(Complimentary excerpt of Gene's Daily Briefing, posted at www.ingerletter.com late Wed. As of early Thursday, Gene's intraday audio-email MarketCast service is long just over S&P 1185.)
Gene Inger's Daily Briefing
The absence of 'traction' . . . following a series of sessions whereby the market sort of stumbled and bumbled as if inebriated, superficially dominating the week's pattern into Wednesday, by which point (especially since the Intel rally didn't hold early-on as regards the broader market; a pattern projected here), saw an ever-growing chorus of negativity heard. Our thoughts (including calling for solid Intel & Apple results before release) were that techs generally were groping for troughs, at least on a short-term basis, with Wednesday's session likely failing a first rally, but after calling a series of alternating up-dip-up-down moves, would finish rather strongly to the bears' chagrin.
MarketCasts (intraday audio-emails) repeatedly expressed this upside resolution or bias, even as we captured modest gains on the short-side earlier. Then in late action, we only allowed for the upside, which developed very well in-harmony with the call for an upside thrust in the last couple hours of the Wednesday session. More Thursday.
This is not over, therefore, as our projections would ideally entail the March S&P in progress for a short-term rally (off nearly the measured downside potential) to press (reserved for ingerletter.com members) levels in the next week or so, and possibly challenge (reserved). If that occurs, it will wrack havoc with 'conventional technical wisdom' about this being a (full correction). May be; but doesn't have to be (as noted before), since it's a 'bull market' in our view, and in such an environment, accidents tend to be on the upside, not downside, when they catch the Street by surprise.
Given a hard-hit to the Dow Industrials and Transports over the last couple weeks, prior so-called excessive enthusiasm is diminished; so that's a good (projected) thing. Most technicians have reverted to measuring downside potential (reserved) it doesn't have to be as we'd noted, and/or could be deferred to action some weeks further out as we have outlined and will assess in the days and weeks ahead.
Daily action . . . for now realizes immediate bearish alternatives are denied, by virtue of moving above 'congestion' of the last few days, which at times tried to work lower, but couldn't make much hay out of that. So if we get any sort of morning pullback into Thursday, traders likely will transition to an upside bias (appropriately we think) later in the session, looking for a move up-and-over (reserved) within a few trading hours. Then, a little pause could precede a thrust (higher), followed by another deflection, and then the assault on (higher), that could really 'freak' short-sellers in days ahead.
Such an evolution would spook naysayers, because they would be of course totally unprepared for that eventuality, and it wouldn't fit their neat expectation of a market working-lower until the weekly work is oversold (which can occur, but for sure doesn't always, nor have to, in a bullish environment of growing profits and low interest rates on a relative basis; details reserved for ingerletter.com readers).
Also, pundits are forgetting the huge amounts of seasonal reinvestment capital that's sitting quietly out there, and could decide to proportionately enter the marketplace. At this point that is pointing to buying pressure, not selling pressure; accordingly we're thinking should be potentially respected as such. There is no real competition from at least most debt or T-Bond markets, so that's a positive for money nibbling at stocks.
What would throw the bears off-balance totally, would be a move that made it into the (higher) before meaningful pause. That's simply continuation patterns; suggesting the market's structural health in this month's stumbling action is considerably stronger not weaker, than perceived in most quarters. We think this year's surprises may be to the upside as noted before; a pattern evolution assisted not hindered, by running into the forecast 'brick wall of resistance' at the year's start. We said it wouldn't be easy or would be erratic for awhile, and this certainly has been. But we also thought a market seen gearing-up for a rally (even if interim) had to be respected late this week; so we thought they'd catch-'em sort of napping, which is essentially ongoing (more).
Through all this, though no race-track barnburner, we maintained our suspicions that 2005's initial downside phase was exhausting in these preceding couple of days and that was evidently correct. That is the case despite the chorus of pundits suggesting the opposite. We weren't particularly nonplussed by final hour selling yesterday, as it sort of typifies how this market had been acting, and was resolving (we thought last evening) with respect to upward price behavior through Wednesday's, though there was expected to be intraday profit-taking after the Intel-push; then up near the end.
Also, the Dow Industrials have been softer than some other sectors, because of the perception (at least something we've mentioned) of 'currency-translation' profits, that of course ameliorate for some companies not really ramping-up sales, as the Dollar eases. Nevertheless Dollar stability helps real trade-related improvements (more).
As you know, the overbought status of the market at the end of 2004's projected rally, contributed to our estimation that there would be an anemic extension at best, as the market ran-into a 'brick wall of resistance' at the year's start. Then we thought, after the pundits reflected on the down-five-days that kicked-off the year, that prices would only consolidate briefly before resuming upside action, with a bit of a daily vengeance (which doesn't mean there can't be more instability, particularly around times noted).
Financial commentators fond of deriding the market's recovery ability coming-off the first-five-day decline, miss some realities. Most years were up in any event. Having the first-five up is no assurance of a spectacular year; witness 1987, which began with a solid rally, and then meandered into a forecast 'crash', which as we thought at the time, would become a serious buy-side opportunity to enter stocks afterwards.
This year, we are not expecting a market collapse, but are suspicious that a tepid or lukewarm attitude towards market prospects, may actually herald a year better than many suspect (as noted on ingerletter.com). We hear people talk of a strong first-half as well as softer second-half. Don't be so sure about that being how it goes (more).
It would also probably reinforce the investment-stance that reflects something viewed or acknowledged only subtly; that many nations are not about to reduce investing via U.S. Treasuries (or bear the Dollar excessively), not only because of petro-recycling of Dollars that we sometimes mention, but because their support for investing here is a form of 'contribution' to world policing action that U.S. taxpayers bear a burden of providing, which very much works in their interests too (even competitor nations that have shown their inability to intervene internationally, militarily or humanitarily, in Iraq, in the Middle East, Caribbean, or especially glaringly-visible; the rescue and recovery efforts in the wake of the horrific Pacific earthquakes and tsunamis).
What there is not a problem with is Federal Reserve policy (ironically the one area so many are unnecessarily worried about in our view), or the retirement of its Chairman. We do not believe the Government will chose foolishly in replacing Mr. Greenspan, at the same time as there is not a tight monetary policy, just the perception of one in at least some quarters. And we believe those pundits are wrong, and that slightly higher rates are not the same as high rates (that could be actual business impediments); so we think slightly firmer backdrops actually affirm the growth of the Nation's economy.
Concurrently, while closely watching interesting events, risks and assorted domestic issues, we must not shirk from monitoring the world situation as well. Yes, saboteurs, infiltrators, and 5th columnists are still operating in the U.S. and we remain concerned about the implications of al Qaeda messages, which quietly yielded higher alerts, and updated concerns, having seen nothing to ease security concerns in this regard. The reflections of heavily-armed (more so than usual) police around Washington ahead of the 2nd Inauguration of GW, is tantamount to indicating a higher alert profile for now.
In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including assorted terrorist groups. A world awakening to terror threats grows as domestic concerns retreat from absorbing us. Though few generally concur (interestingly the Fed does), our view has been slow but persistent American growth isn't negative, as it allows protracted gradual growth without ancillary significant high interest rate pressures (slightly higher over time; but not high). There's not a truly-restrictive monetary policy; nor is there likely to be one employed over time, irrespective of energy-induced inflationary pressures that can't be addressed simply; but (as suspected) are being tempered by simply lower prices.
This week, we thought the market could drop, bounce, dip; and then go higher (the call), and so far it's ongoing pretty decently, if not always comfortably. Thursday may be dip-up-dip-up, or a variation, but finishing higher we think. S&P's up 170 tonight.
Gene Inger,
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