first majestic silver

The Inger Letter Forecast

December 23, 1998

HoHoHo…what a jolly sleighride this has been . . . especially set amidst all the grinches with their tales of woe, of negative technical divergences, or fears that Advance/Decline Lines won't ever catch-up with the price levels of the Averages. Guess what? We said that ages ago, but that didn't stop us from calling for an upward Triple Witching Expiration, then forecasting the breakout starting around the old 40-Day Moving Average Line at 1178, with desired-progress to our target-goal, in the March S&P of 1210-1220, a pullback to the projected key breakout inflection point of 1204, then another rally, all of which we played accordingly, and about as flawlessly as could be in fact structured, on our (900.933.GENE) hotline, and outlined as the plan here in the Daily.

Results: the approximate 3900 basis points gain (huge for an upside trade, as markets are more known for falling down, whereas this one fell up per our forecast) on Monday, then this series of Tuesday trades which managed to pull about 1800 basis points gain out of a session that was up only by 140. Totalrealized (as we're flat overnight) gains for Monday & Tuesday are near 5700.

Technically. . .the idea was that the market had ignored bad news, and if an Impeachment Vote, a mini-war with Iraq, and more corporate downgrades couldn't break it below the 40-Day MAL, it was going to go up. And that is what it did. We thought the Dow's break below its equivalent was a ruse, that would get technicians worried and talking about lumps of coal at Christmas, while the real market would soar ahead. After today's close, it was announced thatAmerica Online (AOL) will be replacing the old Woolworth (known as Vanator) in the S&P; yet another sign of changing times in this world, and a validation of the Online/Internet world we live in (and will own AOL by a merger with our Netscape (NSCP), which is moving proportionately now). AOL is up 21 at 138 in late Instinet trading, while NSCP closed up 2 at 51, and will move up some more in the morning.

Can all of this spark a blow-off of sorts? Sure. But if it's a whole leg-up then our first target for pre-Christmas rallying's just that; and a second target would approach 1240-50, and if everything in the world were to go perfectly, wouldn't we have to consider 1300? That's a measured move. I am sure by now you're wondering if terrifically-moving core long stocks and the major decision to do no equity shorting nearly three months ago, and stating we wouldn't even think of it until 1999, is making us too heady. No. But who's complaining about a lot of trades and holdings that work?

Actually this is a very mixed market now. Tuesday's action was by no means broad-brushstroke. A number of tech stocks were down, as well as up. The AOL inclusion in the S&P could give this one more shot up; but we're watching closely. More importantly, would be if it gives it a shot up that is sold into; then we'd have to quickly prepare for a potential move in the opposing direction. Why do we say that? Well; first of all we've never dismissed ideas that the market was internally tired, lacking leadership outside of our favored sectors, or in danger of running into a brick wall of resistance once we enter the new year. We just thought internal deteriorations and several major divergences would be a "hook" making technicians and market mechanics negative or skeptical, while the market had the very overall December pattern we forecast it would from the get-go. Of course, it was dicey here and there at the beginning and at mid-month, but we caught a homerun series of shorts in both cases, and quickly stepped aggressively up to the long-side plate when it to us looked like a market that was not only ignoring bad news but in the right spot for a huge lift.

No comparison with all who are studiously pondering valuations and patterns for the next year, while some of us made a decision to not excessively worry intellectually about that yet, and to play this market, which is the only market we have to trade right now. As noted last week, during a drop that we thought might precede an entire unconfirmed leg-up from the S&P 500's 40-Day; it was the behavior of the Index of 500 stocks, not the grinches favorite of30 stocks, that rules all the Yule. And we thought even the lagging Dow could perk-up to the 9100 area, while all the real market indexes made all-time highs, if even temporarily. This has totally occurred, and trimmed a tree of good calls in what by any measure has been a month filled with more twists and turns that even Santa would find tricky on his way to the North Pole (think about that, while remembering at some point you're going South without seemingly changing direction..after you flip over the Pole).

Daily trading. .(reserved just for subscribers to our Daily Briefing).

Investment Strategy. . .continues to focus on riding the crest of the trending momentum wave to the upside in so many of our stocks in the computer, technology, telecom and internet sectors. It is ironic that many of the proponents of trend-following techniques are not aboard these stocks, in some cases since they were clobbered in the Summer or Fall declines, and simply gave up (if they were even in them before). We understand that many hedge fundscan't get loan-leverages to their old extents, and that's part of why we remained bullish with lesser technical internals (ah; now see what I've been thinking). We knew (and have said before) that they would narrow their interest somewhat like occurred last Spring and in our forecast advance peak for July, but that it would not occur the same way, and it hasn't. And that we'd likely shepherd these gains into 1999 without too much trouble, and maybe more powerful moves than many thought possible. Most of that is now behind, but not all of it. We also noted that many lenders (and clients) might keep the hedge boys on a shorter leash, and in fact demand liquidation at Quarter's end. That's a reason, of course, for concern going forward, but more than that we won't get into tonight, as this report is being seen by lots of investors who are not subscribers (on the Internet as a Holiday courtesy).

And of course we're talking about January, not the probability of more upside next week, even if we get a "hiccup" first, which we'll try to trade on our (900.933.GENE) hotline as best we can. In fact, one of the main tenets guiding our trading approach here has been the belief that the Street would do everything in its power to corral seasonal reinvestment monies, restoring complacency to some extent, and making investors feel "comfortable" identifying equity funds rather than bond or even more conservative money market accounts, as a place to "park" their retirement monies.

Our own strategy has been to hold all (or remaining parts, depending on the stock) of our longs in anticipation of this narrowly-focused thrust carrying us onward to new heights of profits. And at the same time, we have embarked gradually on a planned program of picking-up a selection of a dozen or so smaller-cap stocks, no single one of which should command a heavy investment. All of this is strategy; to buy value while few want them, and to hold quite a number of these babies, with an emphasis on companies that are down, but have real businesses, not just concepts (with just a couple of those aboard for interesting flavor, and maybe potential appreciation besides). In total, not one of those should exceed what a "player" would commit in a gambling weekend, with something approaching equal dollar amounts in each, emphasizing the bigger companies just a bit more than the rank speculations. As noted before; half of these if not more will be gone by the time we get to March, if not sooner; some will be terrific percentage gainers (we hope) and other stocks of this type will have done very little. However, given that the bulk of most of our holdings are in stocks that have already moved-up several fold (or even a lot more than that), we can't yet see a better lower-risk approach to the long-side of the market at this time. And yes, we've noted plans for protecting this multi-month continuing lopsidedly-bullish structure. We'll review it soon, for any who don't already know our plan to handle this from a protective standpoint in the Letter.

We recognize that one drops down in so-called "quality" by buying the tax-suppressed stocks, but we're of a mindset that a) risk there is far less than chasing those that have run-up in nearly "moonshot" patterns, and b) we already own (via Inger Letter recommendations) a slew of the best performinginfrastructure and facilitator stocks around. (A Lucent actually is both, while a Texas Instruments provides components for both, while an EarthLink is both and an InfoSeek the latter. And of course Intel, Dell and Compaq benefit from the entire industry, in many ways.) As far as the smaller-caps; they're a bit more aggressive (and speculative) than buying Apple's and Time Warner's or Comcast's, all of which were bought at tax-sale times over past years.

In a nutshell. . .we hoped the market would "gets legs", and it did; thus the other side of a TKO; a knock-out from Mr. Bull for the Holidays. We were very enthused; and it already worked. If we can get past the FOMC meeting, the House Vote and the War; why wouldn't this market have a Santa Claus rally? No response to news, tax pressure out of the way, money flowing into fund coffers…that's the way it works. That's what we said last Friday; and nothing's changed, except for a terrific rally we hung-in for, and great gains on a number of stocks, and a bit of a pause set up now that the Fed meeting is past, and the Fed (as forecast and preferred) didn't move to cut.

It was so stupid to hear analysts suggest the market wanted a "Christmas present of a rate cut". It would not have been a present, and in fact suggested more worries than most of us see now. In fact, we called at the depths of decline for Governments to act, for currencies to stabilize, and for the markets to find at least temporary bottoms, if not more. That might have surprised a few, who liked our analysis because we had forewarned of derivatives crisis and debt implosions just a year earlier, and played the trends. But, our function is to trade and invest as we see this; not support any bias or opinion, and constantly try our best to read the market's messages. The message this Fall was up, and as one regular reader says: up is up. Do not assume we won't be bearish, maybe quite so, at what we feel is an appropriate time. And keep in mind, the purpose of investing is to maximize capital when it's opportune, not nurse personal or analytical views of the world, which may identify problems those in authority can also identify, and often address.

Meanwhile, this is overdone for a day or so, and we're a little more defensive, but probably only momentarily, especially with the T-Bond action. We gave readers plenty of warning that the top in the 130's was probably the top of the Treasury bull market, with an ensuing rally a test of that high. Nothing more need be said; except that we thought stocks and bonds could diverge from each other during this Season, which they have. The market isn't ready to drop in any protracted manner yet; just the opposite. But it can pullback to see what sellers can do, which in fact should not be much. Then, onward and upward, maybe even explosively once again. Stay tuned.

Economic News & Releases: and Bits & Bytes . . (reserved sections for subscribers only).

In Summary. . .believing the Dow was not a fair representation of the stock market, but the S&P had held a very important key 40-day Moving Average support on our forecast mid-month drop in front of the expected Expiration rally, we talked of the market actually "flying". That is pretty much what it did during most of Monday's session, and part of Tuesday, which we caught both ways.

We suspected that we'll be long again Tuesday morning, in harmony with our hotline call for the first pop, then a selling wave, then we were long (playing both) and got some selling after the lift on the FOMC's non-news, which is always dicey on a minute-to-minute basis, and thought we could get a bit more into mid-week, then maybe another lift right in front of the Christmas holiday. Keep in mind as noted before, that Thursday's session is shortened, so there's no assurance they'll do that in front of what amounts to over a 3 day trading hiatus. Stay tuned; flat just now.

The McClellan Oscillator on Friday posted a -72 reading, which was up from - 92. Monday's posting was – 41, as it works back towards the neutral zone. Tuesday's posting was slightly on the negative side, with a turnaround to –59. It's not out of the question it could get deflected, although we're hoping it can work all the way to overbought as we move into early January. Stay tuned, as today's action can be an early warning, but coming in the typical post-FOMC roiling, it's too soon to derive that conclusion. After a 38-3900 point gain in a single S&P long lasting from Thursday's early opening to late Tuesday, we're then held a trading-short covered at 1207; a long sold at 1215 and are flat (any minor trading thereafter would have been essentially a wash).

We remain warily positive on the market overall; seeing this yet higher in time, per our macro-forecast, which hasn't done an equity short in months. The preliminary call for this week was for a dip after the first rallying, and we think it is actually underway, then a new up after a pullback following the Street finding out that (as expected) the Fed's not moving, can be more bullish than their moving. So, early morning selling will be moderately important, and should be contained (then we could explode upwards again). At 8 p.m., the S&P Globex premium is 963.

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