first majestic silver

The Inger Letter Forecast

January 28, 1999

Dramamine. . . after hours of midday see-saw action, was the most requested elixir Wednesday. Nevertheless, though it wasn't easy, we managed to pull successful trading out of this turmoil in each day this week, as we have in every trading day of the new year so far. Both in the case of the prior overnightMarch S&P long which was sold for +/- a 1500 point gain, in the wake of the preceding 4000 point grandslam gain on the prior short-sale (plus several key trades both ways in all of this back-and-forth action trying to define the market's next "trending" path (which we'll in fact get into tonight again in this DB), and a couple minor trades (relatively speaking irrelevant mostly washing each other out as we got positioned), it's been a well-earned rewarding session.

In fact; knowing how a market can wear you out with rangebound activity, our final hour hotline (900.933.GENE) simply broadened the stops, stuck with theshort-sale (ranging from 1258-1260 in this case; varying with your executions), and made the verbal point that "to heck with them, we are going to expect the market, after a little effort to stabilize after the T-Bond close, to go ahead and fold, dropping the Dow a hundred". Darn if it didn't happen; and boy were we vindicated for this call after hours of frenetic trading mostly between "locals" (guys on the Floor). So, at a tiring day's end, and in the wake of something like6000 + points net S&P gain this week, most all of it on the long side of the ledger, we're back short with a new paper gain near 1000 on this trade. It is live; being held overnight Wed. with no stop pending Thursday's opening bell hotline S&P call. (Obviously, this was reversed quite immediately, given the Globex premium firming overnight.)

Transitions are not easy. . . in most cases where the market doesn't spike and reverse or in the opposite scenario climax and reverse. Most of you have lived through these intensely stressful market junctures (or efforts at junctures) in the past, alone or in our company here, and certainly understand how success isn't always elegant or simple; but we'll take it any way we can get it. In the Summer and Fall we had spectacularly elegant declines that we forecast, and coming off the late September-early October bottom we had a fairly elegant advance that was as protracted as in fact we expected it to be. But the days involved at the tops and the bottoms weren't easy, and you never know 'til later whether your forecast overall perspective will be more than conceptual.

In each case; we turned out right. And it was based on belief that fundamentals would make hard technicals surrender over a period of time. Only naïve participants (looking for easy answers in a complex world they'd rather not try analyzing) believes, when all is said and done, that technicals alone can foretell where the market's going; actually for the macro picture it's often the inverse. It is because of the liquidity, the seasonality, the Fed stance last Fall, and ingrained bearishness in so many participants who were excessively bullish just a few months earlier, that we thought this powerful move forward to new all-time highs was likely into early 1999. And we had gains in our S&P trading, not to mention major homerun results in actually each and every core long equity in the Inger Letter, before suggesting that we again start scaling-out of equities as everyone again got "religion" (bullish resolve) in the generally forecast up-down-up first month of this new year.

Of course the point here is first; to note that we who were buying while others weren't last Fall do not object to taking some chips out of the casino this month; while those who were equity-shy or skinned-alive, only very recently seem to be pressing the argument for yet-higher prices. Why? It is human nature; and it's a characteristic of those who missing the boat when it left the dock, are willing to jump aboard at any waypoint just to (in their minds not ours) have a shot at catching the remaining upside (that they now see as robust, which we're increasingly clearly dubious about).

In the real world. . . we are always net long, but scaling-out as rewards are there, and others are simply getting greedy (or making up for lost time). And we won't complain if the market somehow throws a bone or two at the financial press that belatedly turned bullish, or options analysts, all of suddenly recognizing age-old seasonal patterns of late Jan./early Feb. strength. That's why we're in fact trading, rather than embracing any particularly rigid "formula" or calendar bias (those are fun to play with, but beyond general guideline don't really have much to do with consistent trading results, believe it or not). Ouradvance forecast, that the bulls seem only this week to have discovered, in fact included that up-down-up January call for a number of reasons; some of which we tempered a couple weeks ago, losing heart at least enough to catch a wonderful wave to the downside and also the most recent upside before this reversal -which was not easy- from long-to-short today. (And it is still not confirmed, with more efforts at rallies still on tap.)

Traversing the same price-point numerous times. . .

Technically. . this brings up the interesting forecast of recent days denoting the Dow Industrials 9300-9350 area as crucial targeted resistance above the market, knowing that Friday's and also Monday's breaks below the 40-day Moving Average were not feats duplicated by the broader S&P 500 Index; so we would get the forecast comeback, at least into resistance. Today's high of 9385 was only a hair above the declining tops pattern, and we closed at 9200, right on it again. (Clearly our advance idea about early Thursday trading was wrong; though we got with the S&P action immediately. The assessments of resistance and increasing risk are not known yet, as far as validity of interpretations. Remember; up into late Jan./early Feb. was our overall advance call, but this market is not that simple, and by no means easy to trade on a daily basis right now.)

And, now the Dow Transports are back below (by a hair) their 40-day Moving Average, which of course is suggesting that the nuance of a rebounding DJTsector is more wishful thinking than reality. At the same time, the Dow Utilities failed approximately at the intersection of an 18-day and 40-day crossover; which, from a technical analysis standpoint is potentially ominous, but by no means assured. The rub here may be rebounds (ditto for T-Bonds, which we still think look higher), once stocks rally again in earnest (this "fight" isn't over); but the inference is supportive of a bigger picture worry for permabulls; which is inherent in our discussion of an Energy and/or commodity low building over time; something that is anathema to the era's Rosy Scenario crowd. Also thePhiladelphia Electric Index (UTY), which is pure-electric sans Natural Gas stocks, is in an essentially equal funk, validating the behavior of the Dow Utilities, and resulting inferences.

For the March S&P. . . that worked out fine, especially with regard to any who simply exited the prior long in the morning on the expected gap-up opening, per last night's DB. (On the hotline, over-finessing caused us to sell but not short a first drop; but all worked out as the day endured.) At this point, because the futures closed below the 18-day moving average and psychologicals (see below) are deteriorating rapidly, we have little doubt but that alarm bells are ringing for very crucial tests at the 1230-35 price level, which is now clearly definable (down the road a bit).


Before laughing too hard at all this; consider the implications of this market roiling where you just couldn't know yet, whether that was just a wonderful short-covering rally (which we absolutely did play excellently) or whether it was the start of a breakout move, from a technical Bull Flag pattern which (technically speaking) is what it had potential to be. The reason we discussed it candidly in the way we did, was both a) understanding the type of powerful potential that could exist if in fact the financials could get in gear with the tech stocks (they're trying; but not resolved, and in fact are even worsening irregularly), and b)knowing what a measured move of the market looks like if a full leg-up could be provided coming off an a-b-c consolidation, such as just seen and traded well, in all humility. (In other words; you could get people bearish while a positive consolidation is actually happening; but it won't hang tough, if you can't get breadth & financial stocks improving.)

The problem, as noted last night (exactly why we made an emphasis about breadth and financial stocks), was that a flagpole and pennant existed, which can be resolved either way. Without the associated pluses, it can be resolved as it was in July; which is what we've been warning about, without requiring the market to do so now, as opposed to early February per the wide-ranging game plan, which is just that; a general outline. And we've already had an up-down-up January, so now the question became can they extend this to a measured move others (belatedly) see, as we ourselves mentioned, but four months ago, to wit: DJ 10,000. Increasingly; it's a bit less likely. And, as we are not permabears, not always negative like some, we have tried to give this market every opportunity to advance in the face of adversity, and it's not doing so on a very broad front.

We listen to the messages of the market, as any trader should. In early January; at what turned out to be the high, we issued our first warning. Several days later, at what turned out to be a low (around S&P 1210) we reversed direction for a key rally. Several days later, at what turned out to be a test of the highs, we sold and shorted. Several days later (this past Monday) we reversed to a long again. And we sold this morning and shorted this afternoon in a challenging session that aborted the rally shy of an orthodox declining tops pattern, which by the way is more negative. In all of this, we have emphasized the compressing of moves into shorter timeframes; where long term would become a week; intermediate term a day or two, short-term an hour or two, and for traders; moves compressed in minutes, that would normally take hours. You do realize of course this was stated early this month before the chaos increased, not just recently. And we wish it was not so fast; but it is. What does it mean? Sign of an unstable market that knows trouble's coming.

Psychologically. . . in my opinion; a combination of Nasdaq and now also the SEC's Chairman both issuing warnings regarding OTC and internet speculation, is the handwriting on the wall. The Fed is not enthused at all about rocking the International boat by fiddling with interest rates, or impacting the Dollar, or so we think. The implied approach is something not seen in years. . .

The contraction of monies from the mutual fund coffers on the last break is particularly unusual in January; and we suspect that leaves the funds with minimal cash reserves should real trouble hit anytime soon. Again; if the financials kick-in and monetary factors improve; there's an argument for more (even dramatic) upside given an ingrained nervousness in the stock market increasingly seen everywhere but advisory sentiment, and internet speculators who don't want to be bothered by facts; just give them the stocks (another reason to be worried, as hot "panting" characterizes a mania). Don't be surprised if we're long at least "one more time" in our S&P trading this week; also don't be shocked if that's for nothing more than rebounds before we head lower. Depends on exactly what we've pointed to: financials. We think the Fed has subtly warned; the Nasdaq itself did, and now Arthur Levitt. Forewarned is forearmed, and we're back short and prepared.

Bits & Bytes. . & Economic News & Releases: is reserved for subscribers solely; as per usual.

In summary. . . we are not very good at telling the market what to do; but we are good at letting it tell us what to do. We can't compel the market to make every day comfortable and non-stressful, but we can persevere so that it rarely gets away from us without catching the "heart" out of a big move. And; we think we are reading the authorities minds about speculation, and it's not hard to see, unless one is an oblivious speculator, in time likely to be hoisted by his or her own petard.

Simultaneously, having forecast last year's top, and identifying the ensuing Fall bottom within a day, it becomes an impossible challenge to assure anyone of the magnitude of what they're now seeing, even as we catch the majority of (actually almost all the important) moves day-to-day. It's thus quite likely that all this generally is what (our bullish 4th Quarter forecast) expected for this market after the Street did just what we said they would: "shepherd the market into early 1999, corralling seasonal reinvestment money, in time for real risk to return to the center stage".

So; if it looks like a duck, it walks like a duck, and then goes "quack", there's a good chance that it's a duck. But we do not yet know for sure. Anyone who says they do is guessing, or lying. And the market's only started quacking. An old trending market (in this case, as market's working within new internet timeframes tend to be compressed in time also) does not give up easily.

"The High And The Mighty"

And if the financials kick-in; it's not yet past the point-of-no-return. If they don't; it soon will be. Then, an incipient downtrend will have found a life of it's own that the Street has been fighting for three weeks already, and in which we have managed to profit handsomely with daily S&P gains. More than suggesting (in advance per Jan. 7's first warning) cutting back equity exposure, by all means swearing-off margin leverage, embracing some Puts (protective, not writing, and selective at that from time-to-time), hitting the S&P correctly and pointing out that the recovery's days were numbered, we can't do. It may not be comfortable (transitions rarely are) but this is the only stock market we have to work with right now; and we think it's dangerous; one more likely pop, or not.

(section reserved) Meanwhile; most all our tech & internet stocks are at new highs right now.

The McClellan Oscillator posting today was -104, which was down from -72. After a fatiguing but very profitable day, in which we took 1500 out of a long, horsed around and ended with a potentially terrific short from 1258-60; we go into Wed. short the March S&P with again about a 1500 point unrealized gain on this latest one (subsequently covered, and briefly reversed). (As this complicated report is posted, we are contemplating a Thursday afternoon short in the 1270 to 1272 zone, probably risking 3 points on the trade, and doing nothing more if it is stopped, but likely not chasing price at these levels beyond here. Or, we may just go flat and address it Fri.)

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