| NOTICE: I regret to inform you that I will probably no longer to be able to
provide this column on a daily basis after the end December, possibly even
sooner. I may occasionally provide commentary, but not on an regular,
daily basis. Hopefully I will be able to resume daily service at some
point. The web site and archive will remain at least through May.
Click
here if you wish to be notified by email if and when service resumes. Basically, I have been living off capital for the past four years (stock profits from "the boom"), but my capital burn rate for my living expenses has significantly exceeded my rate of return, even for the past year. The result is that I regretfully will be forced to seek a full-time "normal" job and hence I will be unlikely to be able to devote the five or more hours that go into this column every day. I had hoped that the market would bounce back more strongly so that my return would exceed my burn rate, but that didn't happen and I had burned through too much of my capital base by the time the market did start to take off in October 2002. I had also hoped that I would be able to build interest in this site via word of mouth, and that really didn't happen either. I would have to have ten times as many readers and have each of them pay the full suggested rate to make the site financially viable on its own. There is simply too much competition in the investment newsletter/web site business to expect that kind of interest. My thanks to all those loyal readers who have paid for their usage of the site. -- Jack Krupansky -- still The Unrepentent Optimist - 12/6/03 |
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Clearly Nasdaq has been in a correction of some sort for the past week, but it may simply be traders bouncing around within the range of “trading froth” that sits atop the market rather than a truly meaningful correction. My suspicion is that traders got spooked by the market weakness when Nasdaq hit 2,000 and a lot of people decided to “take some money off the table”. That’s not necessarily a sign of a true market top, but it does cause some short-term fluctuations.. Ultimately, the cumulative money flows of stock mutual funds will determine whether the market continues to correct or once again moves up.
Nasdaq volume was almost heavy (1.95 billion shares). Breadth was almost strongly negative, with 1.96 losers for each gainer. The point decline was so minimal but with such negative breadth and volume that this gets classified as a “changing of the guard”, with a lot of people bailing out just as other people are buying the dip.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW) and Microsoft (MSFT), but net buyers of Intel (INTC), Cisco (CSCO), EMC (EMC), Applied Materials (AMAT), JDS Uniphase (JDSU), Brocade (BRCD), and ADC Telecom (ADCT). Institutions were clearly buying the dip, strongly suggesting that the market is not about to dramatically fall off a cliff any time in the near future.
The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey registered a sharp decline in applications, with a sharp decline in applications to purchase and a sharp decline in refinancing. This was a negative report, but there does tend to be a lot of volatility and the winter storm and holiday shopping get a lot of the blame. Nonetheless, demand for buying homes is still quite strong, even if well off recent highs.
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 1.46% on Wednesday to 17.33, which is modestly below the midpoint of the low anxiety (moderate complacency) zone (15 to 20). People were a little bothered by the market’s refusal to bounce, but relieved that Nasdaq recovered from much of the afternoon sell-off. 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 1.36% on Wednesday to 17.87.
The Nasdaq-100 VIX (VXN) fell by 1.69% on Wednesday to 27.84. People were somewhat relieved by the way Nasdaq bounced most of the way back from the intra-day decline.
The Nasdaq-100 After Hours Indicator had a mostly negative tone for the Wednesday evening session, closing down 0.58 points. People are really struggling to decide which way to play this market, so the net result is a moderate trading range.
One day after the FOMC meeting, fed fund futures priced in a modestly lower probability for an earlier rate hike. In other words, people believe that it is a little more likely that the Fed will hold off before pulling the trigger.
[12/6/03] The fed funds futures market suggests that the Fed will leave the fed funds target rate unchanged for the rest of the year, but possibly raise the fed funds target rate by a quarter-point in May or June, or possibly not until July. 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 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 moderately, but remains modestly under the $32 “anxiety” level. Futures did pop up very sharply, but then a wave of profit-taking kicked in. The weekly inventory reports indicated sharply lower crude inventory levels, but that simply reflects the fact that refiners are much more careful to manage inventory levels with oil at these high prices. 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. Gold rose to a new high, but then heavy profit-taking kicked in. 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.
For the week ending Wednesday, December 10, the Pentagon reports that 13,384 more reservists are on active duty, for a total of 177,628. This was sharp increase. The Air Force, Navy, and Marines all showed decreases in the number of reservists on active duty, but the Army showed a sharp increase. The headcount has declined by 46,900 or 20.89% from the peak of 224,528 on May 1st.
[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 read that First Call is no longer going to refer to their average of analyst estimates for corporate earnings as a “consensus”, but as a “mean”. This is a fairly cosmetic change that only removes a thin veneer of the silliness of the estimation process. What they really need to do is publish and promote the range around the mean that includes 50% of the estimates. The idea of companies “meeting”, “beating”, or “missing” a discrete number is patently absurd and a truly silly game. One of the other big problems with the First Call estimates is the GAAP versus pro forma issue and the inherently unknowable nature of one-time adjustments (many times negative, but sometimes positive). In other words, if analysts don’t even have a common view of what exactly they are estimating, then averaging those estimates is a fruitless exercise in absurdity.
[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 chattering about the Fed should be mostly over by now. The market focus should return to the economic outlook, business prospects, and the inane technical analysis that traders love to fret over.
The weekly jobless claims report could move the market. The claims numbers have a lot of volatility and there tends to be a late-year seasonal uptrend in the underlying, unadjusted initial claims, but given the current state of the economy, anything could happen.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -4 on Wednesday, moderately 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 294 days (1 year and 44 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 or 2,250 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 22 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq is 6 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq is 5 days off its 52-week intra-day high of 2,000.92 on December 3. We need to track all three of these intra-day highs until Nasdaq manages to close above them for at least a couple of days. Technical traders will be chattering about Nasdaq establishing a “triple top”, a rather bearish sign, so we do need to give this a relatively severe yellow flag.
The confirmed up-leg for Nasdaq that began with the intraday low of 1,253.22 on March 12 has run for 187 days. Nasdaq is 7 days off its closing peak of 1,989.82 on December 1 for the up-leg and for the overall post-October 2002 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 86 days old and 7 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 33 days old and 7 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 still significantly broken, and it won’t be fully recovered until it closes above the previous peak of 1,976.37 for at least three days and sets a new closing peak at least 1% above that old peak (1,996.13).
The Nasdaq correction off the intra-day high of 1,992.27 on November 7 is now 22 days old. It reached an intra-day low of 1,878.07 on Friday, November 21, a decline of 114 points or 5.73%. It may be over, but we do need to see a new 52-week closing high above that old intra-day high.
We have a secondary correction off the intra-day high of 2,000.92 on December 3 that is now 5 days old. It reached an intra-day low of 1,887.46 on Wednesday, December 10, a decline of 113 points or 5.67%. It may be over or close to over, but we do need to see a new 52-week closing high above that old intra-day high.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, November 21 with an intra-day low of 1,878.07 is now 13 days old and 7 days off its closing peak. The fact that Nasdaq is 96 points off the intra-day peak for this new leg indicates that this leg is significantly broken, but not yet destroyed. Give it a couple more days before deciding for sure.
We have to invalidate the potential up-leg of the Nasdaq advance that started on Tuesday, December 9 with an intra-day low of 1,906.84 and a bounce of 1.48 points into the close due to setting a new intra-day low of 1,887.46 on Wednesday, December 10. We now look for the start of a new up-leg.
We now have yet another potential up-leg of the Nasdaq advance starting on Wednesday, December 10 with an intra-day low of 1,887.46 and a bounce of 17 points into the close. We now wait for confirmation of this potential up-leg. We ignore Days 2 and 3 of the up-leg as long as a new intra-day low is not set. Then on Days 4 through 10 we look for a gain of at least 1% on volume higher than the previous day to signal confirmation.
The fact that Nasdaq is still 96 points off its recent 52-week intra-day high is a strong yellow flag and suggests that Nasdaq still hasn’t broken out of its near-term ‘consolidation’ phase. That does not mean that a full-blown correction is necessarily likely. We may still be in a short-term trading range. There may have been as much as 125 points of ‘trading froth’ at the peak, so we could see up to another 29 points of decline before a true correction might be indicated. Note that we’re still 27 points above the starting level of the most recent confirmed minor up-leg that started on November 21. The big wildcard remains mutual fund money flows – which were inflows of $2.6 billion in the most recent week, $2.1 billion the previous week, and $3.5 billion in each of the two weeks before that.
[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: December 10, 2003 10:53:57 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology