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The Inger Letter Forecast

February 5, 1999

Waiting for Godot . . . characterized much of Wednesday's price behavior ahead of Fedspeak. In fact that was the call, with our (900.933.GENE) tradinghotline suggesting the first thing we'd see Wednesday would be the gap-down market not challenging Tuesday morning's low, and in fact coming back to fill the gap before dropping back to around the "mean" (or midrange) of this Wedneday's first half. After that, though we were flat, it basically exited a rangebound condition, rallying pending expected Fed non-news. That was handled much as outlined here in advance, and that meant shorting the actual non-news, and then buying the dip within minutes, as best we could guide on the hotline. Generally that worked to S&P traders benefit by anywhere from2000 to 2500 points (more or less, depending how many of several possible trades were attempted by traders in fairly wild swinging). At days end we reversed long-to-short at the March S&P 1280 level. Traders should not assume this newest short-sale (at an even higher level, but better for it given the profitable trades in between) will be retained beyond Thursday morning's early going.

(It in fact was retained, and as of this free posting for non-subscribers, our late Wed. new short from 1280 is still a live trade. We continue catching most of these swings both ways as the stock market sorts out its next defined move; inline with overall outlooks presented in the Letter & DB.)

Investors' appetites. . . for stocks was quickly restored as the day developed, and that wasn't a surprise with regards to our "daily action" call for this past session. Certainly one might ponder if our being long part of this day means we're no longer worried about the market. Not hardly. It is a reflection of a market that continues to be deflected at support, and as long as that occurs, the bulls tend to at least temporarily grasp control again, and try to run-in shorts and push the upside envelop as far as they can. That could even include new highs if they're able to do it. (However, the general plan for Fed non-news was a relief rally preceding a Thus. renewed downside effort.)

And that is why, in this amazing liquidity environment we can trade both ways in an irresolute but increasingly dangerous stock market condition, which includes dubious T-Bond & Dollar action.

The market responded favorably Wed., because it was flirting with hourly & daily oversold (a key is that nothing more was bordering oversold) and no significant support had yet been penetrated. We remain skeptical on the market while our weekly and longer term work is still potentially quite risky. The idea of buying on the profit taking "non news" sell-off was appropriate, as the market did firm in the late going. Again; we trade the market; not any particular system or rigid structure, as those things don't work with consistency. And we suggested shorting at the close again today; just in case; without having any particular reason. That means we may indeed go long for a trade again in the a.m. Sorry this is difficult, but if you look at the moves in the market today; you'll see we had the right idea about a sale on Fed non-news, which might come rebound thereafter once more, which it did, and which we repeatedly played in choppy but upward-trending Wed. action.

As far as wondering if we're on any particular "alert", well presumably you could say "Defcon3", if you like, which is partially humor and partially reality. Sure, we still feel the way we have about at least moderate risk returning in early February, while trading. We think whatever amount of cash anyone intended to build should basically be completed, whether or not this works a bit higher. If we're early (not unusual) that's usually better than being late, given the proclivity of modern stock market "hits" to plunge stocks hurriedly, once they do. We haven't said anything terribly horrific in fact, as regards this market, just that we got our 4th Quarter and January overall rallies, and now it is time to be on the lookout for breaks. But that won't, and shouldn't, prevent trading the market against an extended and increasingly worrisome bigger picture, as otherwise we'd not be trading.

It's possible rumors saved the day Wed. . . even ahead of Fedspeak time. Heavily circulated stories, later roundly denied, of a Morgan Stanley Dean Witter/Chase Manhattan merger, in the model of the SSB/CCI (Solomon Smith Barney/Citibank) deal, rapidly and consistently lifted the Bank Stock Index (BKX). Part of its gain was surrendered when everyone said it wasn't so. But by then, the pattern was cast in stone; the Nasdaq 100 (NDX) techs were running, and that was basically that. With a 2% gain in the NDX and almost a 1% gain in the much weaker (chart wise) banks, it was enough to hold the move together. A collapse of eTrade online order-taking during the day didn't really impact the market, at least noticeably, not even for hot online stocks in the brokerage sector, which in itself is a warning if buyers can't find anything more attractive.

Daily action. . . (section reserved for subscribers only, as is the usual custom).

Technically. . .there's no doubt that Monday's March S&P 1290 high was a bit "too pat" as a double top, as noted. There's also no doubt we continue to have an overbought weekly condition that hasn't had a lot of damage done to it yet, and we've noted that. To any reader confused with a worry about the market while it hasn't broken decisively, be assured we understand, which is in fact why we pointed out the idea of a double-top would be dubious unless we broke into bearish alternative territory first, which we did not. This was thoroughly explained in last night's DB, as best we could given the price levels, pattern, and pending non-news that is famous for roiling the market, without necessarily changing a thing as regards the big picture. (In the meantime, we're buying dips and selling or shorting rallies, as the market repeatedly traverses the same levels.)

Bits & Bytes. . and Economic News & Releases: (reserved for web site subscribers as per usual)

In summary. . . we are again short from Wednesday's very late going, after a series of mostly nice profits, and this overnight trade is from the 1280 level basis March S&P. (balance of this summary section reserved, as it involves forward-looking expectations for subscribers only).

The McClellan Oscillator posting Wednesday was -53, up from -81. We anticipated a pullback, and then a relief rally once the Fed time was out of the way, and we got both; trading pretty well in both instances. Now the burden of proof is on the bulls. (additional comments reserved)

During the Disneyworld Show (yes, it will probably be Mickey Mouse), just the Friday DB will be posted in the morning, by around 9 a.m. before the opening. There is really no other way, given the schedule. Then look for the weekend DB sometime later Saturday, for sure by Sunday. We do appreciate your understanding, as there's really no alternative given Eastern Time pressures.

Thursday and Friday hotlines will originate from Disneyworld, and hopefully the market won't be too "daffy" or make any of us "duck". (Woops; those are our Time Warner characters..oh well.) At 6 p.m. ET on Wednesday, March S&P premium on Globex is 763, with futures at 1279.70, ahead about 120 from the regular Chicago close. We go into Thursday short the March S&P from 1280.

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