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The Inger Letter Forecast

April 8, 1999

Wednesday's "Popover" stock market. . . followed Tuesday's "Rollover" efforts, for sure giving us a sigh of relief that we had covered a very profitable afternoon short and remained flat with all the structured guidelines on the 900.933.GENE hotline. Though we always encourage traders to make independent determinations of trading styles that suit them, even rigid approaches did very well, garnering nearly a 3000 point gain out of Tuesday's multiple trades. Wednesday, we had a similar approach, but with one distinct difference. Because the break occurred earlier in the day, we had less confidence of an afternoon decline, even pointing out the frequent characteristic for Wednesday's in the week before an Expiration to be quite firm. We don't know why; but they are.

Interestingly, while morning profits gave way to a breakeven more macro effort to short near the highs (of the day and all-time), we made it perfectly clear that actual traders (particularly scalpers of the S&P) should stick with the pattern call, which would have quite closely approximated the action, including a thousand points down and the same back up. Regardless, there was no loss and only gains, once again, but not as impressively for those who stuck with shorts from the high earlier. Even for scalpers, we thought given 1000 or so gain on the downside and 1200 or so on the upside, that an interesting play (for the gutsy) would be an overnight short-sale from the June S&P 1339-41 price level. This was entered repeatedly in the remaining minutes, never stopped it should be noted, and remains live for the moment as a precautionary trade, in harmony with our broader view of what comes next.

Of course this had something to do with the slightly cynical prospect of a market that was firming late in the day on hopes that the Yahoo! (YHOO) report would exceed consensus expectations, or even the so-called "whisper number". The data came in 3 cents higher than consensus, and it might be noted that YHOO was actually off nearly 6 ½ for the regular session, and recovered just the same 6 lost during the day at the time we go to Press with this report. (YHOO's not a position of ours, but nervously watched today by the Street for forward Internet sector ideas; many think.)

It is noteworthy that the S&P is actually trading down about 300 in Globex, unfazed by all this. It should be reiterated that the late short-sale in the June S&P is a precaution for now, though it's a bit obvious that we have been looking for some sort of Internet-led blowoff coming concurrently with the early Q2 mutual fund buying (and some think final IRA commitments by investors) to do some further upside before the market broke, and if all went just right, completing the pattern.

And, we want to clarify again our comment from last night about historical homerun gains in the shares of TCI Music (TUNE), which will be renamed Liberty Digital. To the several emails that said we were incorrect in knocking Yahoo! by comparison, we were trying to make a point. Sure; YHOO has the visitors and is a very big deal on the Internet; and we didn't mean to imply other than that, though our preference has been America Online (AOL), which we sold none of from the adjusted cost basis of around 18, as a result of the Netscape Merger; though we might soon.

As it is we have had, particularly when you include InfoSeek (SEEK) & Earthlink (ELNK), more than the normal representation in any industry group for our Letter, and at great prices for these. The point in last night's DB was that we thought Yahoo! overpaid for, and that of course everyone is using the cheap currency of over-appreciated stocks to accomplish this. The further point was that what others were calling hysteria in "penny stocks" wasn't at all such a thing, as far as we were concerned. And, that the technology TUNE brings to the scene was a bit unique in that it may allow something that borders on the "holy grail" of the Internet; simulcasting programming both on the web, and via AT&T's (TCI), Comcast (CMCSA), or other participating cable TV systems. My point was the AT&T has this capability now, via TCI Music, to do this with no royalties being paid to Yahoo!, RealNetworks, or Microsoft (MSFT) for that matter.

We think the stock market agreed with me, because the stock amazingly doubled again today (from 30 to over 60, before closing around 46; which even there was a 50% gain for the day). In this case our target was hit ages ago (after all with a cost around 3, we certainly weren't calling for 60) and as noted in last night's DB, we contemplated partial sales (which makes sense after such a run-up in anything, no matter how high or low a stock eventually goes according to our style, which argues trying to take at least one's investment off the table when you have a great run, rather than getting crazed or drunk about a stock). Only because we talked about this very extensively last night, we're noting this here, and did on the hotline too (unusual to do so) right on the 2 o'clock comment, to the point that we thought partial sales were appropriate, around 25% of holdings or so, and maybe more or less as anyone might individually determine, as we don't intend to make anyone's decisions for them. At the time TUNE was around 55, which as it turns out was a decent spot to take some chips out of the Internet casino.

The reason for much discussion on TUNE is not just that it was on the list since 3, but because we've had wonderful stocks among our cores over the years, and used to think Dell (DELL) was the hottest gainer, or later maybe one of the internet stocks, in not Lucent (LU) for instance. And not all stocks are winners; short or long, which is what tight (sometimes too tight) stops are for. It is just that we could see by the mix the Liberty Media/AT&T is putting into TUNE, that has a real potential to become a core holding; after one retrieves in this case 300% or so of original "bets", keeping the remainder, which should equate to something like 8 or 10 times original investments also. And, designating something a "core" doesn't mean it won't go down when the market tanks; it probably will (whether that's from 60 or 100, as the future will hold). What we like is that it sort of looks like a surrogate internet stock holding repository for Liberty's holdings in Sportsline, the popular, iVillage, and others, and thus a single-trade way to play internet stocks. (The speculative aspects are obvious; especially with exact holdings in these unknown, or IPO's still pending. Of course this could have significant impact on future TUNE movement either way.)

Anything but a "penny stock". Also, it was the fastest 12 fold move we've ever seen in any stock, in all the years of my market history. From 4 and change to 60 in four trading sessions is not very common, and frankly not necessarily something we'll often see in our lives. The venerable Peter Lynch (of Fidelity fame) once wrote (so I'm told) that if you see two or three "ten bangers" in your entire life, you've seen more than most investors. We've had more "ten bangers" in 'net stocks of course, and for years in the PC industry, but never in four days, and that got me excited. For us, it was an historically rapid event; thus this amount of discussion. And, when we embraced late in last year's going, a selection of a dozen or so smaller and/or tax-depressed stocks, we were very candid that they wouldn't and couldn't all work. We suggested a couple would be disasters, a few would be breakevens or small gainers, and if we were lucky, one or two would be homeruns.

We have had three homeruns of the bunch: TCI Music (TUNE); also Wave Systems (WAVX) and Conexant (CNXT). And because they were all "low-priced" stocks, plus we advocated equal Dollar amounts to diversify the risk, anyone who bought the entire "package" had to have been way ahead for it, including the ones that didn't work, the couple stopped, or those mulling about. (Past performance of course can't assure future results; and all trader and investor decisions are totally on an individual's own recognizance. We provide a reservoir of ideas to spark thinking.)

Also, by virtue of the very extended pricing all year so far (some below, some around, and just a few above January's highs) in the major stocks (which are our traditional preference) we made a point about risk, which we continue to feel is the highest seen in modern times. Let's take a long held position in Merck (MRK) as an example, which we bought several years ago in the 20's at the time (split adjusted) and now is trading at around a 4-fold gain. We sold half the position near 57 (115 pre-split) knowing we might be early, but wanting to nail down gains more than double a great buy in 1994, and playing with the rest of the profit. Now, many analysts are quite hysterical about risk in MRK, as they see it, because of expiring patents in key drugs like Vasotec, Pepsid, orMevacor in the years ahead. We've heard that before, but the stock went up anyway. Who is to say MRK doesn't make certain key acquisitions that deeper widen the pipeline of new drugs at a minimum capable of turning this around? We don't know; and neither do the drug analysts. The approach was (as is our usual style) conservative, to take some money off the table. Now, if we do get more worried, we'll reinstate a stop on the remaining shares, as we may note in the Letter. We get quite a few questions about such major stocks, and yes, when you take the S&P index or Dow-type funds down (according to what we think will be a timetable that is definitely adjusted to a degree, but not radically), you'll take the good with the bad. It's just the way the market works.

Enough about strategizing, but as we have a number of new DB readers, it's helpful occasionally to review our basic approach to investing, which assumes we're not visiting Earth from Heaven, will not always be right, and never know how high is high or low is low. We have always wanted next week's Wall Street Journals this week, but in lieu of that, will settle for being net long stocks at all times, taking shorts off when the market's already collapsed (like last Fall) and putting ones on when the market is spiking and enthusiasts are basically panting for moon shots (like now). It is hard to resist the enthusiasm, but we know better. And that's why we're not perfect; don't ever for a moment think we are, which is exactly why we'll usually sell parts of stocks a little too soon, just so we don't forget to sell enough to play at the most with profits, and not with original money. And the flexibility most of the time has outperformed both permabulls and permabears. For now, we continue to see this market as trying to get itself enough clearance above the highs to relief concerns, and promote safety. It may do nothing but promote complacency, before the big break.

Finally. . . the market was little moved (in the evening) by the Advanced Micro (AMD) warning; a stock we have never, but never, been fond of, as we are fond of noting. The S&P dropped after the YHOO story, and basically hasn't budged since; premium holding around 1000. Last night's DB's special report on'netcasting and broadcasting definitely had conclusions some didn't like at all, which is why tonight's amplifications. We stand by our interpretation, and emphasize that a reason we've never been crazy about single product or portal sites (though we picked a few of the year's best) is because the technology changes so swiftly. Even Michael Dell's remarks last night in Europe, to the effect that Dell must be a leader in broadband, reflects the fast changes.

Technically. . . Daily action . . . Bits & Bytes. . . Economic News & Releases: (These are all sections that deal with projected support and resistance, S&P forward guideline suggestions, individual stocks and an economic section; all are reserved solely for subscribers, as per usual.)

In summary. . . the McClellan Oscillator was at +8, down +16, as the market was really weak for a 121 point Dow rally. Alcoa and financials had much to do with this Dow Jones relative strength. Note that breadth was negative both on the NYSE and on Nasdaq.

At 7:00 p.m., on Globex, the S&P premium is 1021, with the June futures at 1337, down 150 from the regular Chicago close. We go into Thursday short from 1339-41, at least for now. We never got to 41, we understand, but that was the range we indicated. It may not be valid for the trading tomorrow, as we'll not in the a.m., and have noted here regarding the mid 1340's risk.

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