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Market Wrap

Consumer Confidence?

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       11-27-2001           High     Low    Volume Advance/Decline
DJIA     9872.60 -110.15  9992.72  9831.15  1.3 bln   1396/1724
NASDAQ   1935.82 -  5.27  1965.09  1902.89  2.1 bln   1758/1914
S&P 100   590.83 -  5.41   598.57   586.86   Totals   3154/3638
S&P 500  1149.49 -  7.93  1163.38  1140.81
RUS 2000  460.71 -  0.51   463.25   457.92
DJ TRANS 2509.30 - 16.55  2539.62  2500.64
VIX        25.21 -  0.03    26.35    24.08
VXN        49.27 +  1.05    51.30    48.01
TRIN        1.09
Put/Call Ratio       .74

As expected the consumer confidence index fell again in the November reporting period. The drop to 82.2 was due to the weak jobs market in October and is the lowest number since 1994. The confidence numbers also showed that consumers are slowing plans to make major purchases. That slowing coupled with the news that we have been in a recession since March gave traders another excuse to take profits. Traders did not need much of an excuse since the 10,000 level on the Dow was starting to appear tougher than they thought.

In addition to the Consumer Confidence report this morning the market also got a wake up call from Nokia. The company held an analyst meeting in New York and lowered sales estimates slightly for 2001. That is all analysts needed to hear to reach for cell phones to issue sell orders. Nokia dropped -1.50 on the day but investors may have wished they had gotten a busy signal instead of a broker. Nokia concluded their meeting with glowing words about their new products and up graded sales estimates for 2002 to between 420-440 million units. They said they would make their profit estimates and would grow revenue between +15% and +25%. While some analysts were issuing a sell on the stock others were calling for buying the dip.

After the bell today Anadigics (ANAD) announced winning two big CDMA contracts from Korean companies and said they expected increased revenue over the next year as more CDMA networks ramp into production. Wireless is not dead as many thought when the Nokia analyst meeting began this morning. Qualcomm should benefit from this news as well.

Flextronics (FLEX) announced after the close that they were comfortable with estimates and business was good. FLEX is a contract component manufacturer which includes HWP printers, the MSFT Xbox, and cell phones. Analysts feel FLEX is a leading indicator of the health in the tech sector since they are the first line of production in many areas. CEO, Michael Marks, said demand for mobile phones was beating expectations and sales of PCs and related items were doing okay but the telecommunications sector was still problematic. FLEX said they were seeing the early signs of an economic recovery.

Intel also added to the positive feeling intraday after CFO Andy Bryant was confident that it will meet fourth quarter revenue forecasts of between $6.2 and $6.8 billion. Bryant said Intel was getting more and more comfortable every day with current projections. Bryant said the WTC attack and resulting business slowdown had made projections difficult but that the current rebound was encouraging. He did however say they were less confident predicting an end to the current recession. INTC rallied to resistance at $32.50 but failed to break through.

Does all this news sound bearish or bullish? If your answer is bullish then why did the market sell off again? Some feel that the first blush on the Nokia news coupled with the expanding war news was all the excuse traders needed to take profits again. News that IRAQ was bombed again is not new. IRAQ has been bombed repeatedly for the last ten years whenever they try to shoot down coalition planes. What was new was the idea that Bush was trying to find an excuse to go after Saddam and this was the prelude to that attack. I really do not think this was a market problem. More marines are going ashore in Afghanistan but I do not think that is a problem either. Both of those events are already priced into the market.

I think is the problem is fear of falling. The major averages have had a significant run and have come to a dead stop at serious resistance. The longer we linger here without breaking through the more worried investors will become that the rally has run its course. Despite the negative numbers on Tuesday I think the long term trend is still positive.

The Consumer Confidence numbers this morning was bullish in my opinion. The headline number is a summary of the past. We all know that the recent past has been bleak but how many layoffs have you heard of recently? Not near as many as 60-90 days ago. The "expectations" component of the index actually rose by four points to 74.6 and shows that consumers expect things to get better soon. Do you think $.95 cent gas is hurting anyone? How about home mortgages under 7%? How about cheaper prices in the malls during the holiday season? I doubt anyone is complaining about any of these things. Confidence actually rose sharply for those under age 35, from 91.9 to 97.4, evidencing confidence in a coming recovery. Contrary to the confidence numbers, existing home sales rose significantly last month to an annual rate of 5.17 million. Housing inventory also dropped and buyers raced to take advantage of the low rates.

Still, the headline Consumer Confidence numbers may have cemented another rate cut on Dec-11th and several analysts even feel there will be one after that. While I am not quite that optimistic I do think that the bottom in the market and the economy is behind us. However, just because the bottom is behind us does not mean that there are only blue skies ahead. We still have that resistance problem to deal with. The Nasdaq actually traded above its 200DMA of 1964 on Tuesday for the first time since Sept-8th 2000. While it closed below this level this is a positive event. The S&P-500 traded briefly over strong resistance at 1160 and the Dow came within eight points of 10,000 for the sixth time in the last two weeks.

The Dow is stuck solidly in a 200 point trading range between 9800 and 10,000. This means traders will buy 9800 and sell 10,000 every time until one of those ranges fails. Even with the "bad" news today the Nasdaq managed to hold at 1935, a level which had proved tough overhead resistance for the last two weeks. The bounce today came exactly at the 5-DMA of 1900 which should provide support unless something new appears to shock the markets. 1850 is still strong support for the Nasdaq and traders should buy any dip to that level.

Remember on Sunday I talked about this being the make or break week for this rally. The drop from the highs today showed how scared traders are that it will not last. This is good! If everyone was bullish we would be doomed. Our targets for a new bullish confirmation are 10,000 on the Dow, 1965 on the Nasdaq and 1160 on the S&P. Continue to buy any move above those levels or any dip back to support. (9800/1900/1130) Avoid opening any new long positions if the markets continue to move sideways in the middle of those current ranges. Wait for either extreme to open new positions. Remember, without a continuation of this rally the season for tax selling will begin sooner than mid-December. Also next week marks the beginning of January earnings warnings. If we do not make it out of this week with new highs the result could be early selling to avoid those events.

Enter passively, exit aggressively!

Jim Brown
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