem to be improving and faster than we thought.” The recovery hasn’t been and won’t be as sharp as for a ‘traditional’ recovery, but will end up being far more durable and sustainable. The two key factors driving (or slowing for now) the pace of the recovery are the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses.
[9/1/03] Our Tech Stock ‘Safe’ Signal is still stuck at 0.00 (no safety) since none of the big tech companies are even hinting that they are seeing any significant improvement in demand. There does seem to be some sense of stabilization and a modest hint of improvement, but no clear and decisive indication of a dependable ramp up in revenues and earnings.
[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 20, 2003 11:02:09 PM -0400
Copyright © 2003 John W. Krupansky d/b/a Base Technology