Holiday Reservations

March 29, 2002

Nailed Wednesday action . . . for another consecutive day of calls that defied most of the prevailing logic about this holiday-shortened trading week. Most conventional wisdom would have had merely lethargic action characterizing this trading week. We had a hunch that after Monday's decline (exacerbated by the economists' survey) we would get a turnaround Tuesday, and a solid day-to-day-and-a-half rally, which might catch the shorts unprepared, and we got just that. It was stronger in Dow Industrials than in the NASDAQ, but that's o.k., though it makes one wonder whether the focus is becoming excessive in the Senior Averages, or neglecting the value issues again.

However, just because we expected this move does not by any means eliminate part of the reservations we have regarding ensuing activity as we get into the new month. It's an interesting contrast, with the VIX (Volatility Index) showing a drying-up sort of pattern (low volume, low volatility 'in theory'), part of which typifies pre-holiday action.

Actually we think the market is not so non-volatile as many perceive, and we believe that complacency has slightly crept back into the picture, by virtue of 'sentiment data' that presumes 'everyone' is extremely, if not historically, optimistic. We think they are confusing 'confidence' in the Nation's future with some market expectations, which as you know have a complex tone ahead, as far as our April outlook is concerned (as it was outlined the other evening, distinct from the rally projection that is ongoing now). We'll review that prospect again in the 'daily action' section, but as everything is still moving in harmony with the expectations, there's really no reason to revise anything.

What we will remind the majority who thought quiescence would dominate today, is that this is end-of-month / end-of-Quarter activity which we suspect would be partially to the upside, and reflect not an exhaustion, but rather some repositioning by many money managers in big-cap stocks. That would also explain the neutral NASDAQ, as well as the comparatively lackluster Nasdaq 100 (NDX), which faded hourly, but did not accelerate on the downside, despite taking-out what some thought was support (as noted yesterday, it wasn't an important level, and we didn't understand what so many were talking about, because of the ongoing short-term decline since the 11th, which appeared (in advance) to be merely hesitating before taking-out the daily or short-term moving average, preparatory to moving towards a daily-basis oversold.

We are concerned by the tensions in the world; even if bin Laden is toast, which we have hoped to be the case for quite some time. There's an alert for Americans now in effect in Italy, and there was a horrific massacre at a Seder in Israel tonight. Again as noted last night, authorities are still looking for possible conspirators in South Florida, as relates to the arrest of one Pakistani in Miami, charged with plotting to blow-up the power plants in the area (two are nuclear; one South of Miami and the other up near Port St. Lucie, while the Port Everglades Fort Lauderdale FPL plant is oil-fired). The point is not to be alarmist at all, but to suggest that we have been fortunate that the authorities have disrupted as many attempts at foul play as they have; all the more reason not to be complacent, as we venture into an historically choppy time of year for the market as well.

However, it should be noted that we continue not to have any negative divergences from an overall standpoint, and while calling for periodic declines, we've steadfastly maintained that they would be within the overall uptrend specifically indicated on the 19th of September to ideally start within a couple of days, and proclaimed as such on the 20th and again on the 21st of that month. Further, we proclaimed within a couple of weeks the interest rate low, and suggested lower rates for refinancing or even for new mortgages, would not be seen; and that also was shown to be a valid forecast. It required courage we grant, not only in the market, but to refinance or particularly buy a home at the time, but as most Americans were understandably frozen into inaction, we thought it was the (unfortunately tragic, but timely) optimum point of entry. To the couple who thought it was inappropriate to suggest venturing into low-cost financing at the time; my retort might be recalled at the time; 'we either collapse into the abyss, in which case it won't matter, or it's the bottom, and in the event we're mostly all here, we might as well have investments at the low, rather than competing higher later on'.

That is still key to the strategy, which warned in early March about 'chasing price' as so many others, particularly certain technicians known to wax enthusiastically after a market 'confirms' strength, or panic after a market 'confirms' a breakdown, once more behaved much as we suspected, and the market -in its infinite wisdom- went our way.

There are no assurances in the market; that's despite some players making repeated efforts to focus on old seasonal market sayings about patterns, as we've discussed, regarding certain times to normally buy, and times to go away for at least awhile. For us, however, as frequently noted, these patterns were not expected to be so simple this year, and they sure have not been. That is why the January short-term top didn't conform to those who expected all that seasonal-reinvestment money to be put to work, and it is why the market progressed to our indicated 'W bottom' in February, which preceded the breakout of the June S&P, not expected to surmount the 1170's on the run-up into early March, though you know what we think is coming eventually.

It does not hurt that few companies have warned of revised expectations (suggesting as much months ago, we observed most CEO's and CFO's made things sound awful enough that whatever they did do later this year would look like an improvement over their downtrodden estimates of conditions); it does not hurt that economic data is still satisfactory (though we suspect Purchasing Manager's reports won't be robust yet); and it does not hurt that money keeps pouring into bond funds, not just stock funds, as a sign that a large segment of the investment population remains suspicious (thus they are not so unanimously optimistic as some sentiment surveys suddenly suspect) about the future. Also; it does not hurt thatGold has had a rally extension (no shock here, in fact we thought Gold had its best chance to have a moderate move, but not in a way that relates to American equity, Dollar or debt concerns), which we observed many weeks ago relates primarily to the limitations on bank account insurance not in the U.S., but in Japan, as a roll-the-dice way of moving savings out of those stagnant places; but in which the buying of alternative non-productive assets doesn't increase the velocity of money, therefore limits the benefits to Japan's recovery prospects from that specific shift in protective policies (other things may help recovery; separately).

In any event, much of the session's action on Wednesday, adhered almost perfectly to the advance expectations; and the intraday hotline (900.933.GENE or direct-dial) guidelines were limited to three June S&P efforts, all of which were on the long-side, and all theoretically profitable; near a potential 1000 point total for the session.

As for the fundamental pronouncements; these remain interesting and are bullish; but it should not be expected that they would have the power to abort in-progress healthy corrective activity, for more than intervening short-term rebounds, as we allowed for. In this case, we're referring to the Fed-heads coming out and saying the economy was doing so well that things were moving along satisfactorily, and then Treasury Secretary O'Neil saying that the economy probably will advance sufficiently to return U.S. 'budget surpluses' to the picture by next year. Let's hope he's not just overly optimistic; though so far the expenditures on the war effort are smaller than most may think, as a percentage of GDP. Without of course being able to correlate war-related expenditures, we suspect he's not too optimistic, so that would again be the kind of successful Fed-led (and Congressionally-assisted) stimuli resulting overall in reflating the economy in a disinflationary worldwide environment. In any event, that would be the antithesis of the debt-burden worries those economist surveys suggested earlier in the week, which assisted the week's early decline, but not turnarounds thereafter.

Technically . . . the mid-1140's to mid-1150's look like a fairly reasonable overhead

In summary . . economic data continues the projected consistent improvement type of indications we've suggested since targeting the economic low in the Third Quarter; as was again affirmed by continuing string of economic reports; including housing.

As to the McClellan Oscillator readings: improving to about -25 for the NYSE, and +7 for NASDAQ. There is no change to our pattern analysis of this activity.

Our prayers and thoughts remain with our troops fighting anywhere in the world, and as events of the week explicitly continue to remind us of various new risks the Allied fighting forces face, or may face, we try to keep in mind that the unexpected remains a risk; while all free peoples certainly hope for the best. The new week started with a bit more than a brief contraction, with a decent rebound Tuesday and Wednesday, in this abbreviated four-day trading week. S&P futures near unchanged this evening, as we await an ideal up-dip-up-fade kind of session for Thursday too; though emphasize this overall series of moves is completing the elimination of the (reserved) condition warned of here on ingerletter.com; hence continues likely longer-term constructive.

Of course there are no assurances; bears will argue that we're dropping overall from a double top; we see what they're looking at; know seasonal volatility that is common in April and May (expect to see some), but also suspect fundamental improvements (barring catastrophe) have a decent chance to make later declines what is normally a retrenchment, not the start of some new bearish wave. The problem that we are all aware of is the multinational stocks, which comprise so much of the Senior Averages; and those are the ones we have been particularly hesitant about, and are to a great extent some of the most beloved institutional favorites. If those firms are in fact able to muddle through these challenges and balance sheets that are somewhat (albeit generally not mortally) wounded, then this should be what we have in mind. If not, or if terrorist catastrophe strikes, then of course things will be different. That's why our enthusiasm on the buy-side dates from September's panic; a perceived low-risk time to enter. Less low risk, but decent, were October pauses or even February's double-bottom; higher risk was the early January rise or earlier March rises, before corrective action commenced. It could very well be that next lower-risk (not low-risk) opportunity is delayed for weeks, but we don't know that; so we'll suggest staying tuned to this.

Meanwhile, as we approach the Quarter's final session and month-end trading, we wish all our friends celebrating Seder a most joyous Passover holiday observation.

On Thursday, ahead of the Good Friday market recess, our comments will be short, as we all look forward to a few days of reflection on these historic, but chaotic, times.

24 karat gold is pure elemental gold.

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