At the same time there was a Florida Court decision reversing a major tobacco case; but that didn't have much impact; neither did Intel's (INTC) shareholder vote not to expense options; as a couple of companies, such as Apple (AAPL) had approved. It might be noted that the Financial Accounting Standards Board continues trying hard to come up with new rules that would force companies to expense stock options. We believe (as the AAPL experience showed) that investors won't revalue holdings just because there's an impact on earnings, because they know those are superficial. So, while not expensing options in some cases allows salaries, new employee incentives or corporate results, to be somewhat higher than they might be, the market does not show a great concern with respect to this; valid arguments can be made either way.

Al Qaeda broadcast a message today, purportedly from bin Laden's top lieutenant, to the point of urging more attacks on Americans, and (for the first time) Norwegians (it isn't known why they were singled-out, though participation in Afghan security might be why). Clearly the barbarians, in their various singled-out messages, managed by now to include almost everyone else in the world but themselves; are they their own next target? (The world could only hope so; let their devices blow themselves up as they assemble them.) In the meantime, the apparent 'device' detonation in an empty classroom (in a mail facility building) at Yale University Law School today, fortunately found the classic building almost empty, with no serious casualties.

That's great, but it is going to put the Nation on edge about either a series of ongoing worldwide attack threats (and actual attacks), whether al Qaeda or not, as well as create a damper just in front of the holiday. It also denotes the vulnerability of 'soft' targets, and validates a split-decision of the Cabinet about yesterday's hiking of the threat level. Keep in mind that last night ABC News had awfully specific discussion including risks to Boston as well as New York City, and 'beach areas' along our coasts, suggesting that "Moslems leave the major cities". We alluded to the last part in earlier speculation, wondering if it was (and is) primarily psychological warfare. No way to know that; but tonight we're hearing that there was an actual plan to hijack an aircraft in Africa and fly it into the (once-bombed) U.S. Embassy in Kenya. No wonder everyone's nervous; as clearly there's more going on than political posturing alone.

In a couple media outlets they are speculating whether the Yale attack (if it was one), or even the Saudi attacks, were actually diversions to a potential main event. No way to know, other than realizing the barbarians continue to single-out basically none but themselves, and that (as speculated) Iraq was a potential key inflection, but not end of the war (and nobody we know ever thought everything would be finished there).

There is no 'official' tying of today's purported new al Qaeda message with the recent threat-level increase, but it does tend to amplify the idea that the heightened warning wasn't merely a political initiative, as some pundits speculated, or easily arrived at. Again, during the course of the session today, we expanded on that comment we'd shared last night about terrorists urging all Moslems to get out of 'certain' cities. We would like to believe that is propagandist psychological warfare, but don't know. For sure the Government isn't taking it as a hollow threat; witness the increased concern; and a reason for the trimming of potential investment enthusiasm as a holiday nears.

The market ramification primarily (presuming nothing actually occurs) is a cautionary tone that might otherwise be less evident, though correction action was projected by our ingerletter.com remarks to commence under cover of last week's Expiration, well in advance, and did. So erratic, somewhat negative action, comes only as a surprise to any who were chasing breakouts in the last couple weeks, and not readers here. It was our view that the June S&P would likely work to (outlined) lower levels varying, depending on how high we got in the first place during last week's struggling rebound attempts; but as the rebounds were no stronger than just under lateral resistance, we stuck with the guideline ideal, and there is nothing yet to change that perspective.

Of course these matters are subjective and not engraved in stone; but for now we're just watching the correcting market, with efforts (to continue) at revival, but little more. A key daily-basis question may relate to whether or not we'd get a rebound to catch shorts a bit into the holiday weekend itself, and that's harder now to guage. Why? Because while that was on our mind before the terror level increase, now there is a perceived desire of traders not to extend their risk in overnight positions, fearing they might awake to some negative news on the terror front, so you get squaring just a little earlier in the day as a likelihood, and it may be insufficient to hold into closings.

Nevertheless, our thinking has been that traders may try to catch bears off-guard with pre-holiday rallies, that while not changing overall consolidative natures of the move, might be very tradable hourly-basis advance. The hotline attempts to catch efforts of this intraday sort; and will again on Thursday; as it's notable Wednesday pattern was rangebound, but with an upward (almost symmetrical) tilt to S&P behavior (breakout possible; later retreated from, after hourly running-in some increasingly bold shorts).

However, what is good to see is the inability of the market to utterly fold in the face of a pattern society is becoming almost too used to (is that complacency?), and techs in particular are holding well during expected consolidations. The Nasdaq 100 (NDX) as well as Semiconductor Index (SOX) were not overly inflated as some sectors of late (to the chagrin of those arguing the opposite); so digest corrections modestly on a comparative basis. Wednesday's NDX action was extremely symmetrical, but from a bigger picture, it was only about three days off the breakdown from what was seen as an unsustainable short-term extension (reserved for readers). Just like the SOX for that matter, as the accelerated rising-bottoms of recent weeks come out, and then the ensuing pressures are extremely mild, that argues well for no enthusiasm on the sell-side (about as desired), with institutions probably hoping for meaningful declines during the summer for additional buying (many of them missed the earlier moves). In our view this will tend to limit the declines comparatively (discussion for readers).

As to Chairman Greenspan, we find it incredulous that a monetary chief isn't allowed to talk about the Dollar. On this score we have to concur with those who would argue that while Treasury controls certain currency trading and decisions, the Fed policies (including the flooding of liquidity which impacts foreign reserves held in Dollars as a for-instance) absolutely have a rather direct effect on the U.S. Dollar, and to suggest otherwise (as the Chairman sort of did) is almost a refusal to respond to oversight by the Congress; (more discussion at our site).

The firming price of Crude Oil (with a rebound from the forecast breakdown forecast in advance here) is probably a temporary phenomenon, especially assisted by weak Dollar conditions (which have stabilized contrary to all the recent naysayer opinions), and at this point hasn't passed-through to retail, though ultimately it may just a tad as we move towards the summer driving season. Tighter Natural Gas is more realistic in supply terms, and the idea that Iraq may (under perceived Western leadership) even consider leaving OPEC (reserved discussion). In essence, price stability is the goal.

Daily action . . . reiterates the nervous stature that we once again enter an evening with. This isn't particularly reflected in the market (other than intraweek rallies that try to get something going but don't), but is visible in the (generally not noticed) increase of the alert status at many overseas military bases or host government installations; ranging from North Africa, to the Persian Gulf, to former Soviet republics. This alert is at 'threatcon Delta', which is the highest condition of alert prior to war (more.)

In any event, to us this terrorist climate created a new necessity to move away from focuses on sustainable rebounds after an expected post-Expiration stock drubbing, giving the outcome a slight negative bias on hotline (900.933.GENE or direct-dial flat-rate access) updates; regardless of a suspicion about catching shorts napping for a brief period ahead (such as intraday Thursday and maybe even Friday). June S&P efforts netted around 700 points (mostly on the short-side Tuesday), and more (a few hundred at the most) Wednesday, in harmony with a volatile choppy mode expected both before and after the Chairman's question & answer period. We basically thought there would be an attempt to bounce after the Q&A, but not be very sustainable. Tax-cut passage may contribute to rebound efforts, but also just as transitory rebounds.

Thus, we could see a grander rebound along the way, though at the moment rallies appear to be merely what is called intraday 'squaring', or short-covering. It remains increasingly dicey, as while we believe that there's more corrective action to be seen overall, it can't be said that intraweek speculators couldn't again rebound matters temporarily, even if in harmony with an overall short-term downtrend, which is how it would normally go, and what we're looking for on a very near-term basis from here.

In terms of the June S&P, we had in mind a drop to something like 890-910 if S&P's didn't first make it above the lower-end of the lateral resistance (and it didn't) around the 950 area and up (technical projections beyond that and the implications for later behavior through much of the summer are, as a courtesy, reserved for our readers).

In summary . . . economic results remain mixed, though we find most of it satisfactory. The same contradictions of continued confidence, low optimism about the U.S. Dollar and decent consumer spending, but a lack of impressive improvements in palpable measures like jobs, and terror fears too, clearly continue. There is no justification for bearishness on the dollar just because certain esteemed traders are publicly negative almost a year after the downtrend began, masking a developing equity accumulation.

Events (beyond Iraq) still continue reminding us of various risks Allied fighting forces may face, not only given new threats received amidst challenging times, but also the continuing SARS epidemic, and North Korean adventurism. We have to keep in mind the unexpected can't be totally dismissed as overwrought worries, as they remains a risk as western civilization cheers human progress, but it's a perception that activities of recent months constituted an important 'inflection' of an historic kind, as has been our primary point here; though noted short-term risk arrived in the past couple weeks.

Gene Inger
Publisher

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