Brigitte
20.12.2000, 13:17
* * * *
12/19/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- We were wrong: the Fed let the economy down.
- Markets were not confused about the decision: they tanked on the news of
no rate cut.
- New Nasdaq low for the year and more to come.
- We need to keep on with the same: defensive sectors to the upside and
techs to the downside off the down trendlines and up for the reflex
bounces.
- Subscriber Questions
- Team Trades
We read Greenspan wrong this time.
There were rate cut proponents and rate cut antagonists on the FOMC today.
Greenspan had his choice to do what he wanted. Did he take a bold and
necessary step to ensure that the economy does not slide into a recession
as it always does when the Fed raises rates? No, he took out his crumpled
Phillips' Curve model, muttered 'bah, humbug' and waddled home.
Commentators said the market was 'confused' and that they were 'perplexed'
as to why investors started to sell stocks. The market is not confused;
it knows it needs a rate cut and it was not delivered. A shift in bias,
i.e., mere words, does not put desperately needed money into the system.
Mere words do not head off the torpedo loaded with the last 75 basis
points of rate hikes that is seeking the broadside of an already hobbled
(if not already negative) economy this spring. There is nothing tangible
to stimulate the stock market or the economy. You cannot talk the market
up the way you can talk it down. Again, talk does not put money into the
system to generate demand that drives up earnings. Bear markets do not
end on the hope of a rate cut, but only when one is delivered.
Greenspan knows this; it is obvious he still wants to wring the last
vestige of life out of the market and the entrepreneurial spirit in the
new investing class that looks to use the once-in-a-lifetime demographics
in the U.S. to their advantage in the stock market. We said in 1999 the
only way the market would not reflect the baby boomer investment cycle
would be for the Fed to attack the stock market and to artificially hinder
the economy. It has done just that, and it refuses to let the markets
breath for now. History will judge the Fed's action over the past year
and one-half; we are very concerned that there could be statements such as
'if only the Fed had acted to cut rates' or 'if only the Fed had let a
strong economy with no signs of inflation just keep growing.' Today's
move makes no sense given the forgone conclusion the Fed is going to cut
rates; why not head off trouble now? Regardless of logic, the Fed is
stuck in its Phillips' Curve paradigm and is willing to look at lagging
indicators as its guideposts versus the red flags waving all around the
economy. That means we have to deal with what we have: a stock market
that is still rolling backwards downhill.
What does the market say?
The disappointment was high. Even Lyle Gramley, former FOMC member and
semi-hawk, said before the announcement that the Fed should cut, and
voiced his disappointment when it did not reduce rates. The market showed
its disappointment as the Nasdaq dropped to a new low for the year and the
Dow reversed over 170 points itself. Volume was heavy on the selling as
you could feel the air being let out of the indexes. The bond market and
the stock market continued their separate paths. That in and of itself is
a recession pattern: bonds prosper, stocks suffer. Defensive stocks moved
up, but they did not fly up. 70% more earnings warnings this quarter than
fourth quarter 1999. The economics are bad and the stock market has been
anticipating this and building it in. The stock market is now building in
worse times ahead. Those betting that the market is wrong in its analysis
of the situation will be wrong themselves; the market has been on point
thus far.
The Nasdaq knifed to a new low after the announcement. Then after hours
earnings warnings were again the main story with JBL missing its number by
2 cents, Vishay warning, MERX warning (circuit boards), and Foundry
warning as well. Foundry really hurt as it claimed the slowdown was in
the entire networking sector. Stocks are getting slaughtered after hours
on the news and Nasdaq futures at one point were 170 points below fair
value. That has relented as the evening has worn on, and at this time the
futures are down about 30 points. Not quite the carnage that it looked
like we would have, but it is still going to be a down open if things stay
the same.
The Fed states it is concerned about the economic future but not enough to
act. If the stock market worries it with respect to consumption, it is
going to have more to worry about. More and more economists are saying
that with the pathetic retail sales this holiday season, more than likely
GDP is already negative for the quarter. That would be the first quarter
in the two that are required for an official 'recession' label. If the
Fed waits until the late January FOMC meeting to act, the recession could
be already entrenched. If the Nasdaq sells down to 2,000, that means less
investment and economic activity, compounding the problem.
THE MARKETS
Anticipatory rises in all of the major indexes gave way to immediate
selling in the aftermath of the Fed's decision. A weak rally attempt was
simply an opportunity to dump positions before things got really ugly.
All three indexes quickly turned negative and sold on heavy volume.
Things will remained locked in their downtrends. Does not mean we will
not get bounces back up; we always do. We just keep our eyes on the
trendlines when we play positions to the upside and flip to the downside
when they bounce off of those trendlines. Yo-yo the positions and make
money; it has been fairly predictable. We also look at good patterns in
defensive sectors for the upside plays. Those are proving solid even in
this market.
Overall market stats:
VIX: 30.73; -0.72. Volatility moved down even as the Nasdaq hit a new
low for the year. We are not getting a push in volatility to the upside
that we need for a reversal. At this point, by reversal we mean bounce,
not a real turn and race higher.
Put/Call ratio: 0.76; +0.21. Put buyers rose, but did not dominate. We
may see more put buying tomorrow. Now that the Fed did not cut rates,
many will think the market is only going lower (correct view). That
should start pushing the ratio higher, and that brings us closer to a
turning point in the future.
Even if the above indicators give us favorable signals, for a lasting move
we need a tangible change in the environment for stocks that will build on
the sentiment. That would be a powerful hand-in-hand signal, but we have
neither right now.
NASDAQ: New intraday and closing low for the year on heavy volume. The
techs did not have much of a chance after the Fed announcement. The mild
bounce after the initial selloff just gave room to clear out positions
before the real selling started. If futures weaken again, we could see a
test of 2400 tomorrow. After six days of selling, that could finally give
the markets a bounce up for a day or two. After the news today, we have
to see where it tries to make a stand before going to test 2000.
Stats: Down 112.81 points (-4.3%) to close at 2511.71. A 185 point range
today.
Volume: 2.319 billion shares (+12.3%). Volume swelled on the selling as
investors dumped shares on the view that the market would not improve in
the short run. 1.895 billion downside shares versus just 369 million
upside shares.
A/D and Hi/Lo: Declining issues strengthened their lead to 1.97 to 1.
New highs rose to 84 (+19) versus 480 new lows (+104).
The Chart: http://www.investmenthouse.com/ch/nasdaq.html <
12/19/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- We were wrong: the Fed let the economy down.
- Markets were not confused about the decision: they tanked on the news of
no rate cut.
- New Nasdaq low for the year and more to come.
- We need to keep on with the same: defensive sectors to the upside and
techs to the downside off the down trendlines and up for the reflex
bounces.
- Subscriber Questions
- Team Trades
We read Greenspan wrong this time.
There were rate cut proponents and rate cut antagonists on the FOMC today.
Greenspan had his choice to do what he wanted. Did he take a bold and
necessary step to ensure that the economy does not slide into a recession
as it always does when the Fed raises rates? No, he took out his crumpled
Phillips' Curve model, muttered 'bah, humbug' and waddled home.
Commentators said the market was 'confused' and that they were 'perplexed'
as to why investors started to sell stocks. The market is not confused;
it knows it needs a rate cut and it was not delivered. A shift in bias,
i.e., mere words, does not put desperately needed money into the system.
Mere words do not head off the torpedo loaded with the last 75 basis
points of rate hikes that is seeking the broadside of an already hobbled
(if not already negative) economy this spring. There is nothing tangible
to stimulate the stock market or the economy. You cannot talk the market
up the way you can talk it down. Again, talk does not put money into the
system to generate demand that drives up earnings. Bear markets do not
end on the hope of a rate cut, but only when one is delivered.
Greenspan knows this; it is obvious he still wants to wring the last
vestige of life out of the market and the entrepreneurial spirit in the
new investing class that looks to use the once-in-a-lifetime demographics
in the U.S. to their advantage in the stock market. We said in 1999 the
only way the market would not reflect the baby boomer investment cycle
would be for the Fed to attack the stock market and to artificially hinder
the economy. It has done just that, and it refuses to let the markets
breath for now. History will judge the Fed's action over the past year
and one-half; we are very concerned that there could be statements such as
'if only the Fed had acted to cut rates' or 'if only the Fed had let a
strong economy with no signs of inflation just keep growing.' Today's
move makes no sense given the forgone conclusion the Fed is going to cut
rates; why not head off trouble now? Regardless of logic, the Fed is
stuck in its Phillips' Curve paradigm and is willing to look at lagging
indicators as its guideposts versus the red flags waving all around the
economy. That means we have to deal with what we have: a stock market
that is still rolling backwards downhill.
What does the market say?
The disappointment was high. Even Lyle Gramley, former FOMC member and
semi-hawk, said before the announcement that the Fed should cut, and
voiced his disappointment when it did not reduce rates. The market showed
its disappointment as the Nasdaq dropped to a new low for the year and the
Dow reversed over 170 points itself. Volume was heavy on the selling as
you could feel the air being let out of the indexes. The bond market and
the stock market continued their separate paths. That in and of itself is
a recession pattern: bonds prosper, stocks suffer. Defensive stocks moved
up, but they did not fly up. 70% more earnings warnings this quarter than
fourth quarter 1999. The economics are bad and the stock market has been
anticipating this and building it in. The stock market is now building in
worse times ahead. Those betting that the market is wrong in its analysis
of the situation will be wrong themselves; the market has been on point
thus far.
The Nasdaq knifed to a new low after the announcement. Then after hours
earnings warnings were again the main story with JBL missing its number by
2 cents, Vishay warning, MERX warning (circuit boards), and Foundry
warning as well. Foundry really hurt as it claimed the slowdown was in
the entire networking sector. Stocks are getting slaughtered after hours
on the news and Nasdaq futures at one point were 170 points below fair
value. That has relented as the evening has worn on, and at this time the
futures are down about 30 points. Not quite the carnage that it looked
like we would have, but it is still going to be a down open if things stay
the same.
The Fed states it is concerned about the economic future but not enough to
act. If the stock market worries it with respect to consumption, it is
going to have more to worry about. More and more economists are saying
that with the pathetic retail sales this holiday season, more than likely
GDP is already negative for the quarter. That would be the first quarter
in the two that are required for an official 'recession' label. If the
Fed waits until the late January FOMC meeting to act, the recession could
be already entrenched. If the Nasdaq sells down to 2,000, that means less
investment and economic activity, compounding the problem.
THE MARKETS
Anticipatory rises in all of the major indexes gave way to immediate
selling in the aftermath of the Fed's decision. A weak rally attempt was
simply an opportunity to dump positions before things got really ugly.
All three indexes quickly turned negative and sold on heavy volume.
Things will remained locked in their downtrends. Does not mean we will
not get bounces back up; we always do. We just keep our eyes on the
trendlines when we play positions to the upside and flip to the downside
when they bounce off of those trendlines. Yo-yo the positions and make
money; it has been fairly predictable. We also look at good patterns in
defensive sectors for the upside plays. Those are proving solid even in
this market.
Overall market stats:
VIX: 30.73; -0.72. Volatility moved down even as the Nasdaq hit a new
low for the year. We are not getting a push in volatility to the upside
that we need for a reversal. At this point, by reversal we mean bounce,
not a real turn and race higher.
Put/Call ratio: 0.76; +0.21. Put buyers rose, but did not dominate. We
may see more put buying tomorrow. Now that the Fed did not cut rates,
many will think the market is only going lower (correct view). That
should start pushing the ratio higher, and that brings us closer to a
turning point in the future.
Even if the above indicators give us favorable signals, for a lasting move
we need a tangible change in the environment for stocks that will build on
the sentiment. That would be a powerful hand-in-hand signal, but we have
neither right now.
NASDAQ: New intraday and closing low for the year on heavy volume. The
techs did not have much of a chance after the Fed announcement. The mild
bounce after the initial selloff just gave room to clear out positions
before the real selling started. If futures weaken again, we could see a
test of 2400 tomorrow. After six days of selling, that could finally give
the markets a bounce up for a day or two. After the news today, we have
to see where it tries to make a stand before going to test 2000.
Stats: Down 112.81 points (-4.3%) to close at 2511.71. A 185 point range
today.
Volume: 2.319 billion shares (+12.3%). Volume swelled on the selling as
investors dumped shares on the view that the market would not improve in
the short run. 1.895 billion downside shares versus just 369 million
upside shares.
A/D and Hi/Lo: Declining issues strengthened their lead to 1.97 to 1.
New highs rose to 84 (+19) versus 480 new lows (+104).
The Chart: http://www.investmenthouse.com/ch/nasdaq.html <