Stock Market Commentary for Wednesday, June 1, 2005

Nasdaq's moderate 7.51-point decline on Tuesday falls into the category of modest profit-taking.

The decline might have been due to Tuesday being the last trading session of the month and with all of the window dressing buying being out of the way.

The economic data was so-so and mixed.  It was no surprise to me that the Chicago PMI report was so-so, but apparently other people had been convinced that the economy was "strong" rather than so-so.  I guess they must not read my daily columns.

Nasdaq trading volume was barely moderate (1.77 billion shares), and breadth was modestly negative, with 1.08 losers for each gainer.  That was an awfully wimpy sell-off.

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-- Jack Krupansky

Stock Market Commentary for Tuesday, May 31, 2005

[Some minor changes in the actual column since Saturday]

Friday was a classic, slow, pre-holiday trading session.

Traders and short-term speculators tried to force a little profit-taking, but they quickly ran out of gas and the market recovered for the rest of the day, with Nasdaq rising a modest 4.49 points to a new high for the current up-leg.

The economic data was so-so.

Nasdaq trading volume was extremely light (1.27 billion shares), and breadth was modestly positive, with 1.24 gainers for each loser.

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-- Jack Krupansky

Stock Market Commentary for Saturday, May 28, 2005

Friday was a classic, slow, pre-holiday trading session.

Traders and short-term speculators tried to force a little profit-taking, but they quickly ran out of gas and the market recovered for the rest of the day, with Nasdaq rising a modest 4.49 points to a new high for the current up-leg.

The economic data was so-so.

Nasdaq trading volume was extremely light (1.27 billion shares), and breadth was modestly positive, with 1.24 gainers for each loser.

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-- Jack Krupansky

Stock Market Commentary for Friday, May 27, 2005

Although an upwards revision to the Q1 GDP report was a nominal reason for the market bounce on Thursday, the rally was still more of a technical response than based on true economic or business fundamentals. After all, the GDP number came in close to expectations, so there was no unsurprising news to respond to.

There were probably a number of bears who jumped on the corrective bandwagon on Wednesday and then had to furiously cover their short positions after Wednesday's decline turned out to be simply some modest profit-taking.

Nasdaq's barely sharp 21.07-point gain on Thursday was quite welcome, but the rather skimpy trading volume tells us to tread carefully and not take this rally for granted.

The economic news was so-so.

Nasdaq trading volume was rather light (1.66 billion shares), and breadth was strongly positive, with 2.39 gainers for each loser. This would have been a very nice rally, but volume was way too light.

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-- Jack Krupansky

Stock Market Commentary for Thursday, May 26, 2005

Finally on Wednesday we got a little of the long-awaited "profit-taking", with Nasdaq falling a moderate 11.50 points.  It's always very difficult to tell whether a decline is simply profit-taking before a continuation of an advance or an indication that the advance is over.  Wednesday did look like simple profit-taking.  A market top is usually preceded by some number of trading sessions where the market opens sharply higher and then closes well below the opening level, and there is no sign of any of that, yet.

Nasdaq closed at the level it had fallen to by 10:20 a.m.  This is not the trading pattern of a true sell-off.

The economic data was quite decent.

Nasdaq trading volume was very light (1.55 billion shares), and breadth was almost strongly negative, with 1.90 losers for each gainer.  The momentum froth speculators certainly jumped ship, but this was not a heavy sell-off.

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-- Jack Krupansky

Stock Market Commentary for Wednesday, May 25, 2005

The market continued its "sideways" march on Tuesday as people continue to struggle over the question of whether the run-up is finally over or simply taking a breather before resuming.  Nasdaq gained a modest 4.97 points.

Economic data continues to be mixed, but reasonably positive.

Nasdaq trading volume was not quite moderate (1.74 billion shares), and breadth was modestly negative, with 1.13 losers for each gainer.  A gain on negative breadth usually suggest that large-cap stocks did incrementally better than smaller-cap stocks.

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-- Jack Krupansky

Stock Market Commentary for Tuesday, May 24, 2005

Monday was yet another "treading water" trading session as market participants struggled to discern whether or not the recent run-up still has legs.  Traders and short-term speculators made some serious attempts to test for weakness, but in the end enough real buyers showed up to keep the run-up alive, for now, with Nasdaq gaining a moderate 10.23 points.

The only significant economic news is that retail gasoline prices continue to fall.

Nasdaq trading volume was light (1.68 billion shares), and breadth was modestly positive, with 1.20 gainers for each loser.  This was not a strong rally.

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-- Jack Krupansky

Stock Market Commentary for Monday, May 23, 2005

[Some minor changes in the actual column since Saturday]

Friday was yet another classic "treading water" trading session as market participants continue to "digest" the recent run-up. Traders and speculators did try to push Nasdaq down, and briefly succeeded, but by 10:00 a.m. Nasdaq had popped back up in their faces and began a gradual recovery for the rest of the day that led to a modest gain of 3.84 points.

The latest ECRI Weekly Leading Index suggests that the economy's momentum has once again petered out. The stock market may be rallying in anticipation of a pickup in the Fall, after the Fed has finished raising short-term interest rates.

The market continues to trade primarily on technical considerations rather than true economic or business fundamentals.

Nasdaq trading volume was very light (1.54 billion shares), and breadth was slightly negative, with 1.06 losers for each gainer.

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-- Jack Krupansky

Stock Market Commentary for Saturday, May 21, 2005

Friday was yet another classic "treading water" trading session as market participants continue to "digest" the recent run-up.  Traders and speculators did try to push Nasdaq down, and briefly succeeded, but by 10:00 a.m. Nasdaq had popped back up in their faces and began a gradual recovery for the rest of the day that led to a modest gain of 3.84 points.

The latest ECRI Weekly Leading Index suggests that the economy's momentum has once again petered out.  The stock market may be rallying in anticipation of a pickup in the Fall, after the Fed has finished raising short-term interest rates.

The market continues to trade primarily on technical considerations rather than true economic or business fundamentals.

Nasdaq trading volume was very light (1.54 billion shares), and breadth was slightly negative, with 1.06 losers for each gainer.

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-- Jack Krupansky

Stock Market Commentary for Friday, May 20, 2005

Thursday was mostly an in-between "treading water" trading session as momentum traders struggled to judge whether the rally still had legs or was poised to reverse.  Apparently there was enough lingering positive sentiment to keep sentiment biased to the upside, with Nasdaq gaining a moderate 11.93 points.

The economic data was mixed, which is no real change.

Unfortunately, the latest weekly report shows that there was a net outflow from domestic equity mutual funds, so there's a significant chance that a significant portion of the recent run-up may have been due to "hot money" rather than real buying, which means that this hot money could turn on a dime and leave the rest of us high and dry.  It's also possible that recent weakness in commodities speculation has left stocks as a more attractive speculation.  We'll have to see how this plays out.

Nasdaq trading volume was light (1.74 billion shares), and breadth was moderately positive, with 1.21 gainers for each loser.  This was not a strong rally.

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-- Jack Krupansky

Stock Market Commentary for Thursday, May 19, 2005

There was certainly no lack of chatter for explaining the sharp 26.50-point Nasdaq rally on Wednesday (tame inflation, falling oil prices, HP quarterly report, etc.), but the rally was still based more on technical trading considerations rather than true economic and business fundamentals.  I suspect that there may have been at least a little real buying to keep the rally going, but short-term technical speculators and short covering were the more likely culprits.

There was some resistance at the 2,010 level shortly after the market opened, but very little, and apparently insufficient selling pressure to deter a sharp rally.  That's good news.

Besides the sharper point gain, a big difference from other recent rallies is that trading volume was finally heavy.  The bad news is that probably implies that a fair amount of the buying was due to short covering by anxious short speculators.  We'll need to see some significant follow-through buying over the coming week or else we could see a significant reversal.

Some of the gain could be technical trading based on Nasdaq having moved significantly above the January/March downward-sloping trend line.  That's actually a good thing, but a continuation of the advance requires real buying far beyond the hot money of technical traders and speculators.

Nasdaq trading volume was barely heavy (2.01 billion shares), and breadth was strongly positive, with 2.60 gainers for each loser.  This was finally a strong rally, although I would note that trading volume was only just barely heavy.

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-- Jack Krupansky

Stock Market Commentary for Wednesday, May 18, 2005

Traders and short-term speculators tried to spook the market on Tuesday, and actually did for most of the day, but their tricks finally backfired and a recovery after 2:00 p.m. resulted in Nasdaq finally closing again above the magical psychological level of 2,000. Nasdaq rose a moderate 9.72 points, but unfortunately on such anemic trading volume that we shouldn't take too much comfort from this "rally". Still, a rally is a rally.

Some people suggested that the market rallied on comments from Treasury Secretary Snow on revaluation of the Chinese currency, but I don't buy that at all. I suspect that early market weakness was mostly due to day trading and a little real buying over the course of the day resulted in day traders having to close their short positions at a loss. Essentially, the late-day rally was a short-covering rally.

Some people blamed early market weakness on "inflation concerns" and even rumors of a George Soros fund selling tech stocks. Lots of nonsense is floating around, but that's the primary currency of traders and short-term speculators. The inflation picture isn't any worse than a day ago or a week ago.

With Nasdaq only a mere 4 points above the 2,000 level, even a tiny bit of profit-taking or negative sentiment could send the market back down. That said, we've set new closing and intra-day highs for the latest up-leg which is now 13 days old. That's fairly impressive after all the recent negative market sentiment.

Overall, the economic data was mixed, which is no real change.

Nasdaq trading volume was very light (1.57 billion shares), and breadth was modestly positive, with 1.18 gainers for each loser. Once again, with such light volume, and with such mediocre breadth, we cannot consider this a true (durable) "rally."

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-- Jack Krupansky

Stock Market Commentary for Tuesday, May 17, 2005

Nasdaq's moderately sharp 17.65-point gain on Monday was a relief, but we shouldn't hang too much hope on a nice gain when trading volume is so anemic. Market volatility can be higher when trading volume is light.

Nasdaq did set a new intra-day high and closing high for the latest up-leg, but the light trading volume tells us to tread cautiously.

Unfortunately, with Nasdaq now a mere 5.57 points from the hugely psychological 2,000 level, we can expect more in the way of emotional sentiment than cautious, rational deliberation in the coming days. Any break out above 2,000 needs to be on heavy volume for at least two or three days.

The New York Fed Empire State Manufacturing Survey was a big disappointment, but it's hard to attach too much importance to a single data point. Six-month expectations for survey respondents remain fairly rosy.

Nasdaq trading volume was very light (1.43 billion shares), and breadth was moderately positive, with 1.54 gainers for each loser. With such light volume, we cannot consider this a true (durable) "rally."

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-- Jack Krupansky

Stock Market Commentary for Monday, May 16, 2005

[Some minor changes in the actual column since Saturday]

Dell's (DELL) quarterly report gave Nasdaq a boost.  Still, trading was more technical in nature than based on longer-term economic and business fundamentals.  Nasdaq had a moderate gain of 12.90 points, still not quite enough to establish a "higher high" to indicate a bullish trend.

Unfortunately, Nasdaq closed well off its intra-day peak (by 13 points) and modestly below its opening level (by 1.50 points).  That's a moderate yellow flag, suggesting that a fair amount of "sell into any rally" sentiment still haunts the market.

The intra-day peak was probably due simply to short-covering, and then the bears put some of their shorts back on once the rally petered out.

Nasdaq trading volume was moderate (1.88 billion shares), and breadth was moderately negative, with 1.26 losers for each gainer.  The moderately negative breadth on a moderate gain is rather unusual and suggests that people were dumping smaller-cap stocks in favor or larger-cap tech stocks.  In fact, my favored S&P 500 Tech Sector "Spider" (XLK) was up 1.26%, and (besides Dell) that includes Dow Industrial components IBM (IBM), Hewlett-Packard (HPQ), Microsoft (MSFT), and Intel (INTC) on a day when the Dow declined.  H-P was up 2.33% as it was announced that Carl Icahn had taken a stake in the company.

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-- Jack Krupansky

Stock Market Commentary for Saturday, May 14, 2005

Dell's (DELL) quarterly report gave Nasdaq a boost. Still, trading was more technical in nature than based on longer-term economic and business fundamentals. Nasdaq had a moderate gain of 12.90 points, still not quite enough to establish a "higher high" to indicate a bullish trend.

Unfortunately, Nasdaq closed well off its intra-day peak (by 13 points) and modestly below its opening level (by 1.50 points). That's a moderate yellow flag, suggesting that a fair amount of "sell into any rally" sentiment still haunts the market.

The intra-day peak was probably due simply to short-covering, and then the bears put some of their shorts back on once the rally petered out.

Nasdaq trading volume was moderate (1.88 billion shares), and breadth was moderately negative, with 1.26 losers for each gainer. The moderately negative breadth on a moderate gain is rather unusual and suggests that people were dumping smaller-cap stocks in favor or larger-cap tech stocks. In fact, my favored S&P 500 Tech Sector "Spider" (XLK) was up 1.26%, and (besides Dell) that includes Dow Industrial components IBM (IBM), Hewlett-Packard (HPQ), Microsoft (MSFT), and Intel (INTC) on a day when the Dow declined. H-P was up 2.33% as it was announced that Carl Icahn had taken a stake in the company.

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-- Jack Krupansky

Calculating the Dow Jones Industrial Average (DJIA)

Since there is some confusion, I've written a short article entitled "Calculating the Dow Jones Industrial Average (DJIA)".

In short, add up the "last trade" prices of the 30 Dow Industrials stocks and then divide by "the divisor" (0.13532775). Stocks in the DJIA are not "market cap weighted" or weighted in any way that depends on the individual stock. A $1 change in any Dow stock has the same effect on the "average", whether it is a $100 stock or a $25 stock. It's very democratic in that sense.

-- Jack Krupansky

Stock Market Commentary for Friday, May 13, 2005

Despite the chatter about Wal-Mart's (WMT) weak quarterly report (and falling oil prices), market trading on Thursday remained strictly technical in nature. People are desperately struggling to discern whether to bet on a market decline or an advance, independent of the prospects of the economy over the coming year. The market remains in limbo. Nasdaq declined by a moderate 7.67 points, not quite wiping out the advance on Wednesday.

The weakness of Wal-Mart's results would have been no surprise to anybody paying attention to their weekly sales outlook reports. The new thing is the extent to which Wal-Mart is no longer an indicator of overall retail sales.

There were modest inflows to domestic stock mutual funds for a second consecutive week.

Nasdaq trading volume was barely moderate (1.79 billion shares), and breadth was moderately negative, with 1.69 losers for each gainer.

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-- Jack Krupansky

Stock Market Commentary for Thursday, May 12, 2005

Overall market movement on Wednesday was simply a technical adjustment, possibly a classic "dead-cat bounce", after the moderately sharp decline on Tuesday. In fact, we had a steep intra-day decline of 19 points (bottoming shortly after noon) before we had a fairly strong recovery into the close. Nasdaq had a moderate 8.78-point gain, but that was a 29-point rise off the intra-day low.

A terrorism scare added to volatility, but caused no real harm to the market. If anything, it may have helped to set a near-term bottom to the correction off the recent high.

All of the economic data was rather decent.

Nasdaq trading volume was barely moderate (1.77 billion shares), and breadth was very modestly negative, with 1.04 losers for each gainer. Negative breadth on a gain suggests that larger-cap stocks rallied while smaller-cap stocks were weaker.

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-- Jack Krupansky

Stock Market Commentary for Wednesday, May 11, 2005

Despite the chatter about hedge funds being in trouble and high oil prices, the market trading on Tuesday was still strictly technical in nature, and not related to true economic and business fundamentals. The moderately sharp Nasdaq decline of 16.90 points was certainly disheartening, but on such light trading volume was no more significant that the moderate gain (on light volume) we saw on Monday.

It turns out that all of the chatter about hedge funds was primarily the result of a story in the Wall Street Journal. Traders and speculators love to trade off bad news (or speculation or so-called "analysis") published by "The Journal", but a lot of this stuff has a very short shelf life. Yes, hedge funds are bad news, but that's not new news. Hedge funds thrived on commodities speculation and low interest rates, but higher interest rates remove that unnatural investment and trading incentive. The bad news for hedge funds is good news for traditional investments.

Traders and speculators may have started to bet on the downside as Nasdaq was approximately at the top of a downwards-sloping "channel". These guys may continue to attempt to force Nasdaq downwards in that trading channel, but their success or failure depends on real money flows for stock mutual funds (which crept up last week).

The economy continues to poke along, neither booming nor busting. I would note that over the past two weeks we have seen increases in chain store sales as gasoline prices have declined.

Nasdaq trading volume was very light (1.60 billion shares), and breadth was almost strongly negative, with 1.97 losers for each gainer. It would be a mistake to treat a decline on such light volume as a true sell-off.

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-- Jack Krupansky

Stock Market Commentary for Tuesday, May 10, 2005

Monday was an extremely slow trading session, marked more by day-trading volatility rather than any real investment flows.  Nasdaq managed a moderate 12.32-point gain, and actually rose 19 points off its intra-day low.  Yes, this was a nice gain, but the mediocre trading volume tells us to be very cautious here.  The bears may simply be waiting in the wings for Nasdaq to move up as high as possible before they step back in and clobber it with shorts.  A failed attempt to run up to the 2,000 level might give them an inviting opportunity.

Nasdaq trading volume was very light (1.48 billion shares), and breadth was moderately positive, with 1.72 gainers for each loser.  It would be a mistake to treat a moderate gain on such light volume as a true rally.

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-- Jack Krupansky

Stock Market Commentary for Monday, May 9, 2005

[Some minor changes in the actual column since Saturday]

The monthly employment report certainly got a lot of attention on Friday, but the stock market response was rather muted. Actually, that's a good thing since it makes little sense to get too excited by a single report. Nasdaq rose a modest 5.55 points.

Unfortunately, Nasdaq closed well below both it's high for the day and its opening level as well. That's a moderate yellow flag, suggesting that there is still a fair amount of "sell into any rally" sentiment in the market. The good news was that we finally set a new high above the April 21 intra-day and closing highs, at least superficially breaking the bearish trend of "lower highs" and changing it to the bullish trend of "higher highs", but we need to see some real follow-through to build a durable trend.

The economic data has been reasonably decent, suggesting that the economy is at least limping along and may in fact be picking up at least a little steam.

Nasdaq trading volume was very light (1.54 billion shares), and breadth was modestly positive, with 1.10 gainers for each loser.

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-- Jack Krupansky

Stock Market Commentary for Saturday, May 7, 2005

The monthly employment report certainly got a lot of attention on Friday, but the stock market response was rather muted. Actually, that's a good thing since it makes little sense to get too excited by a single report. Nasdaq rose a modest 5.55 points.

Unfortunately, Nasdaq closed well below both it's high for the day and its opening level as well. That's a moderate yellow flag, suggesting that there is still a fair amount of "sell into any rally" sentiment in the market. The good news was that we finally set a new high above the April 21 intra-day and closing highs, at least superficially breaking the bearish trend of "lower highs" and changing it to the bullish trend of "higher highs", but we need to see some real follow-through to build a durable trend.

The economic data has been reasonably decent, suggesting that the economy is at least limping along and may in fact be picking up at least a little steam.

Nasdaq trading volume was very light (1.54 billion shares), and breadth was modestly positive, with 1.10 gainers for each loser.

Click here to read the entire column.

-- Jack Krupansky

Stock Market Commentary for Friday, May 6, 2005

Thursday was a second day for the market to continue settling after the FOMC announcement.  The cutting of GM (GM) and Ford (F) crediting ratings to "junk" status by S&P gave the market a bit of a negative tone, but wasn't really an unexpected surprise.  The good news was that there was virtually no profit-taking for Nasdaq, with a slight decline of only 0.43 points.

Nasdaq did manage to rise above the previous near-term intra-day peak, but actually closed lower than it, which is a moderate yellow flag.  The good news was that Nasdaq closed modestly above its opening level (by +1.42 points), and 10 points above its intra-day low.  Those are positive signs that Nasdaq is somewhat resistant to profit-taking.

The economic data was so-so, which is par for the course and not new news.

Nasdaq trading volume was barely moderate (1.79 billion shares), and breadth was slightly positive, with 1.03 gainers for each loser.

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-- Jack Krupansky

Stock Market Commentary for Thursday, May 5, 2005

The market will take another couple of days to stabilize after the FOMC announcement.  There were lots of little tidbits of news on Wednesday, but nothing so overwhelming as to be a primary catalyst for the rally.  Nasdaq's very sharp 29.16-point gain was nice, and in fact confirms the new up-leg off the intra-day low last Friday, but it's difficult to gain much consolation from a sharp move only a day after an FOMC announcement.  It will take another week before the trend becomes clear, but for now the rally looks halfway decent.

The news about Kirk Kerkorian's plans to take a bigger stake in GM (GM) did help to boost market sentiment, but by itself wasn't a cause for that much enthusiasm.

The economic reports were mixed and rather lackluster, so they weren't the excuse for the rally, other than possibly being not as bad as some might have expected.

There does appear to be a sense that the crude oil rally has run out of steam, but that may be temporary.

Nasdaq trading volume was moderate (1.92 billion shares), and breadth was strongly positive, with 2.19 gainers for each loser. This was a half-decent rally, but trading volume was rather light to consider it a strong rally.  The fact that trading volume was not heavy on such a sharp gain is a moderate yellow flag.

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-- Jack Krupansky

Return of the long bond

The U.S. Treasury surprised everybody by announcing that they are seriously considering the reintroduction of the 30-year "long bond", possibly in February 2006.  The effects could be quite unpredictable, especially on demand for the 10-year treasury note.

 

One possible impact is that Treasury could flood the 30-year market with debt to fund the federal budget deficit without the need for creating an excess of supply for the benchmark 10-year note, thus helping to keep the yield curve relatively flat as it is today.

 

This story could play out in quite a number of different ways.

 

-- Jack Krupansky

Stock Market Commentary for Wednesday, May 4, 2005

Tuesday was focused almost exclusively on waiting for the Fed FOMC announcement and then bouncing around in reaction to the statement.  The Fed raised the fed funds target rate as expected, but is will take a few days for the market to fully digest the FOMC announcement and for the dust to settle.  Traders and speculators overreact to FOMC announcements far out of proportion to the actual economic impact of the Fed action itself.  We must wait for that overreaction and the resulting counter-reactions to dissipate.

Nasdaq trading volume was moderate (1.88 billion shares), and breadth was modestly positive, with 1.08 gainers for each loser.  This was a "treading water" market.

Click here to read the entire column.

-- Jack Krupansky