Chance for Labored Interlude

August 31, 2001

Nobody wants to pull a trigger . . . decisively in either direction, as nearly everyone feels an ongoing underlying sense of desperation, that's still gripping equity market sentiment, if not price behavior as it falls, or all sectors of the economy, it should be noted. At the same time there is no doubting that the warnings we issued about daily resistance being of lesser-importance than weekly-resistance, that was repelled shy of, by all the Summer rallies, was very important. While we were confident prices had togrind back towards the lower-end of the negatively-tilted range, there remains the key point to all this: the rallies were all to a series of lower highs, and that means that bearish arguments have never been denied by anything occurring this Summer. Just take a gander at a 5-year Cash S&P 500 chart, and you'll see what we mean, as well as the proximity of the same inflection point we outlined in Tuesday night's remarks. (It may or may not be provided here by sites providing these remarks as a courtesy, but it or a 10 year chart may be viewed by everyone on our ingerletter.com web site.)

That is why, while we argued that, if there could be a movement above weekly-basis resistance, the structure would change, and mitigate the risk as we moved down near lower-ends of this range, that knocks on September's door at a very crucial juncture. As outlined in last night's DB, these economic numbers everyone's focusing on are in no major way capable of imbuing confidence in a market without compelling reasons to buy, so that leaves us with lined-up oversold indicators, but at psychological spots quite capable of having a rather historic outcome, if they are nevertheless breached.

Wonder if that's really so? Then if not, why is there such procedural effort to 'support' this market just above the (last-ditch?) so-called defenses for the current intransigent or rangebound structure? That's because powers-that-be know probabilities, and for sure would prefer not to have to deal with a breakdown of this structure. However, it's what happened in 1987; it would surprise fewer participants this time, and it would be a shorter-lived scenario, in our opinion, for all the reasons outlined last night. And for sure, it would take the 'edge' off the overbought quotient for the Dow Industrials, per warnings of their been overbought or incredibly stable, relative to much of the market.

It still remains the case, that after the market 'affirms' a turnaround, it would have to go all the way back to weekly resistance, and penetrate it, before a trend reversal of a longer-term nature would be 'confirmed'. However, if the turnaround is coming out-of-the-hole so to speak, and well below current levels, ironically chances for success down-the-road on the upside, will, we believe, actually be enhanced. That's why last night's DB's comment to the effect that busting-through the downside here would be a unique situation (able to capitalize on any 'panic', but specifics must be reserved).

In any event, technically there are no 'support' points worth discussing; the S&P has already failed higher (weeks ago) and gone lower than it should if there was a quicker bullish alternative, and that tends to weigh-in on the concept of 'climaxing' the market in a way that would washout any remaining optimism, where possible, hence turning the market from down-to-up thereafter. Today (Wednesday) was not a selling climax.

As strategists (and some quants, or quantitative analysts) for the most part gravitate to a risk-averse strategy, they continue to speak lovingly of the most expensive stock companies on the Board, dismissing the 'Pushing on A String' (discussion recently in these remarks) liquidity worries, and/or suggesting investors avoid cheap techs and just concentrate in basic stocks. If they were really so sanguine, they wouldn't press for those sectors; they'd argue only cash equivalents. While we concur that amounts of cash (we've said that before; and have always kept asset portions in Government Bonds, though the T-Bond market is becoming rich, to say the least) are appropriate, we would not expect the market to simplify things by waiting until the last tax-selling or tax-reduction strategy is out of the way, before the market climaxes and turns. As many are suggesting that into weakness now, we wouldn't be surprised if many of the better depressed stocks, don't wait (reserved) to resolve at least their current pattern.

Nevertheless, our main point is that for the moment whatever downside you get, is what you'll get, not being facetious, but because it galvanizes sentiment negatively and creates, at least temporarily, an automatic rally from a climactic washout. How low; we'll see. And how low in the fullness of time (or not) was a separate discussion.

As of now, the hotline (900.933.GENE) is flat overnight, after covering a most recent short-sale this afternoon, at small gains. Earlier a short-sale on the opening thrust, as the GDP numbers were not so horrific as consensus expectations (and we though as you know that they wouldn't be), gave us super gains coming down from SPU 1168, then a moderate loss, then a modest gain; total probably around 700 or so ahead. Of course we don't give trades; just guidelines. Results will vary by individual decision to pull any or all handles, or none, as they see fit. We actually trade for only ourselves; are beholden to no firm or fund, and (for new readers) are long retired from money management. Nor do we provide any institutional services; just our analysis you all are familiar with, and with hopes that they are helpful, despite not always being right.

Can this increasingly concentrated embrace of the downside among strategists (via a move into risk-averse stocks, which for some is probably code for bearishness); will it correlate to low points? Of course it could; though media hype about how invisible all favorable signs of buying still are, or how cautious most businesses remain, tends to suppress buying impulses, as you again saw today. And then there's the omnipresent view about more corporate warnings of course. All of this makes investors incredibly nervous ahead of September's start. We concur it's likely going to work lower, but will bottom and turn (probably more than once), and not at a time where they can sort of 'ring a bell', and have everyone comfortably reverse sentiment on a proverbial dime.

Last night we conjured up Roosevelt-era thinking, about just fearing fear itself? Very ironic that our President chose this day to express how 'sorry' he is for average U.S. citizens. What happened to acknowledging that, and expressing confidence about a future? Nope; not a word. Gee, well, we're glad his tax-bracket cut got passed, even if he's not handling the economic matter in particularly statesmanlike fashion. Did he really need that full month off? I could use that. Anyway, that the Pres said as much, probably hit a certain spot with everybody at Treasury and over at the Fed (reserved).

Recently brought up the subject of 'Crash Alert'; and we updated our views again tonight. While recognizing the power of a 'trend in force', and the proximity of crucial breakdown points, and the probability of those being temporarily breeched, we'll just remind everyone that historically, such implosions provide (not in the first moment of course) classic buying, not selling, opportunities, when later viewed with the benefit of hindsight. That will again be the case coming out of this scenario we believe, with a focus not on divorcing emotion from the equation, but of putting it to work for you.

In summary . . . it remains a climate where there are few compelling reasons to get aggressive; there's not a surmounting of key resistance yet, there has been a failure to rebound from declines, and some of the best chances to abort selling didn't take; and of course we outlined expectations for downward extensions here for weeks, as the market was repeatedly repelled from weekly, and then again daily, resistance. As for Thursday, more economic numbers shouldn't be particularly important, but have impacts in holding money back; repeatedly. Pre-holiday washout and turnaround?

In every cubic mile of sea water there is 25 tons of gold

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