After Gazing Into the Abyss; Historic S&P Highs Pondered

March 17, 2000

Musical chairs games . . . of course are underway, as what you're seeing is not normal investor action, but that of a coterie of mutual fund managers who (sometimes) think they're smarter than everyone else. Occasionally it's reminiscent of the attitude of a Fed Chairman, who successfully brought the Nation's markets back from the brink more than once. Actions of both are somewhat predictable; but nowhere is it assured that those in position to "move money" always will succeed although we hope (for the Nation's sake, not just near-term market action) that they mostly do.

In the case of the funds, the real question is whether after a day or two of rocketing blue-chips, a return to the NASDAQ "new economy" fold is forthcoming, and whether that return becomes just a rebound, before they head lower. What we do suspect is that managers are trying (so far doing all right) to bring the market out of this range in the S&P (1380-1420) successfully, so that there's a cushion sufficient to get through the inflation data, the Triple Witch, and the FOMC meeting of next week. They know that if the market can do anything but capitulate between now and then, it shouldn't be impossible to get some more air between the abyss and price levels, thus bringing (they hope) a spate of new money into the market, especially if Oil prices continuing easing, just as we forecast they would amidst those gazing naively at superficial retail gasoline pump prices.

For the Fed Chairman, who wants to retire without causing a market break he can't catch at the edge of the abyss (regardless of what he publicly says), the easing of Oil prices is a godsend he probably urged be politically created (as we speculated necessary to rescue the markets over a week ago, by suggesting pressure be brought by the Dept.'s of State and Defense, not just the normal influences of the Energy Department). If these efforts fail (balance of thought reserved).

The market knows so, which is why money rotates back from the brink, frequently. Because little seasonal money exists, and (as forewarned) tech stocks had gone really extraordinarily high for a long trend, they've shifted to the Senior Averages, to save the Dow Jones Industrial Average from the edge of the abyss. Given the revelation of a coming draught and tough hurricane year, it is necessary not only for La Nina to moderate but for Oil prices to ease and stay modestly down.

If so, the critical window for the stock market averages, for Oil prices, and for weather factors as a matter of fact, will have been addressed, not skirted, (because prices were forecast here for so many months to move higher, and did, while others were proclaiming their no-inflation nonsense) and while there would be a hangover effect for the next Quarterly earnings, the mold for eventual relief in fact would be underway about the same time as higher prices make the evening news.

Lemmings Marching to the Sea?

As the stock market is a discounting mechanism, one must assume that the multiyear trouncing of the non-tech components of the DJIA and S&P 500 was our forecast "stealth bear" that only is in danger of further collapse if tech kicks-in on the downside, beyond a projected corrective drop. If the techs merely complete corrections (some computer stocks were emphasized here as under pressure for months, and already likely to have completed their drops) then you do not have bear arguments; although it's dicey, and everybody is skating on relatively thin ice (because it's clearly dependent on certain things falling into-line just so). If it works, everyone will see why we spent a couple weeks (to the surprise of a few) exhorting everyone not to get excited about the downside in the big-caps, because we thought it was essentially over, at least for a bounce if not more, and concurrently thought (we know, tough for investors who want to label the market bear or bull, but it is what it is and the analysis was correct) that the Nasdaq 100 (NDX) and Composite would be hit, which they now have been (albeit the extent may still be as outlined last night) temporarily.

That will to an extent depend upon the alacrity of the new crowd of money managers, who (we hope) have the experience and chutzpah to navigate these treacherous waters, rather than just playing musical chairs. History is replete with "Games" in the market, which turn-out to be just a series of new lemmings marching headlong towards the sea, as the market parts investors from their money all too often (uninterrupted straight-up affairs are the exception, never the rule for a stock market). That is why through the parabolic action we tried to restrain our own enthusiasm, for a host of stocks that had doubled, tripled and more, by suggesting investors avoid leverage, and to remember to take partial profits out of huge run-up's. Our efforts cannot go beyond that.

Remarking about "old economy" stocks . . . some days ago, we speculated that that once (at last) the techs corrected, which we thought inevitable coming from extraordinary parabolic gains, we'd actually get money rotating into the tired old blue-chips, whether that turned out to be just a "bear market bounce", or more. Wednesday was a fascinating glimpse into the inner-workings of the market, and we are not unimpressed by it. And all the speculation about "margin calls" for the high-priced buyers of tech stocks recently (not us, as we warned of just this situation), could set-up the foundation for an exhaustion of downside pressure and at least a rebound in better techs.

Daily action; Technicals; Bits & Bytes and Economic News: (reserved subscriber sections) While it is conceivable that something approaching 6500 S&P points was doable Wednesday; about twice the S&P's gain, probably most 900.933.GENE hotline players didn't embrace every single guideline idea. Whether played tightly or broadly, it was a wonderful day to the upside, as may be parts of Thursday. (As of midday we are again long, and hoping for a meaningful bounce at minimum in the NASDAQ market, though not convinced such a recovery will endure for long.)

Recently we haven't been horribly bearish on many sectors that are already decimated; we were looking for correction in the uncorrected parabolic (mostly) NASDAQ areas; and we'd restrained ourselves from calling for an automatic Armageddon of sorts for the market, because it didn't of course have to automatically happen, and could see the already hit stocks more or less basing while others do catch-down with reality, so to speak, and then ideally work forward in unison. And we said all that before Wednesday's upside Dow explosion for all who don't check our work regularly. Continuing with this teeter-totter market drama; we're not surprised to see the Nasdaq 100 (NDX) working lower, while the S&P 500 and Dow Industrials work higher. However, in the fullness of time, what's healthy for the blue-chips will be healthy for the serious technology plays, as the old economy utilizes the products and services of the new.

In summary . . . we did not get excited about the downside (from a bearish trading perspective), and mostly played Wednesday on the long-side of the ledger in our hotline guidelines, with the thoughts about how we complete the Expiration week, especially roiled by rumored imbalances and adjustments in the S&P Index funds, which clearly had something to do with the big upside. The McClellan Oscillator reversed once again, and is now around +13, a mechanical buy as it comes up over the zero line. It is probable that if the market either likes, or digests, the number, and that it will take out today's highs during Thursday's trading, on the way to higher levels.

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