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The Inger Letter Forecast

May 14, 1999

Incongruities . . . were denoted in yesterday's DB, by showing stances considerably at variance between the OEX and CBOE equity options players, which we thought had some meaning for all investors trying to glean the implications for current sentiment from this disparity, along with what by all measures was an already extended market, as witnessed by dedicated financial market TV screens in at least one Vegas "sportsbook", which brings to question what theNational Pastime is these days (as if there was any doubt). No less than others, we'd love to see the market simply go onward or upward forever, but common sense suggests this won't be such a linear advance.

Even today (Thursday), the market couldn't be held down in late going, as the early leadership set in motion by IBM (IBM), and helped by our Merck (MRK)provided renewed impetus to DJIA; in an almost cavalier display of superficial strength in front of tomorrow's CPI numbers. No doubt few are worried about the CPI, especially in this era of revised (and/or massaged) data managed by those who calculate it; and certainly why would anyone think that rising energy prices would in time permeate in incalculable ways into a multitude of economic areas. After all, this is now just a perfect manmade environment, which isessentially bulletproof from attack, ensuring that this stock market advance will remain linear and impenetrable throughout the balance of the year.

Of course that's being cynical, because most bullish strategists and analysts would have trouble believing that statement. Interestingly, that's part of the trouble here, as many normally optimistic types have in fact off-loaded or bought OEX Puts (an approach we're not particularly keen on by the way), which of course creates some fuel to help propel the market higher. While personally a bit reticent to short stocks; the in-and-out utilization of Puts in the equity (not Index) area has had some useful application this year. It's enabled selling fewer shares than one might otherwise be tempted to do, by providing a modicum of "insurance", whether the Puts worked out or not (many times they did; sometimes they didn't). Now however we're at an interesting juncture where this stock market has come back so many times that it's viewed as "per usual" behavior; itself a risk.

We thought that Wednesday's breakfast hour serving of Rubin sandwiches was eminently quite playable (after all we were short coming into Wednesday, so it wasn't hard to go long in the fast-paced weakness), which is how we "booked" nearly 5000 S&P points (for those able to move in such fast conditions) during the day, before giving back only a tiny fraction "gunning" for a short-term top of sorts thereafter. We stuck to our guns during Thursday's session, only surrendering a small amount (2-4 points) on the first effort. Around the June S&P 1380 level, per above market intentions, we simply got short and stayed there, with wide enough stops that wouldn't catch us in any choppy actions. Fairly convinced DJIA was taking the sublime to the ridiculous, we didn't utilize "auto-pilot" disciplines today, believing that the early hours would be too rangebound (tight) to use back-and-forth flipping techniques. That indeed was the case; so this worked out as a matter of fact, so the hotline (900.933.GENE) guideline is holding short from June S&P 1380.

Daily action. . . once again has us aboard a precautionary trade, in front not only of Friday's CPI, but more importantly, what we already suspect is an exodus of intraweek traders taking chips off the table after a couple good intraweek gains. Some of us have even done that with Networking longs earlier this week, slightly associated with suspected announcements here at InterOp; but that's a risky game (that happened to work). Heaven forbid we describe Thursday as a down day given the hundred point DJIA gain; but in many ways it was a reversal of sorts, particularly in the very stocks that had advanced earlier in the week, while some that hadn't (in telecommunications for example) were particularly strong in the late going today.

(section mostly reserved per usual). We don't know for sure that the market will have a serious decline tomorrow; we do know of no one worrying about it; which is when one just might consider doing so. And we maintain our overnight S&P guideline short for these foregoing reasons.

In a nutshell. . . we remain aware of several things; including the extended nature of the market, exhaustion of most potential "good news" on the earnings & monetary fronts and normally weak seasonals. If there is a concern, it's probably that others recognize this too at this point, as even unidirectional bulls are starting to be worried (not the permabulls; as there is a difference, which has to do with not being always bullish, regardless of the fundamental, technical and monetary environments). That's why you have the distortions in the equity vs. index data increasing.

Bits & Bytes; Technical; and Economic News & Releases: (sections reserved for subscribers as per usual)

In Summary. . . the market came back in the final minutes, after a fairly sharp brief sell-off late in the day, separate and apart from a wild first hour IBM-based upside. The McClellan Oscillator's Wednesday reading was +43, and on Thursday +60. We are short the current trade from 1380, basis the June S&P, and it's down 20 from the regular close, as of 9 p.m. ET. Our knowledge, as often occurs, has been increased and refined a bit, from theNetworld/InterOP conferences here in Las Vegas, which you've already seen and will see in DB & Inger Letter comments upcoming about different stocks in the Network, Internet and Computing sectors, which are encroaching or complementing each other in ways very finessed from where things were at, just a few months ago. Meanwhile our comments about next week's Fed meeting will be in tomorrow's DB.

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