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Tuesday was a typical lackluster ‘consolidation’ session where people are sitting and waiting for something to happen. There is still a mood of profit-taking, so a modest downtrend was to be expected in the absence of any significant positive catalysts (or mutual fund inflows).
We had some good reports on chain store sales, but they were almost completely ignored by the market.
Nasdaq closed 7 points above its intra-day low. That’s not much of a bounce, but it’s an improvement from Monday’s 2-point bounce. Nasdaq closed at the level it reached shortly before 10:00 a.m., illustrating the lack of selling pressure during most of the day.
I read the following in a Reuters report from London before the market opened: “We are calling the market lower, but it looks increasingly like we will see some kind of bounce later on. We have seen a lot of buying from our clients, betting on a bounce today.” This was attributed to Tom Hougaard of spread betting firm City Index that allows ‘clients’ to place bets on the stock market as well as a number of other indices and instruments in global financial markets. We did get “some kind of bounce”, but not enough to become a net gain.
Volume was light (1.63 billion shares). Breadth was fairly strongly positive, with 1.85 losers for each gainer. Once again we saw a wimpy sell-off, with a modest point decline on light volume.
According to Thomson Financial I-Watch, institutional investors were net sellers of Applied Materials (AMAT), but net buyers of Sun (SUNW), EMC (EMC), Oracle (ORCL), Microsoft (MSFT), Nortel (NT), JDS Uniphase (JDSU), AMD (AMD), and Brocade (BRCD). Institutions were heavily buying the dip, strongly suggesting that the market is not about to dramatically fall off a cliff any time in the near future.
The BTM/UBSW Weekly Chain Store Sales Snapshot registered a sharp gain (1.2%) compared to the prior week. This was a positive report. Sales were boosted by cooler weather and early holiday shopping. Sales were up a decent 5.8% over a year ago. BTM is forecasting to 4% growth in November compared to a year ago.
The weekly Reuters Instinet Redbook Sales Average report registered a sharp decline in chain store sales (2.9%) for the first week of November compared to the corresponding week of October, but registered a sharp gain (4.1%) for the week ended November 8 compared to a year ago. This was a mixed report. Cooler weather boosted sales. Stores are gearing up for what is expected to be a busy holiday shopping season. The report notes that “Many retailers expect improvement in the upcoming holiday season and are hiring more sales staff than last year.”
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered no change at -18 (out of a range from -100 to +100). This was a neutral report, but at least confidence is not getting worse. We are still stuck in a narrow, flat range. There was a 2% improvement in the consumer view of the overall economy, but a 2% decline in how consumers feel about their own finances, and no change in how consumers view the buying climate. Consumer confidence may still be in somewhat of a limbo state as everyone waits to see what happens next in the economy, the workplace, and the stock market – and wondering what’s really going on in Iraq. Please note that there is no clear and indisputable link between consumer confidence reports and future consumer spending.
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 0.28% on Tuesday to 18.00, which is modestly above the midpoint of the low anxiety (moderate complacency) zone (15 to 20). No real change, but clearly people are incrementally a bit more anxious to see the market bounce. VIX spiked up to 18.43 at the open, moved up to 18.60, and then trailed off for the rest of the day as no dramatic sell-off materialized. 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 0.45% on Tuesday to 17.54.
The Nasdaq-100 VIX (VXN) rose by 0.23% on Tuesday to 26.55.
The Nasdaq-100 After Hours Indicator had a mixed tone for the Tuesday evening session, closing unchanged. People are completely confused as to whether the market will be trending up or down in the near-term.
There was no change in fed funds futures since the bond market was closed on Tuesday.
[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 modestly against the yen, but fell 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 moderately sharply, and is moderately above the $30 “comfort” level. People are still quite anxious about whether terrorists might attack Saudi oil facilities, or at least that’s the general chatter (or should we just call it what it is: scuttlebutt). 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. 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.
Although there has been a clear rise in insurgency attacks in Iraq in recent weeks, there finally appears to be a heightened sense of urgency on the part of the administration to revise just about every aspect of the ‘plan’ for Iraq. This may not result in a near-term dramatic reduction in insurgency attacks, but may at least get everybody back onto a track that people can at least believe will lead to success.
[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.
The steel tariffs (“safeguards”) will most likely be phased out as a result of the recent WTO ruling. To some extent, they have served their purpose, having put intense pressure on foreign producers and giving U.S. producers time to consolidate operations, not to mention allowing President Bush to score some points with labor unions and their supporters and political patrons. Phasing them out may cost President Bush some votes, but failing to phase them out could cause too many other problems. A benefit of phasing them out will be lower costs for domestic steel consumers – manufacturing companies. A decision needs to be made by mid-December, or other countries could begin retaliatory tariffs – such as on citrus fruit from Florida.
Moody’s Investors Service revised its outlook for Amazon (AMZN) to positive from stable, citing the company’s expanding retail enterprise. Amazon is getting stronger every month that goes by. I still have some concerns about their debt load, but even that seems manageable given their rate of progress.
[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.
There may be some positioning in advance of the Applied Materials (AMAT) quarterly report due out after the close, as well as the Dell (DELL) quarterly report due out after the close on Thursday.
We may or may not see a decent bounce after the declines on Monday and Tuesday. Traders and short-term speculators may continue to engage in profit-taking, but the selling could peter out and turn into a rally. Or, maybe we need another day or two of good, solid profit-taking to really turn sentiment around, again.
The big wildcard remains mutual fund money flows in light of the recently reported mutual fund trading abuses. It’s difficult to anticipate whether people have finished their selling of funds or not. Also, it’s the net money flows that matter, so people may continue to dump ‘bad’ funds even as money continues to flow into ‘good’ funds (e.g., passive index funds.)
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -11 on Tuesday, 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 274 days (1 year and 24 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 within the next few weeks, 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 is 2 days off its 52-week intra-day high of 1,992.27 on November 7. The previous intra-day highs were 1,977.91 on November 6, 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 167 days. Nasdaq is 3 days off 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 66 days old and 3 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.
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 13 days old and 3 days off 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. This leg is on the verge of being ‘broken’ due to the 60-point decline off of the recent intra-day high.
The fact that Nasdaq is 60 points off its recent intra-day high is a clear yellow flag and suggests that the recent run-up may now be in a near-term ‘consolidation’ mode. That does not mean that a full-blown correction is necessarily likely. There may have been as much as 125 points of ‘trading froth’ at the peak, so we could see up to another 65 points of decline before a true correction might be indicated. Note that we’re still 90 points above the starting level of the most recent minor up-leg that started on October 24. The big wildcard remains mutual fund money flows.
[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 11, 2003 10:55:48 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology