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Despite the disappointment of a moderate decline on Thursday, Nasdaq actually did very well for being into a correction mode. In particular, Nasdaq actually closed higher than its open, by 6 points. Buyers are still mostly sitting and waiting for a stronger bounce, but the really good news is that there is no evidence of any significant ‘real’ selling. The current mini-correction is most likely simply traders and short-term speculators taking some profits. I wouldn’t blame the correction on company fundamentals, quarterly reports, or economic reports or even expectations.
Volume was almost heavy (1.91 billion shares). Breadth was moderately negative, with 1.37 losers for each gainer. Normally this would be considered a moderate sell-off (breadth was too modest to be a solid sell-off), but the fact is that this almost heavy volume resulted in a net gain from the opening price level.
According to Thomson Financial I-Watch, institutional investors were net sellers of Nortel (NT) and Oracle (ORCL), but net buyers of Sun (SUNW), EMC (EMC), Intel (INTC), Cisco (CSCO), Microsoft (MSFT), JDS Uniphase (JDSU), and Flextronics (FLEX). Institutions were buying the dip, strongly suggesting that the market is not about to dramatically fall off a cliff any time in the near future.
The Unemployment Insurance Weekly Claims report registered a modest decline in initial claims – under 400K for a third consecutive week – and a moderate decline in continuing claims. This was a positive report. Unadjusted initial claims declined moderately sharply to 324K, moderately below the year-ago level of 350K – and well under 400K. The 4-week moving average of initial claims was unchanged and is modestly below 400,000 for a third consecutive week, and moderately below the level of a year ago. Unadjusted continuing claims declined modestly and are now modestly below the level of a year ago. Adjusted continuing claims are now modestly below the level a year ago. The 4-week moving average of continuing claims declined modestly, and is now modestly below the level of a year ago. Initial claims have not been safely enough below 400K to challenge the implication that payroll employment may not be growing very much at all (even though overall, household employment probably continues to grow). Unemployment won’t fall significantly until the economy begins to consistently grow at a faster pace and the pace of business restructuring slows down and the pace of business formation picks up. The insured unemployment rate (2.8% or 2.3% unadjusted) is slightly better than during the same week in 1992 when the economy was recovering from the last recession (2.9% or 2.3% unadjusted). Initial claims were not consistently below 400K in 1992 until October. Initial claims are only slightly higher than in the same week in 1992 (386K vs. 385K), and only moderately higher than in 1992 once you strip off the dysfunctional seasonal adjustment (324K vs. 310K.) The talk about continuing claims being at or near a 20-year high is a complete red herring (true, but irrelevant) since it is the insured unemployment rate (see three sentences back) that is important and covered employment has risen by over 21% since 1992 alone. The bottom line is that although the labor market is lackluster, it’s not in too bad shape and not getting seriously worse.
The Mass Layoffs report for September registered a sharp decline in the number of layoff events (50 people at one location) and a sharp decline in the total number of people laid off, to the lowest levels for September since 1999. This was a positive report.
After the close: AMG Data Services reported that for the week ended Wednesday, October 22, $2.3 billion flowed into equity mutual funds, with over half flowing into small-cap, aggressive, and large-cap domestic growth and value funds. This was a positive report, enough to keep the tide rising gradually under the market, but not enough to give the market a consistently strong upwards trend. More than $100 million flowed into real estate funds for the third consecutive week. $177 million flowed into taxable bond funds. Government bond funds investing in mortgage-backed securities reported outflows of $495 million, the fourteenth consecutive week of outflows from that sector. $3.0 billion flowed into money market funds. $139 million flowed out of municipal bond funds, the fourteenth consecutive week of outflows.
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, rose by 2.68% on Thursday to 19.57, which is only modestly below the top end of the low anxiety (moderate complacency) zone (15 to 20). VIX did decline through the day as the market struggled to recover, but people were basically saying that they want to see some strength in the market before they’ll feel much more comfortable. 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 rose by 0.06% on Thursday to 17.68.
The Nasdaq-100 VIX (VXN) rose by 1.60% on Thursday to 26.09.
The Nasdaq-100 After Hours Indicator had a negative tone for the Thursday evening session, closing down 19.83 points. Some disappointment with Microsoft’s outlook seemed to be the cause of the negative reaction, but there may have been some confusion due to “items”. I didn’t see any truly glaring bad news at all. Superficially it may appear that Microsoft is warning (slightly) about earnings, but it does appear that Microsoft is raising guidance for top-line revenues, which is what investors should be looking for, and there is undoubtedly some arcane rationale behind the earnings guidance. Traders may ding the stock in the short-term, but that will only provide a more attractive dip to buy.
[10/24/03] 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 May. 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 and rose moderately 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 rose sharply, and is now once again 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 fell 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 book forum for Hug Them Close: Blair, Clinton, Bush and the 'Special Relationship' at the American Enterprise Institute here in Washington, D.C. The author, Peter Riddell of The Times of London, presented a summary and then three “beltway experts” offered their critiques. The book is about the U.S.-British relationship, as exemplified by Tony Blair and his willingness to work so closely with President Bush after working so well with President Clinton. Everybody seemed to think the book was great, but that’s the ‘inside Washington’ view.
I attended a mini-conference for a new organization here in Washington called the Coalition for a Realistic Foreign Policy. Their main aim seems to be to oppose the efforts of ‘the right’ to establish an ‘American empire’, or as they say, “Opposed to the Perils of Empire”. It’s an independent entity with individuals as ‘supporters’, but it does appear to be an offshoot of the Cato Institute, with the chairman of the conference being Charles Peña, the Director of Defense Policy Studies at Cato. It is not exclusively a left-wing organization, and has supporters who have been members of Republican administrations and many centrists. There do seem to be a lot of academics and no public officials as far as I can tell. A big part of the motivation for the group seems to be the erosion of civil liberties with the advent of the war on terrorism. They plan on having conferences, issuing papers, appearing on radio and TV, and giving interviews with the media. Amusingly, the conference was held in the infamous Senate Russell Caucus Room, whose décor is best described at “gaudy empire”, with great marble columns, massive chandeliers, Roman-style eagles, etc. This is the room where the Clarence Thomas/Anita Hill hearings were held, as well as the Watergate hearings, among others. The group was able to use the room for their conference due to ‘connections’ with Senator Breaux.
[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.
Despite the negative ‘tone’ being promoted by traders, today may be the day when we finally get a decent bounce off the recent correction. The continued inflow of money into stock mutual funds will eventually force the market upwards again no matter how much negativity traders and short-term speculators try to promote.
If traders do manage to push the market down dramatically in the pre-market and at the open, this could very well lead to a true ‘selling exhaustion’ where there isn’t anybody else left to sell, so traders could then reverse and momentum would build for the upside.
Traders and short-term speculators will tend to close out positions (or at least hedge them) in advance of the weekend when anything can happen.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -13 on Thursday, well below 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 262 days (1 year and 11 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 6 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. The sell-off has shown that this was a near-term market ‘top’.
We have been in a correction off of that 52-week intra-day high for 6 days.
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 154 days. Nasdaq is 5 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 53 days old and 5 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.
Wednesday, October 22 was Day 1 of a potential up-leg, with Nasdaq closing slightly (71 cents) above the intra-day low of 1,897.36. Thursday was Day 2, but Nasdaq set a new intra-day low of 1,874.11, so the potential up-leg is invalidated and we return to looking for another new leg.
Thursday, October 23 was Day 1 of a potential up-leg, with Nasdaq closing moderately (11 points) above the intra-day low of 1,874.11. 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 Thursday’s close there are up to 44 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 23, 2003 11:23:06 PM -0400
Copyright © 2003 John W. Krupansky d/b/a Base Technology