Steve Zito, Wharton School BS Econ, MS Fin, HTML Writers Guild
uses economic and technical analysis to forecast the direction of the stock market. The views in this newsletter are opinions only, and should not be solely relied on for your investment decisions.
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NASDAQ COMPOSITE
INDEX closed 1295.30

Sept. 9, 2002. WAR and Flat Markets

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Go To Page 2 On Sept. 6, Nasdaq Composite closed at 1295.30 +44.30. Nasdaq fell 19.55 (-1.5%) since Sept. 2 page. Long-term investors just holding. They have ridden the Bear all the way, no one will convince them to sell now. Long-term investors are not affecting current stock markets. Money flowing into mutual funds is from new investors. U.S. employment data Sept. 6 showed net gain of about 40,000 new jobs in August. This will increase total retirement plan contribution adding to stock purchase. US real estate values continue steady rise as always. There is no R/E bubble, confidence in safety of total household assets will keep many from selling. Over 2 years, stocks have lost $7.7 trillion yet total household assets are stable $40 trillion. What could change? A terrific bond rally is about to end with 10-year yields at 3.91% under 4% for the 2nd time this year. Asset reallocation should move stocks higher when bond yields back up. The trigger will be the next Federal Reserve meeting, analyze Fed notes and minutes to assess a Fed bias. War could start very soon. Stock markets declined an average 16% in the first 3 months of WW1, WW2, Korean War and '91 Desert Storm. Nasdaq declined 17% after 9/11. Then every time, bull markets began as U.S. GDP increased from war production. The $220 billion spent on Vietnam boosted stocks in 1960's. Pundits say this is a different kind. War is war. Ordinary people do not trust elected officials or brokerage hotshots with their money, but they do trust them to wage war. If war on Iraq starts, stocks will fall at first, then rebound quickly after just a month like they did in 1991. US data just released last week shows the US has been in a jobless recovery for seven months. On 10-day chart, Nasdaq is 0.3% above short-term support 1291. Stochastics were very over-bought on gap open at 1288 but fell to close neutral at 28%/65%. It appears short-term traders could not resist the low prices at 1263 on Tuesday and Thursday. Downside risk has been reduced. But a drop in jobless to 5.7% is considered a negative, as perception will spread that the Federal Reserve is finished lowering interest rates. With no economic data until Sept. 12, expect markets to do nothing until then. Late Thursday through Friday morning, there will be a trend reversal from stock option and stock index option arbitrage which occurs one week before expiration every month. On 90-day chart, Nasdaq is 0.3% below resistance at 1299. I have written that Nasdaq rarely gets more than 4.0% away from its 90-day moving average. Just Sept. 3, Nasdaq closed 4.25% below its moving average resistance. Will this uptrend be sustained? Talk of war on Iraq will keep NDX advances restrained and as long as the Bush team keeps defending losing arguments, NO major advance in stocks. Subscribers to my Newsletters read this on Sept. 8. SPECIAL. Get 2 to 3 issues a week for 6 months for only $50. My 150 newsletters published in 2001, please visit my Site Directory.
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