Fleckenstein...Correspondence Course on Sentiment Measures
By Bill Fleckenstein
04/02/2002 17:30
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Index Close Change
Dow 10,313.71 -48.99
S&P 500 1136.77 -9.77
Nasdaq Composite 1804.41 -58.21
Nasdaq 100 1410.41 -68.11
Russell 2000 500.49 -4.01
Semiconductor Index (SOX) 587.29 -22.68
Bank Index 894.32 +0.69
Amex Gold Bugs Index 101.36 -1.04
Dow Transports 2790.17 -77.39
Dow Utilities 305.38 +1.13
NYSE advance-decline -153 +101
Nikkei 225 11,204.49 +175.79
10-year Treasury Bond 5.35% -0.08
People Who Don't Need PeopleSoft : Last night, the foreign markets were kind of a nonevent, but a few hours before casino time, the futures markets really started to take on water, especially the Nasdaq 100. Precipitating the pressure was a handful of news items, the most significant being PeopleSoft's PSFT 10:30 p.m. preannouncement Monday. (Talk about trying to sneak one through in the middle of the night.)
Also, darling Best Buy BBY lowered guidance going forward, and that stock was a little bit weaker. Then there was Tyco TYC , which had negative comments about its electronics business, as well as another highflier, Black Box BBOX , which lowered guidance slightly.
On top of that, we had a big dead fish lower her numbers on IBM IBM , EMC EMC , and Sun SUNW .
Another member of that community at her firm also expressed his concerns about Microsoft MSFT . So, a fair amount of bad news weighed heavily on the market as it opened.
Factories Orders Endure Scrutiny on the Bounty : The early going was very, very whippy, with fast surges back and forth, especially in the S&P futures. The over-the-counter market also had a few surges early on, but was a fair bit heavier. It appeared that some of the consternation resulted from a weaker-than-expected number for factory orders for, get this, February.
Factory orders are another second-string economic indicator, but everything gets so scrutinized these days. I don't know if it mattered that the number was down one-tenth of a percentage point rather than up the expected 1 percent, or whether it was just the accumulation of bad news, but after the first few hours, the Nasdaq was down a couple percentage points, and the Dow and the S&P both were down only about 0.5%.
Regurgitating $10 Blintzes : In yesterday's Rap, I mused that the market action from yesterday (Nasdaq up, Dow down) might take an opposite turn today, and that's what we saw, at least in the early going. PeopleSoft was blitzed for $10 on the open, so at least it didn't get away with pulling a fast one, but the other two disappointers, Black Box and Best Buy, held up better.
The financials also were holding up pretty well in the early going. On the other hand, there was a general weakness in the SOX, which was down a quick 3% or so. Aside from PeopleSoft, the only other standout weak stock in the early going today was IBM, which was down more than $2.
Mirror Image on the Wall, Who's the Ugliest of All? : Today did, in fact, turn out to be the opposite of yesterday, with the S&P and the Dow holding up much better than the Nasdaq, which was crushed. The action in the S&P and the Dow was very, very whippy, whereas the action in the Nasdaq was pretty much of a steady grind lower. We had one serious attempt at a rally just after midday, when General Motors GM announced that it would raise auto production a bit, because things were better than expected. But otherwise, there wasn't much of an ability to turn thetech tape.
The SOX : As you can see from the box scores, the SOX was the worst place to be today, down about 4%. All of the aforementioned stocks that were under pressure in the early going continued that way. PeopleSoft closed on the low tick, down a whopping $12 and change, or 33%, thus demonstrating the old-fashioned 3-for-2 split, the hard way. Microsoft was down about $3, Best Buy was down more than $4, and Black Box was down $2.65.
So, at least for today, bad news mattered, even if it took the form of a dead-fish downgrade. It will be interesting to see if tomorrow is "another version of yesterday never happened," or whether the selloff continues, which has not really been the pattern recently.
Clean Up After Your Golden Retriever : Away from stocks, the yellow dog was barking again, up $2.80, and silver was up 1%. The dollar was up against the yen and the euro, although only fractionally. Fixed income was completely moribund in the early going, but came to life at midday, with the long bond popping a buck. (I sold the bond futures that I bought recently.)
Fed Bumps Up Against Debt Ceiling, High-Fives Michelangelo : Speaking of Treasuries, I saw a somewhat humorous though serious headline pass on Bloomberg : "U.S. to Tap Pension Funds to Avoid Hitting Debt Limit." It wasn't very long ago when we were supposedly going to run budget surpluses as far as the eye could see. Well, obviously the eye couldn't see very far, because now we're running deficits.
The government is bumping up against the debt ceiling -- something that occurred even while we were ostensibly enjoying surpluses. Nevertheless, the Treasury is going to tap the federal retirement fund to prevent the government from defaulting. I also might point out that government employees have their own little slush fund and don't have to be part of the Social Security ponzi scheme.
All-You-Can-Eat Anchovies & Archives : Recently, I have been trying to connect the dots about what's been happening in technology. I have also opined that there is a disconnect in the economy, due to peculiarities within the economic data that have created a far more optimistic picture than warranted by reality. Because I've discussed this often enough, I'm not going to bore everyone with it again. For the many people who inquire on the subject, let me just say that due to the volume of my email, I am unable to provide a long answer for everyone who writes in (though I do try to respond to all email).
That's why I would suggest that if people have questions, they go back and check the archives rather than ask me. I try to make points that I think are important as they arise, but it's not practical to rebuild the case every day. Like regular readers, newcomers soon will become familiar with the topics that I frequently cover in the Rap.
Vitriol Poll : On the subject of regular readers, many of you who have been following the Rap since its Silicon Investor days know that I have a nearly infallible measure of sentiment known as the hate-mail indicator. For the benefit of those of you who are new readers, back in the mania when I wrote for Silicon Investor and the Rap was free, I would often get nasty, poorly thought out emails from people who disagreed with what I had to say.
(Parenthetically, I might add, that's one of the bad things about the anonymity of the Internet -- emboldening people to act like ill-mannered children.) But I discovered an upside to the incendiary correspondence, because when a group of people summoned the "courage" to bare their teeth electronically, it almost always marked a significant market decline -- even if the market was headed higher, as was often the case in the mania days. I didn't get too much of that when the Rap went "pay-per-view" at Grant's , but it did happen occasionally.
You've Got Maelstrom : In any case, I bring this up because in the last couple of days, a lot of nasty email has again found its way to my inbox. I don't know if this sentiment measure will work as well now, but longtime readers will recall that it has been an uncannily accurate barometer in the past. So, for all you new readers, that's an explanation of the hate-mail indicator. It just flashed a sell signal, and I will keep people informed about how well it works going forward. |
