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The Bullish Alternative

April 12, 2001

The bullish alternative . . . was outlined last in last Thursday's nightly report, as the (ironic to some) probability of having Friday's market take a drubbing after the huge run-up the prior day. That would, we speculated, bring-out the bearish skeptics anew, help get a slew of new shorts on board, and increase speculation about the overall move being merely a 'one-day wonder' or bear-market affair. We felt it was not so; in fact believing straight-up would have been by far the less robust overall development, and called last Friday accordingly. So while there's much more infighting in the offing, and right near hourly resistance too (and not far from daily short-term goals) creeping into the picture now, we still suspect that this market will seriously attempt to make it above this immediate area, as forecast. And that has some longer-term implications.

One of those has to do with last night's remarks, where we definitely appreciate those occasional contributions from readers, often even charting the problems of debt, that is so much a fixture of modern America (both corporate and consumer-based). Sure, it can readily be argued that there's no way to recover from that accumulation; while it can also be argued the only shot in heck is to 'reflate' our way (or attempt to anyway), as has been the case repeated in the past Generation. There are no assurances, but debt is the same bearish case that is tentatively brought-out (it is fundamentally right) after every time the markets drop, and one of the declines may not come back swiftly, if at all. However, the monetary authorities also presumably understand worst-case or calamitous arguments too, which is why we faulted their hesitancy in cutting rates, as well as their inconceivable contrariness after the excess supply they created early in the Y2k saga, thus contributing to the speculation we continuously warned of then. Of course, not to belabor the point, but besides the bubble-bursting that was already the characteristic of the '99- early'00 markets, we believed (and still do) that the Fed has a responsibility to offset their excess before and after, helping to bring us back to some equilibrium. It is not just a market matter either; not to do so risks the Nation's equanimity and stability, in the fullness of time. So we concur about debt; but just as in 1997, during the height of the forecast debt implosion and brewing derivative mess we saw threatening, we believe the clear visibility of these risks actually minimizes at least some of the threat, because the authorities know they have no choice but move to reflate. Some say it's too late; we say of course for the myriad of also-ran stocks in fact (often, not in every case certainly) warned of for several years, as NASDAQ does not have a history of niche or small stocks (overall) surviving, which is why diversified approaches are the only way to tackle that portion of one's risk (if any) on NASDAQ.

If one looks at the Nasdaq 100 (NDX), where a majority are likely survivors, one can see the important leadership being attempted. Aside from that, the NDX and even the venerable Dow Jones Industrial Average, would be far lower if it was now 'too late' to save the Nation, as some have recently proclaimed. Quite the opposite, because it is not the '50's or '60's, and because debt is so high, there is really no alternative to a revitalization effort (successful or not), because times are not of the variety where big companies with lots of cash (almost all have expanded and bought into globalization, which often carries with it lots of debt, and uncertainties unknown in former eras) just hunker-down for 'the duration', and await things like housing and autos to revive in a fairly natural way, which they nevertheless would ultimately do. Given the debacle on NASDAQ, and to a lesser extent the NYSE, we think the markets have maintained an impressive undertone lately, and have built-upon the growing reversal of the bearish internals we first outlined as initiating distribution in the Spring of 1998. Accumulation, for those open-minded to considering that prospect, has been the sign for awhile.

For sure, we know we argued the bust of the ''s', then eventually the grand dames in technology; and things went ( in some areas, not all) lower than desired, and took a bit longer than desired to shape-up too, and recently we've arguing new accumulation structures. It is not out of the question that this takes a longer-time yet (as the Spring unfolds), but at the same time, getting bearish on the market now, or at anytime in the last several weeks, is a response to what is universally known, not an anticipation of the next phase, or at least an effort to save-the-day for all society. In essence that means that the market has had more than a cyclical decline; almost a secular one (but not across the board; as the entire episode has been bifurcated for a majority of the time; that it was not rotational in recent weeks, was a plus of sorts, as it meant a sort of concurrent capitulation, something long eluding these markets).

In any event, the politically-insular nature of China is evidenced here, crew releases notwithstanding, and probably it isn't something that will contribute to an expansion of globalism. Possibly this will be a factor cited some weeks from now, when the market has it's next more serious try at a drop (from higher levels), but for now we suspect things will be digested, with stocks still headed up within harmony of ongoing trends.

For that matter, the Nasdaq 100 (NDX) is enroute to challenging a gap left late in the March capitulation (set-off the final swoon as a matter of fact) around 1650-1700 or, while daily-basis resistance around 1800 may be insurmountable, just for now. If we can approach the next resistance (that gap) going into weekend, we might then try to consolidate a bit after Easter, and attack 1800 or so, with 2000 still needed to 'affirm' a longer-term reversal; but of course that would be well away from the lows, and thus more dangerous for anyone to be attempting buys at that point. For the Dow Jones, 10,300 or so should probably be a crucial level above here, and there's no change for either of those really. On the shorter-term, just moving over 10,100 here is significant.

For the June S&P, we continue to believe this is headed to the 1180's minimum; the low 1200's as a target goal, and maybe a little higher than that (which would be more than a bear market rally by the way). Having played last week's reversal, and the sell-off that followed Friday and parts of Monday, as ideally the bullish alternative, we still think that is what's occurring, and that if the market eases a bit in the morning, that's a decent set-up for higher price levels ideally late Wednesday and possibly Thursday. (Levels that we've been targeting these past few weeks are provided as a courtesy in this pre-Easter weekend report; and they're normally discussed in sections of the DB that are not made available to visitors outside of our site. As for levels we anticipate after Easter, those are addressed occasionally in the DB & Letter too.)

Daily action . . . in that regard reflects on the latest Monday entry in the June S&P in the upper middle 1130's, where we had a fairly interesting comment about retaining it overnight; that being the idea that it was one of the lowest-risk overnight S&P plays we could imagine in recent times; which is not something we usually say, nor is that the case in-front of Thursday's opening either. However, for that reason alone, we were unusually comfortable retaining the hotline's (900.933.GENE) long. At the same time, Tuesday's early hotline's indicated we probably would drift back just a little bit, with ideally an up-sideways-up pattern for the session. While we didn't get any solid extension late in the day, that was the general pattern delivered in Tuesday's market, and we did believe there would be some follow-through Wednesday, consolidation of sorts, and then ideally a little higher still, possibly even into the long weekend's start.

Actually these past four days was the strongest consecutive overall span in the stock market since June of last year, incredible as that seems. Certainly there were periods in the 'January Effect' rally that seemed more robust, but those are the numbers. For us, the key was the interpretation last week of a Friday decline as being within what we called 'the bullish alternative', and seeing whether stocks modestly ignore what by most expectations have to be inherently miserable Quarterly earnings comparisons. (portion reserved for subscribers).

We do not proclaim that the market's storm has somehow permanently 'passed-over' all its woes or challenges, though the heart of those fears were expected to dissipate last month. To delve into this, last night's DB discussed a bit about credit structures and debt fears, all of which are absolutely legitimate concerns, but to a great extent are factored-into a very long and protracted rotational bear market. The answer can't fully be known, or markets at all times would arrive at their destination on a dime, but what is clear is that despite a slew of heavier warnings and new proclamations about horrendous economic activity, the markets weren't showing negative breadth at any time recently. Sometimes when you start to see that, in the presence of anticipated miserable Quarterly reports, that's actually an omen for a serious rally that is at least sustainable for the short-term; said we.

Actually, we've noted this recovery has probably been underway, and to an extent in an almost imperceptibly way, for a couple weeks as outlined, including lows in March, the rebound, secondary test, and this current effort to break the downtrend, which was accomplished this morning, with little more at the end of the day. At this moment, the market is on-hold for the next phase of action. And we want to reemphasize that a lot of burst-bubble stocks won't be coming back (other than a pressure relief rally), but that at the same time technology itself isn't (by a long shot) finished; that the U.S. economy is weathering the storm relatively well, and that (as projected) the inventory correction is heavily worked-into, which should help the survivors fairly substantially.

We tend to believe that will also extend upside action beyond the very short-term, but of course this is increasingly going to get a bit long-in-the-tooth on a daily basis (but not beyond). There's some chance for an accelerated advance, which might focus to the chagrin of many, on bigger tech stocks more than multinationals, with the China story looming in the background of what can go wrong with globalization, and where there are certain risks, even for companies that are inappropriately thought riskless. To us there is no such thing as a riskless investment; just degrees of risk and rotation of course, as these things historically tend to shift cyclically, as just recently occurred.

Bits & Bytes . . notes a broad-advance today in a host of stocks, with good breadth and good advancing versus declining volume proportions, both on the NY and on the NASDAQ markets. We do not think it's over, allow for pauses-to-refresh, and actually suspect the week finishes (potentially) on an upward beat, especially for technology.

This is a daily report; but touched-on tonight (without constituting a buy, sell or hold), are stocks like LightPath (LPTH), Corning Glass (GLW), Analog Devices (ADI) or Texas Instruments (TNX). Also Nokia (NOK),Tyco (TYC), Microsoft (MSFT), even Micron (MU), are mentioned, with speculations on little Metricom (MCOM) shared.

In summary. . . as projected, hourly and daily moving average declining trends, were handily penetrated today, with this evening's downside in the wake of earnings, not at all negative, as the S&P and stocks recovered interestingly in aftermarket activity. We also want to reemphasize we do not strive to put too much credence in what the Fed does, though that has a big psychological role in this besides their having contributed to problems extending in recent months (really almost two years), as noted. Odds do favor the next move being a cut, which (due to a correction in T-Bonds will help the flattening of the Yield Curve) helps drive money from Treasuries into equities again.

McClellan Oscillator data continues ebbing and flowing as desired, and currently is around +61 for the NYSE and about +26 for the NASDAQ. We expect both markets to work higher over time, with only periodic corrections along the way just for now.

At this time we continue long the current June S&P guideline from the upper-middle 1130's of the June S&P; and did not expect holding it Monday night would be a very particularly risky effort, given the proximity to a breakout of the declining tops pattern, almost imminently, which has now occurred. Thereafter, surging higher on Tuesday, pullback regardless of the opening Wednesday, without accelerating to the downside, and then rally anew, is the overall call here. As of 8:30 p.m. ET Tuesday, June S&P premium's around 650, with June futures ahead 210 or so, after the 1172 closing. The 900.933.GENE hotline is till favorable overall (though a bit long-in-the-tooth on a moment-to-moment basis). (The complimentary excerpt is posited early so everyone can enjoy the Good Friday holiday, and we wish all a happy Passover and Easter.)

The periodic symbol for gold is AU which come from the Latin for gold aurum.
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