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The Inger Letter Forecast

December 4, 1998

Icebergs floating around a sea of lust . . . in the stock market, were once again sobering during much of Wednesday's early going, and once again, as forecast, this market was able to struggle back from crucial support points to substantially recover the day's earlier damage. Having argued for sometime that the Asian Crisis wasn't over, and that currency stabilization was just the first of a series of phases (but a very essential one) necessary as a precursor to recovery, we felt that a panicked Federal Reserve Board had to do whatever it could to stem or forestall a domestic U.S. impact that was increasingly looming. That they did caused us to shift from short-to-intermediate bullish on a dime, a couple months ago. Now this remains long-in-the-tooth, but we're playing the moves, and mostly quite profitably. Boeing (BA) would have surprised only the most naïve type of investor on the Street as we noted even before the short near 50 that just because addressing of currency stability occurs, you do not have the ingredients to forestall aircraft delivery orders, or outright cancellation of many of the airplanes, by primarily the major Asian airlines. We noted at that time the piling up of 747's in the Arizona desert months before the tapes you're seeing now, on various financial television shows. This is not news; unless you view it as affirming our view or enlightening the masses to the fact that economic recovery doesn't automatically follow currency stabilization instantly, which has been our forecast all along. That's how we arrived at the view of domestic earnings being hurt more in the second half this year among some of the multinationals and more serious risk next year. Interestingly, that's also why we were bullish on the market for a comeback that took place because there was no alternative for the Fed, the Banks or the Street.

Now, we have outlined here in the past and in the Letter, how we think this progresses, and how we think next year will unfold, and how we see the ensuing boom in the world developing, which in time it will. That translated into our being cyclical bears starting in the Spring, and nailing July's top weeks in advance (incidentally), and then turning against any bearish ideas as the dollar did a turnaround a couple months back, with greater enthusiasm once the Fed did the second cut. In this scenario we thus became cyclical bulls if you like, but in our view it was more for a desperate recovery effort (for a number of reasons, including bailing out some Street insiders as you know), much of which is now behind. That doesn't mean we don't get higher highs, in fact we're trading in a sufficiently aggressive manner to catch that if it's going to occur. It does mean you should be on the lookout for us to become cyclical bears once again next year, in the timeframe we noted a few times in recent days. In the interim, our forecast for these comeback efforts to either fail at a particular price level, or blast forward to yet another high before having a pause-to-refresh into a mid-month trough before heading higher, remains the overall strategy. The main point here is the continued belief that we don't need to be secular bears, nor would anyone other than permabear types who (for some reason) thought the "system" would simply let itself implode without fighting back. That is the kind of linear thinking that doesn't make presumptions about human reactions.

Icebergs. . . are everywhere among the bigger stocks, even among some technology darlings, in the fullness of time. Sears (S) is an example of old-line retailing not (at least yet) shifting to most modern marketing techniques. (What they did several years ago was terrific, but that was several years ago, and things change.) Kellogg (K) was also a problem stock for Wednesday's market. A combination of those two, along with Boeing (BA), made it near impossible for the market to come all the way back, but it did cut the loss significantly, and that's the best we hoped for. Now a moment of truth approaches on a daily-basis, and we'll do our best to help guide through that, in harmony with our pattern call for the month you already know of, which includes recognizing a surplus of "money chasing money", which is a main reason the bears can't keep this down..yet.

Daily trading. . . efforts certainly don't obviate our concerns over the next period of time into mid-month, but it does show a willingness on our part to continue buying dips when presented (in the December S&P, as noted in our DB and activated via our 900.933.GENE trading hotline), that are then quickly trailed by a tight stop, or a wider stop, depending on our perception of how the rest of a day will go. This is a market that doesn't want to sell-off, a function of too much money trading too few values, and ridiculous stories of insider selling within larger Internet stocks, that begs common sense. After all, if you're a young guy who has a homerun in a new technology hot stock, and you don't take some chips off the table, you'd need to have your head examined. With our view of such things, we do the same thing, but we're not assuming enough smarts to sell all of a stock in this category, at least not until they get to insane levels. Where we have (like that of WorldCom (WCOM) after making multiples on our money in Uunet and MCI), we were usually too early if even very successful anyway. So, as we noted last night, when targets get reached in the Letter, we simply (usually) tend to keep the stock, raise the stop, especially if we think they'll be higher early in the new year, and then sell half or a third, depending how high they've gone. It is nothing to be bashful about to say we don't know how high is high, are so happy most of our stocks get their numbers then take some (but not all) of the chips off the table, playing with profit.

For example we were quite alone in proclaiming Rambus (RMBS) a hot buy in the 30's and even 3Com (COMS) a hot buy in the mid 20's, not so long ago. Did we sell when the targets were hit? Nope. And glad of it. If an investor/trader wants to take part of the table, as noted with Rambus, fine, but we noted most wouldn't need to do that, as it eventually should surpass 100 easily. On 3Com, well, now you see one of the reasons we didn't pan it as did many, but thought it a buy. It has now reached its target, and at least for now, we'll continue holding all of it. Last night we did warn what happens to stocks we've liked in the past (typically at 4 or 5 dollars) like the hot little action in WavePhore (WAVO). Favorable news comes out, a stock soars (in this case doubled) and then after it's first noted in the media and/or trashed without much knowledge of the concept, it comes down, in a significant retracement of the prior spurt. Investors who really are not of the hot money variety, then look for a basing and potential buying opportunity for new or extra stock. In fact the sane trader, as I noted before, may tend to sell into such news, not buy on it.

At the same time, the Boeing (BA) story we noted last night, absolutely had real big intervening psychological impact this morning -call it sobering if you like- that toned-down the excitement. In this case, we still thought the market could come back, but it hasn't confirmed strength by going above the numbers we outlined technically last night, so watch that closely in tomorrow's early going (I'll touch on that briefly in the technical section in a moment).

…It has been real fun time to see the bears turning bullish, and the permabulls now worried, all at the time fast gains have been made. The latter missed the entire horrendous declines of the Summer & Fall, for the most part, and the former have shepherded small stocks for years when the big one were the place to be. Which is why we've favored the Intel's (INTC), Lucent's (LU) and Dell's (DELL) for years now. In fact, we lean now to the very smaller stocks (as far as new lower risk money is concerned) their sponsors have seemingly given up on. However, we would not have more than a "Vegas size" bet on any individual player, preferring a selection of them. What about the stocks of the past few months we've added? Ah, they've mostly hit the targets, like Micron Electronics (MUEI), Friedman's Jeweler's (FRDM) and now not 3Com (COMS). So, we wouldn't buy more, but (treat them), as we'll outline in this weekend's next Inger Letter.

Technically… again, we in fact are targeting a fairly important effort to thrust above today's high of 1177 (we closed at 1172.30), or maybe a drop to the middle of today's range (at worst) before this is attempted Thursday. Then we'll look at next resistance at 1182-1184, and recognize there could be some jostling there. If you're really in a scalping mode, you might (and we might) play with it there, in terms of exiting this long or trying out the waters on the downside with a new short, though we don't necessarily intend doing that. (Editors note; as it turns out, that is exactly what we did, prior to the posting of the comment; please see special note below or above these remarks for the specific trading info.) I suspect it's more likely that we'll simply tighten up our stops once we get above Wednesday's highs (if we do), and then even more so if we breech 1184. If we can do that aggressively, with Internet stocks on the offensive, we'll think in terms of 1196 as being attacked. (If not, this rebound will be over.) Also, the post-close shortfall warning from Cabletron has not a thing to do without our stocks, other than maybe psychologically.

Again, keep in mind that if you attack 1196, highs made just last Friday, that's not what double tops looks like. Several "technicians" call this a rebound from a break following a double-top, so it would likely be a failure if it happens thusly. In such action you wouldn't do a triple-top, most likely. You would either take it out, or not get that high, but not stop right there. Period. So, we either get our breakout and stay long, or reverse this at some point in harmony with the early call for upward efforts to be followed by weakness maybe towards the end of the week. Do keep in mind that we haven't changed our call for apullback into mid-month, we just decided it would not be a slam-dunk easy "kaplue" kind of break, and it hasn't been. It's been eminently tradable.

I will summarize it this way: in a rebound, even a one-half to two-thirds one, you shouldn't go well above the 1184 level. If you do, it's probably not just a snapback. Therefore after that is hit -if it is of course- we'd have to be looking for 1196. Since failure there is not a likely outcome, we'd have to call for a new all time high in such an event. Are we doing that now? Not exactly, but we're not in the traffic-light signal game, we're trading the market. So all that matters is where we'll sell and short, not what theoretical price might be attained. For now Dec. S&P 1180 is a key number that must be focused on. An extension of the rising bottoms pattern (the steep one) comes in there; a failure a couple times around it would be ominous, a breech above it would give us some room in terms of more upside hourly/daily potential, we suspect. (Editor's note: we thought there might be some front selling ahead of 1180 resistance; that's why we reversed long to short a tad shy of it.)

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Summing up. . . the McClellan Oscillator is now at a -54, interestingly working-off overbought conditions without much pressure (of significance) on the market. That can be bullish in time. (At the moment, a series of nominal negative changes is a daily basis warning a rally will soon fail.)

In Summary. . . so, for now we are long, well aware of our own early-on forecast for a little rally into Thanksgiving, a bit of upside in the new month (and quite happy that Monday's air pocket was eclipsed so nicely by the stocks that count in this market), and then a more meaningful full-court-press on the highs coming into the beginning of the new year, which may or may not run into a brick wall. Much will, in fact, depend on the price level at the time, and we'll see. For now, we are playing the market, which included our (similar to Tuesday) opinion that the Wednesday early decline would not succeed, at least not in the first episode, without a serious rebound effort, which is underway, and in our view is not finished. We also thought it would not make it all the way back to plus territory. After a gain today (realized and paper) of around 1400 basis points, we are again on the long side, this time from 1161-62. As of 6 p.m. ET, the premium is 115. (Editor's note from Inger staff: as of 11 a.m. Thursday morning, the long has been sold for yet another 1400 point gain, and we are currently short from 1175 in the Dec. S&P with a stop.)

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