The Inger Letter Forecast

June 10, 1999

Which Rx for this market tumble did you prefer? Was it the multi-month delayed downgrade of the PC outlook from a major firm on the Street (after we had warned the sector was topping in the first part of this year); the warning from the Saint Louis Fed head of a needed preemptive hit on the rate scene; the resignation of Janice Yellen from the Council of Economic Advisors; the weaker Dollar, which had recently reached overbought conditions; or was it just our remarks the other evening, about the stock market having essentially thumbed the Fed by it's unconfirmed most previous punch-out, as traders ignored all the facts, and blatantly charged into new buying? (This was the first paragraph from Tuesday night's DB; now we start with Wednesday's B.)

An absence of bids . . . is singularly capable of breaking a given stock market pattern. When all the "champions" of the market's upside are dutifully extolling the virtues of "buy and hold forever" approaches (their supposed virtues; not our more balanced approach); but the market after more than two efforts in a given session fails to mount a meaningful rebound effort, incremental selling can well take stocks down. It often takes very little more than an absence of buyers to let stocks, in a sense, to fall of their own increasingly heavier weight. And to a great degree, confusing only to the mass of investors who didn't understand why technology and internet stocks are a bit less interest rate sensitive (as explained the other day), that is what happened in Wednesday's action and why the 'nets at least held together relatively better than the bluer-mood blue chip market.

Daily action . . was coming off a forecast double-pump failing rally series, that 900.933.GENE hotline action in fact called for during the day. Generally that was the idea of failing early rallies, a weaker afternoon following rebounds from the morning low, an S&P sell-off during the Wed. New York lunch hour; a rebound ahead of the 2 o'clock balloon, and then heavier-yet waves of selling. Much of that was even outlined in Tuesday night's DB summary, and generally achieved. (balance of section reserved per usual)

Technically . . . goals for this phase of the decline were noted as being all the way down to the little gap area around the 1307-08 area (of June S&P) from the start June 4th. (That was actually being filled in the process of this Thursday midday posting; with hotline trading modifications.) Of course, what we called for Wednesday was pretty good: a double-pump (two rallies) interspersed by declines and then moving in a lower direction thereafter (with heavier action on Thursday; and the balance of this section is reserved).

Calm before the storm?

This quiet "lull" is exciting to us; because we're in a market pattern that's desperately trying to do the impossible: put in a successful secondary test of a prior low-point, and do it just a short time in front of a likely Fed rate hike, which has been everything but telegraphed to the Chicago and New York Exchange floors. Probably the Fed is trying to limit the damage from what they view as a necessary preemptive action; while we'd say they've got to move as they are already behind a rather obvious curve.

Here and there an economist will now appear validating our argument you have heard for some weeks now. That's our argument that peace in Europe, combined with increased demand from a recovering Asia will put increasing overall prices on the energy and commodity sectors over time. True, much of this doesn't impact the equity market day-to-day, but it does help contribute to the tone at the Federal Reserve, which does care about such matters. Ultimately, the markets care.

Almost every major market move starts from a lull or quiet time; which is a form of preparation for what comes next. This time is not terribly quiet; after all the S&P is over 5% off the highs, and in a spot which is almost a make or break spot for completion of a not-unexpected "B wave rally", within a potential "A-B-C decline", which could measure to approximately 1240-50 on the next leg down, by the way. (That's for the June contract; not the September next front-month contract. It should be noted -primarily for new readers- that we normally don't hold "scalp" overnight trades during times of maintaining a macro-trading guideline, which is the ongoing major short-sale in the June S&P from the 1380 level; which adjusts to around 1394 in the September for tracking).

We've made the point on occasion, to the effect that the 1380 area represents more of a "stance, or attitude" than a single trade for the majority of S&P traders. At the same time, if it conveyed a view -even before a rebound began- that probably the rally would be a rally within the downward trend, because nothing generally goes up or down in a straight line for an entire trend; then it served its purpose. New readers should know we've done many guideline trades; in both long & short swings over the past week since expecting a "B-wave" rebound; mostly successful as well.)

Now we should consider what happens if this stock market now breaks support; has a washout in front of the FOMC meeting, whether that's before (or after) the Expiration in next week's late going. (forecasting portion reserved)… because markets don't tend to reward stock (or T-Bond) players believing market's so simple as waiting for news (good or bad), and then reacting to it.

In Summary. . .rebounds in the prior days were described as forecast as borderline, and likely failing as actually occurred; but not definitively. TheMcClellan Oscillator posting on Tuesday was -20, while on Wednesday it was –26; a near-nominal negative –6 change, coming after a rally to just above the neutral zone was deflected. (We are short macro and daily basis.)

Thursday's call is similar to today's: a neutral to negative opening; failing effort to rally, and then another effort to decline, which again is fairly crucial on a daily basis. It should fail, after a likely rebound, in front of Friday's PPI, which should help keep the bids away from afternoon playing. Oversimplified a bit; if it fails, we get a break towards 1307 in the June, and that would set-up a general down-up-down session, or down-sideways-down, with increased risk for Friday's. (The approach on the 900.933.GENE hotline may not press shorts in front of Friday; so please don't assume how we'll play the knee-jerk response to the PPI and retail sales numbers in the a.m.)

In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."

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