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Although the point gain on Thursday was only moderate, Nasdaq set yet another 52-week closing high, as well as a new 52-week intra-day high. Nasdaq also closed above the previous 52-week intra-day high. That’s a good sign. Much of the gain was in response to Cisco’s (CSCO) quarterly report and occurred in the pre-market. The economic reports caused no noticeable change. Another part of the recent rise is that people are increasingly reluctant to be very short with the economy showing renewed strength.
The Nasdaq-100 Pre-Market Indicator (PMI) rose over 10 points in the pre-market and Nasdaq opened 12 points higher, but Nasdaq was under selling pressure right from the open, giving back all 12 points by shortly before 10:00 a.m. There was a half-hearted attempt to bounce, but by shortly after 11:00 a.m. Nasdaq had fallen another 5 points. The selling pressure petered out at that point, and Nasdaq rallied for the rest of the day.
Nasdaq closed less than 2 points below its intra-day high. That’s a good sign.
Volume was heavy (2.11 billion shares). Breadth was modestly positive, with 1.19 gainers for each loser. This was a modest rally, but nothing to get exited about. The heavy volume was a result of the early sell-off followed by the rally.
According to Thomson Financial I-Watch, institutional investors were net sellers of Cisco (CSCO), EMC (EMC), Nortel (NT), JDS Uniphase (JDSU), Oracle (ORCL), and Brocade (BRCD), but net buyers of Microsoft (MSFT), AT&T Wireless (AWE), and Intel (INTC). It was a mixed day, with some amount of selling into the rally, but also some significant buying of the dip, strongly suggesting that the market is not likely to fall off a cliff any time soon..
The Unemployment Insurance Weekly Claims report registered a moderately sharp decline in initial claims – under 400K for a fifth consecutive week – and a modest decline in continuing claims. This was a positive report. Unadjusted initial claims fell moderately to 340K, well below the year-ago level of 397K – and well under 400K. The 4-week moving average of initial claims declined moderately and is moderately below 400,000 for a fifth consecutive week, and moderately below the level of a year ago. Unadjusted continuing claims fell modestly and are still modestly below the level of a year ago. Adjusted continuing claims are still modestly below the level a year ago. The 4-week moving average of continuing claims declined modestly, and is still modestly below the level of a year ago. Initial claims have not yet 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 2.4% unadjusted) is slightly better than during the same week in 1992 when the economy was recovering from the last recession (2.9% or 2.4% unadjusted). Initial claims were not consistently below 400K in 1992 until October. Initial claims are moderately lower than in the same week in 1992 (348K vs. 365K), and only modestly higher than in 1992 once you strip off the dysfunctional seasonal adjustment (340K vs. 332K.) 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 Productivity and Costs report for Q3 registered a moderate rise in productivity and a moderately sharp decline in unit labor costs. This was a positive report. It’s great news for businesses and corporate profits. It’s not good news for those worried about losing their jobs, but it reflects what was happening in Q3 and not what will necessarily happen in Q4 and beyond. It is good news for people who still have jobs because the productivity gains and resulting profits mean that more money is available to pay higher wages. In fact, workers worked more hours and got paid more for each hour, even after subtracting inflation.
After the close: AMG Data Services reported that for the week ended Wednesday, November 5, $854 million flowed out of equity mutual funds, with $3.9 billion flowing out of Putnam equity funds. This was a negative report. Some of the Putnam outflows may merely have flowed into other funds. Given the large Putnam outflows, it’s surprising that net outflows were so modest, but that merely suggests that investors are still putting money into stock mutual funds. $392 million flowed out of taxable bond funds. $6.1 billion flowed out of money market funds. $219 million flowed out of municipal bond funds, the sixteenth 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 0.11% on Thursday to 17.58, which is only modestly above the midpoint of the low anxiety (moderate complacency) zone (15 to 20). People were a little anxious about the market’s erratic behavior. VIX spiked up to 18.32 on the open and up to 18.60 at 10:00 a.m. as people were worried that the initial market pop would turn into a sell-off. In fact, it did, but by shortly after 11:00 a.m. the market reached selling exhaustion and then rallied for the rest of the day. VIX did not retreat below 18 until after 3:00 p.m., suggesting that people were worried that the afternoon rally was merely day trading which might evaporate and reverse at any moment, but that fear proved to be unfounded. In any case, people are somewhat worried that the market could reverse at a moment’s notice. 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 0.71% on Thursday to 16.74.
The Nasdaq-100 VIX (VXN) rose by 0.60% on Thursday to 25.35.
The Nasdaq-100 After Hours Indicator had a positive tone for the Thursday evening session, closing up 10.8 points. That may be a bogus reading. The news flow was mixed.
[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 against the yen and 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 modestly, but is still 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. 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 the second day of hearings of the House Financial Services Committee (Capital Markets Subcommittee) here in Washington, D.C. on mutual fund trading abuses. There were two panels of witnesses. The first consisted of Mary Schapiro, who heads regulatory policy and oversight for NASD, and William Galvin, who is the Secretary of the Commonwealth of Massachusetts and has been spearheading efforts related to mutual funds abuses. The second panel consisted of Charles Leven, who is Vice President at AARP, and Eric Zitzewitz, the Professor of Economics and the Stanford University Graduate School of Business who studied the late trading and so-called market timing (which he more correcting calls stale price arbitrage) abuses of mutual funds. As I’ve reported before, these practices are certainly unreasonable, but the net amount of loss for a typical investor is rather small. Nonetheless, Congress will likely pass legislation to force mutual funds to do a much better job avoiding these abusive practices.
I also attended a hearing of the Senate Commerce Committee (Subcommittee on Science, Technology, and Space) on the topic of lunar exploration. They had four witnesses, the first of whom was former astronaut and former senator Harrison Schmitt, the last man to walk on the man. Schmitt proposed mining the moon for Helium-3 (which continuously comes from the Sun) and bringing it back to Earth to use in a new fusion power generation process which is very efficient, very economical, and environmentally friendly. Another witness wants to build a giant telescope at the south pole of the moon where it can focus on producing extremely sharp images on a single patch of sky. Another wants to put giant solar panels on the moon and then project “solar power beams” back to Earth. Another focused on mining the moon for resources to be used for space projects rather than transporting everything from Earth. Congress is still struggling to come to a consensus on the vision of America in space.
[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.
The monthly employment report will be the big catalyst for today. It should finally start to show some upward movement, but any change in the range of minus 250K to plus 250K is simply statistical noise.
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.
It’s quite possible to see some profit-taking at any point after the recent run-up.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +17 on Thursday, well 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 271 days (1 year and 21 days). The market now has a longer-term upwards bias despite near-term volatility. The path of the market through the end of the year is of course uncertain, but Nasdaq will most likely be moderately higher at the end of December than where it was at the beginning of November. Nasdaq should break above the 2,000 level fairly soon, so the question is whether we hit 2,100, 2,250, or even 2,500 by the end of the year. 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 set a new 52-week intra-day high of 1,977.91 on November 6. The previous intra-day highs were of 1,971.38 on November 4, 1,969.26 on November 3, 1,966.87 on October 15, 1,943.33 on October 14, and 1,940.97 on October 13.
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 164 days. Nasdaq is at its closing peak of 1,976.37 on November 6 (previous peaks were 1,967.70 on November 3, 1,950.14 on October 16, 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 63 days old and at 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.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, October 24 with an intra-day low of 1,841.62 is now 10 days old and at its closing peak. This is a minor leg nested within the larger leg that started on August 8 which is itself nested in the larger advance that started on March 12. Multiple nested up-legs are a sign of deep strength in the market.
[11/5/03] The latest economic data continues to support the thesis that the U.S. economy is solidly into a gradual, zigzag, underappreciated, stealth recovery. The Q3 GDP report certainly convinced a lot of people that the economy is stronger than previously thought, but the cynics continue to promote the idea that the recent strength was almost solely due to short-term fiscal stimulus. I disagree. I believe that the economy would have been reasonably strong without the stimulus (ala Q2) and that we will see incremental improvement (compared to Q2) over the next four quarters. Some people will be shocked or raise alarm when Q4 comes in ‘weaker’ than the ‘artificially sweetened’ Q3, but there is no reason for alarm. That’s part of the zigzag process. The two key factors driving the pace of the recovery will continue to be the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses which will create new jobs.
[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: November 07, 2003 12:30:06 AM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology