Brigitte
01.12.2000, 11:52
* * * *
11/30/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- Looking for a trading rally after the Nasdaq flushes out some demons.
- FOMC member Poole speaks kindly today.
- Economy shows more problems.
- Subscriber Questions
- Team Trades
Indexes spiral down but show signs of a trading rally for the next few
days.
The GTW, ALTR, GPS, ANN (Ann Taylor), etc. warnings Wednesday had the
Nasdaq primed for selling. The jobless claims, personal consumption and
personal income numbers before the open dumped gasoline on the fire. Abby
Cohen could not rally the forces in the morning, and when the Chicago NAPM
numbers came out at 10:00 CT the markets threw in the towel. Both the
Nasdaq and the S&P 500 hit new lows for the year, and the Dow tested
support at 10,300. What a morning.
It lasted into early afternoon. Then, FOMC member Poole, after some not
so friendly words Wednesday, stated today that if the failing stock market
was impacting the economy in a real way, the Fed should act. This
probably came in light of the falling consumer confidence, lower than
expected retail sales, higher jobless claims, lower personal income, lower
retails sales the list goes on and on; these are just from the past two
days. Whether that triggered the rally or not, the markets all jumped off
of their lows and substantially cut their losses for the day. If those
words got the market going, would maybe a bias change be enough? No. We
still need that rate cut in December.
Short term rally.
We think we are going to get another short term rally. There are many
reasons behind that. The pattern on the candlestick chart was a doji,
showing a test down at possible support at 2500 and a rally back up. At
its low the Nasdaq was down 50% from its March high. Volume was huge.
Decliners led advancers 4 to 1 at one point. Institutions were placing
large 'buy on close' orders in leading stocks. Last time the Nasdaq
tested support (2850) was on 11-13 when it gave a doji after testing that
support and reversed on high volume. It did not last long, but we have to
be ready to close short positions and we can make some more bounce plays
to the upside when it occurs.
Some were saying this may merely have been short covering as the market
rebounded up today. The buy on close orders tend to belie that:
institutions use buy on close orders as a way of accumulating stock. They
have to have the orders place with 20 minutes left in the session. There
were a lot of buyers on the close; indeed, volume mushroomed in the last
hour, surprising many commentators at how fast it shot up. The
institutions were willing to place some bets, and they were doing in on
beaten up stocks such as Nortel. Looks as if the institutions are going
to be in the buy mode for at least a little while. Other institutions may
use any rally as a selling point, but it looks as if we will get some
upside action that we can take advantage of.
THE ECONOMY
There was good reason for Poole's potentially softening view. Jobless
claims have been spiraling higher. Last week they rose to 358,000, the
highest level in two years. Jobless claims were expected to drop to
330,000. Another miss to the downside by the consensus of economists.
The four week average, considered a more reliable measure, is at its
highest since July 1998, rising to 343,000. Remember 1998? Shaky world
economies, the U.S. market in jeopardy, recession fears. We are seeing
reports that have in very little time hit levels that we thought we would
not see for months and months into a 'soft landing' scenario.
Personal income fell for the first time in two years, dropping 0.2% versus
an expected 0.2% gain. In September personal income rose 1.1%. There has
been a rapid turnaround in the ability to demand higher wages. Layoffs
are occurring as we see each week from the jobless claims. Consumer eked
out a 0.2% gain, the smallest in 6 months and down from the 0.9% increase
in September. We are now seeing the impact on consumer spending. This
holiday season will be slow. We have heard from many families from around
the country, and they are all saying they will spend significantly less
this holiday season. The culprit is uncertainty about the economy and job
security; they see things falling rapidly and are worried about next year
and the next President's ability to do anything about it.
On the corporate side, corporate profits rose 0.4% in the third quarter
versus a 2.4% rise in the second quarter. That is the worst performance
since the fourth quarter of 1998. The clincher for the day (yes, all of
this in just one day): the Chicago NAPM reported its lowest level of
business activity in 18 years. It recorded its lowest employment index in
10 years. Tomorrow we see the nationwide NAPM. We have had a contracting
economy for the past two months, and that is not expected to change. The
issue is will it be lower than the 48.3% level last period? Remember,
analysts have been expecting an increase this month to 48.9%, now dropped
to 48.5%. Look for the 47% range.
Do you note how we keep referring to 1998 and even back to 1982 (18 years
ago)? 1998 was a time of world turmoil. There was risk abroad and at
home. Earnings were down, spending was down. The Fed was worried the
U.S. would be dragged down into the morass. In 1982 the U.S. was trying
to pull out of recession. Readings of recession-level containerboard
shipments, commodities prices, jobless rates, productivity (from last
quarter), almost non-existent technology investment, etc. are more than
worrisome. They are red flags that major economic indicators are
demonstrating the same warnings as they were back then. The Fed continues
to worry about lagging indicators such as wages and employment rates. We
are well past that. Today the question was asked often 'did the Fed blow
it?' Not many had the guts to say it, but some did say the Fed has been
hit with unexpected consequences. More like expected consequences to us.
As we have said, there is always something that upsets those that try to
manipulate a dynamic system.
THE MARKETS
The worst November ever for the Nasdaq, down 29% for the month. The Dow
is down 5.1% and the S&P 500 8% for the month, the big caps worst November
since 1973. Ugly comes to mind. Needless as well. There was no need for
the Fed to fight inflation that was not there. All the Fed has succeeded
in doing is stripping trillions of dollars off of retirement accounts,
pushing the economy to the edge of recession, and severely damaged the one
area it claimed was our salvation, i.e., technology investment that led to
our technological lead and outstanding productivity. Look at the
productivity numbers last quarter: almost sliced in half. And now we are
seeing high tech investment by corporate America at a virtual standstill.
We are going to lose ground in our one area of world leadership simply
because the Fed got cocky and felt it could work as well as a laser-guided
bomb. Even laser-guided bombs, however, can miss their mark. The Fed
will never learn. Too much time went by between Greenspan's 1987 debacle
and this last campaign against prosperity. Age leads to wisdom, but you
have to be able to remember what you have learned.
Overall market stats:
VIX: 32.92; +2.72. The VIX shot to 34.88 on its high. High, but not as
high as mid-October (37) nor in April (over 40). It is high, but it has
been high for weeks. Still, the spike lends credence to a trading rally.
Put/Call ratio: 0.75; -0.07. Put buyers fell today after moving higher
early in the session. The late rally scared them out of positions. This
indicator still has not given us the close at 1.0 or better. Everything
else seems to have been there but for th
11/30/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- Looking for a trading rally after the Nasdaq flushes out some demons.
- FOMC member Poole speaks kindly today.
- Economy shows more problems.
- Subscriber Questions
- Team Trades
Indexes spiral down but show signs of a trading rally for the next few
days.
The GTW, ALTR, GPS, ANN (Ann Taylor), etc. warnings Wednesday had the
Nasdaq primed for selling. The jobless claims, personal consumption and
personal income numbers before the open dumped gasoline on the fire. Abby
Cohen could not rally the forces in the morning, and when the Chicago NAPM
numbers came out at 10:00 CT the markets threw in the towel. Both the
Nasdaq and the S&P 500 hit new lows for the year, and the Dow tested
support at 10,300. What a morning.
It lasted into early afternoon. Then, FOMC member Poole, after some not
so friendly words Wednesday, stated today that if the failing stock market
was impacting the economy in a real way, the Fed should act. This
probably came in light of the falling consumer confidence, lower than
expected retail sales, higher jobless claims, lower personal income, lower
retails sales the list goes on and on; these are just from the past two
days. Whether that triggered the rally or not, the markets all jumped off
of their lows and substantially cut their losses for the day. If those
words got the market going, would maybe a bias change be enough? No. We
still need that rate cut in December.
Short term rally.
We think we are going to get another short term rally. There are many
reasons behind that. The pattern on the candlestick chart was a doji,
showing a test down at possible support at 2500 and a rally back up. At
its low the Nasdaq was down 50% from its March high. Volume was huge.
Decliners led advancers 4 to 1 at one point. Institutions were placing
large 'buy on close' orders in leading stocks. Last time the Nasdaq
tested support (2850) was on 11-13 when it gave a doji after testing that
support and reversed on high volume. It did not last long, but we have to
be ready to close short positions and we can make some more bounce plays
to the upside when it occurs.
Some were saying this may merely have been short covering as the market
rebounded up today. The buy on close orders tend to belie that:
institutions use buy on close orders as a way of accumulating stock. They
have to have the orders place with 20 minutes left in the session. There
were a lot of buyers on the close; indeed, volume mushroomed in the last
hour, surprising many commentators at how fast it shot up. The
institutions were willing to place some bets, and they were doing in on
beaten up stocks such as Nortel. Looks as if the institutions are going
to be in the buy mode for at least a little while. Other institutions may
use any rally as a selling point, but it looks as if we will get some
upside action that we can take advantage of.
THE ECONOMY
There was good reason for Poole's potentially softening view. Jobless
claims have been spiraling higher. Last week they rose to 358,000, the
highest level in two years. Jobless claims were expected to drop to
330,000. Another miss to the downside by the consensus of economists.
The four week average, considered a more reliable measure, is at its
highest since July 1998, rising to 343,000. Remember 1998? Shaky world
economies, the U.S. market in jeopardy, recession fears. We are seeing
reports that have in very little time hit levels that we thought we would
not see for months and months into a 'soft landing' scenario.
Personal income fell for the first time in two years, dropping 0.2% versus
an expected 0.2% gain. In September personal income rose 1.1%. There has
been a rapid turnaround in the ability to demand higher wages. Layoffs
are occurring as we see each week from the jobless claims. Consumer eked
out a 0.2% gain, the smallest in 6 months and down from the 0.9% increase
in September. We are now seeing the impact on consumer spending. This
holiday season will be slow. We have heard from many families from around
the country, and they are all saying they will spend significantly less
this holiday season. The culprit is uncertainty about the economy and job
security; they see things falling rapidly and are worried about next year
and the next President's ability to do anything about it.
On the corporate side, corporate profits rose 0.4% in the third quarter
versus a 2.4% rise in the second quarter. That is the worst performance
since the fourth quarter of 1998. The clincher for the day (yes, all of
this in just one day): the Chicago NAPM reported its lowest level of
business activity in 18 years. It recorded its lowest employment index in
10 years. Tomorrow we see the nationwide NAPM. We have had a contracting
economy for the past two months, and that is not expected to change. The
issue is will it be lower than the 48.3% level last period? Remember,
analysts have been expecting an increase this month to 48.9%, now dropped
to 48.5%. Look for the 47% range.
Do you note how we keep referring to 1998 and even back to 1982 (18 years
ago)? 1998 was a time of world turmoil. There was risk abroad and at
home. Earnings were down, spending was down. The Fed was worried the
U.S. would be dragged down into the morass. In 1982 the U.S. was trying
to pull out of recession. Readings of recession-level containerboard
shipments, commodities prices, jobless rates, productivity (from last
quarter), almost non-existent technology investment, etc. are more than
worrisome. They are red flags that major economic indicators are
demonstrating the same warnings as they were back then. The Fed continues
to worry about lagging indicators such as wages and employment rates. We
are well past that. Today the question was asked often 'did the Fed blow
it?' Not many had the guts to say it, but some did say the Fed has been
hit with unexpected consequences. More like expected consequences to us.
As we have said, there is always something that upsets those that try to
manipulate a dynamic system.
THE MARKETS
The worst November ever for the Nasdaq, down 29% for the month. The Dow
is down 5.1% and the S&P 500 8% for the month, the big caps worst November
since 1973. Ugly comes to mind. Needless as well. There was no need for
the Fed to fight inflation that was not there. All the Fed has succeeded
in doing is stripping trillions of dollars off of retirement accounts,
pushing the economy to the edge of recession, and severely damaged the one
area it claimed was our salvation, i.e., technology investment that led to
our technological lead and outstanding productivity. Look at the
productivity numbers last quarter: almost sliced in half. And now we are
seeing high tech investment by corporate America at a virtual standstill.
We are going to lose ground in our one area of world leadership simply
because the Fed got cocky and felt it could work as well as a laser-guided
bomb. Even laser-guided bombs, however, can miss their mark. The Fed
will never learn. Too much time went by between Greenspan's 1987 debacle
and this last campaign against prosperity. Age leads to wisdom, but you
have to be able to remember what you have learned.
Overall market stats:
VIX: 32.92; +2.72. The VIX shot to 34.88 on its high. High, but not as
high as mid-October (37) nor in April (over 40). It is high, but it has
been high for weeks. Still, the spike lends credence to a trading rally.
Put/Call ratio: 0.75; -0.07. Put buyers fell today after moving higher
early in the session. The late rally scared them out of positions. This
indicator still has not given us the close at 1.0 or better. Everything
else seems to have been there but for th