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The Inger Letter Forecast

December 31, 1999

Sector shifting from the NYSE to the NASDAQ market . . . actually appeared to characterize at least parts of the Wednesday action, as presumably many mutual funds are trying to embellish their involvement in the heart of the momentum push, which in many cases is not just beyond the window dressing considerations, but likely out of fear of not being represented in such groups, as that market advances a percent a day, or even more, as in today's session. It's wasn't so cynical when we remarked awhile back that in the fullness of time, the NDX might sell for more than DJ, but of course we don't have any immediate time in mind. What we do have in mind is completion of upward price behavior in the NASDAQ, but not until next month if all goes well, given a logical expectation of the Advance/Decline Lines temporarily showing some improved tone as a heavy foot of tax-selling essentially comes off the jugular of the broad market.

If so, that could actually defer some consideration among managers and investors who probably are contemplating taking gains in a number of profitable stocks as soon as they migrate into New Year's trading. And it's a dicey consideration, as barring such a broadening out (which is rarer as a matter of fact, beyond the requisite pop in the first day's of the New Year), those "Generals" out their leading the charge, would likely be in the undeniable position of having to retreat. However, so far so good, and this is why (while not putting one's last dime to work in this market volatility) it is thought that most investors would be able to shepard their gains reasonably safely into 2000.

At this point, contrary opinion would almost be continued upward price action, as bulls and bears alike are worried and nervous, as everyone seems to think the market is going to break. Not Mr. Market though, as he keeps on trucking, in the midst of all the worries and concerns ahead of the Y2k event. There's no doubt (even hope) that with nothing untoward coming over the weekend, a relieved market can sprint ahead one more time in the early part of the New Year. We've said it before, and there's no change in the gameplan. At the same time, to be particularly bullish on the market here beyond that, is indeed playing with fire, and for several reasons. First of all, already we know the heavy IPO offering calendar that's coming (later). It is also broadly felt the Fed will (take action) at the February FOMC meeting if nothing happens first to slow the burgeoning U.S. economy. We've indicated the February action as likely for months, in such an ongoing climate, which included the early December market dip and subsequent rally.

At the same time, we have a bullish argument for the year's second half regarding technology as discussed in the last couple evening's DB's, which we won't reiterate now. And those stocks not only have held, as we suspected they would for months, but have advanced nearly to new highs amongst the less (and sometimes more) glamorous headline grabbers. On top of that, positions suggested initially in such stocks as Analog Devices (ADI) in the 50's and ACTV (IATV) in the 'teens, have served well to complement existing holdings in telecommunications & "new media". Both recent buys hit new highs today, up 5 and 9 points respectively to closes around 88 and 48.

Can this of action last? Ultimately of course not, and the nervousness is warranted. However, we are generally investing in substantial companies expected to be survivors, irrespective of what happens in the market over the short-to-intermediate term. Therein we do not say the market is somehow going to sidestep a serious correction (or worse); we're saying what we have before, that the market would come back in December's second half, moving into higher territory at yearend, and if (quite an if) nothing untoward occurs over the weekend, likely explode higher in the initial parts of the New Year. (Then the already outlined pattern for a break would come into play, but again, not necessarily all instantaneously, and even when the cautious bulls give up on this market ever coming down.) Now, if the market has to deal with disasters we cannot imagine, so be it; however prices would still be higher than had we moved out of any of our core holdings some time ago, which we did not do, while warning this could be a last hurrah advancing style.

High Stakes Bipolarization

It is for that reason among others, that we've repeatedly indicated the risk, but nevertheless likely prematurity of taking aggressively bearish positions particularly in the Nasdaq 100 (NDX), which even the (900.933.GENE) hotline has indicated would (for the moment) remain stronger than the relatively sanguine DJ Industrials. While there's no doubt that if there's an extended area, that's it, it just happens that the majority of all "core" Inger Letter holding of this decade are right there.

That's precisely why people can call us bearish or cautious all they want, but look what we own, what we didn't sell or short, what we additionally bought this Fall, and why it is a reflection on the lessons of history that restrains getting overly enthusiastic on these, even as our own valuations have climbed extraordinarily in some stock holdings. These are not normal times, stakes are as high or higher than they've ever been (and we don't use the term "ever" lightly) and bipolarization of markets is as extreme as it gets (new highs for the Averages; concurrent lows for the A/D's.)

If we can get through the weekend unscathed (that's also not necessarily a light "if", but since so many are worried about it, suppose we suggest that minor glitches notwithstanding, the Nation is able to, and the market breadthes a sigh of relief, sending stocks temporarily lots higher, in what will be for some of us the desired opportunity to sell additional portions of assets gently guarded all these months, while making decisions on January Effect holdings on a case-by-case basis). If we get through the weekend, and next week, don't forget the likely movement by the Fed to start draining reserves from the banking system, after flooding the money supply Latin American style. And remember, it's the availability of money, not the cost to rent it, that determines the impact on equities, and why such stern action by the Fed would likely be greeted favorably by T-Bonds.

C-R-A-S-H ?

Further, it is the recognition of a technically-overbought (to say the least) ongoing quality of this previously noted Nasdaq 100 situation that we've pointed out as both an unsustainable parabolic move (beyond early Jan.), but nevertheless in stocks we're fairly heavily in for years, whereas it can be temporarily extended by more important overall NASDAQ breadth kicking-in. A reason it's more important, is that the perception of a broadening might temporarily assuage the selling of big NDX gainers, helping hold (for awhile) the NASDAQ over 4000, as NDX pushes (a number). Do not misunderstand this; it's nothing different than we've said for weeks, and doesn't equate to turning bullish at the top, or any such thing. And frankly, this is the short-term bullish alternative.

The bearish alternative, which for the Nation we pray isn't the case, would require establishing a hedged approach in the market into strength tomorrow, specifically. The compromise approach has been not to chase stocks, to embrace Puts (first time suggestion in many months) only for a player who is leveraged and/or overexposed to the long side of the ledger, and then just partially. That's because if all goes very well, you'd get a push-up early in the month, (reserved comment).

(January pattern section reserved for subscribers.) Stay tuned; surely there will likely be many variations as is determined by time and prices, and certainly (if necessary) by unfolding events.

Daily action . . . recognizes all this, precisely why, combined with understanding of this bipolar market arena, that we've argued for the past two months that you'd get a dip in early December followed by likely breakouts in the Santa Claus (and immediately thereafter) timeframe, then with some interesting activity if we traverse safely and sanely slightly into the New Year, especially in the NASDAQ stock market. Up to now, while taking no new risks on the short-side of equities or Puts, our focus has remained buying tax-depressed bargain stocks (more relatively speaking anyway), holding our techs, while shorting S&P spikes; that's our way of denoting building risk. (Balance reserved, as are Technical, Bits & Bytes and Economic News sections, per usual.)

In the '90's, semiconductors, telecommunications, software and electrical components are three of the top five sectors for investment success. All three have been focused upon here for years; including the representative selections of Texas Instruments (TXN), Lucent (LU), Conenxant (CNXT), and MRV Communications (MRVC) among other selections, including Dell (DELL) & Intel (INTC), which have been stalwart holdings for many years. Most will probably do fine well into the millennium, and are much safer than e-tailing and other Internet commerce plays that at a bare minimum will suffer consolidations and/or mergers. Many of those non-profitable stocks at the forefront of the current craze may not only drop in price, but some won't exist at all if they're not merged into more substantial corporate umbrellas with enduring stability and financial depth.

In Summary. . . the Dow was relatively flat today, though breadth improved as the DJ fell a bit. The tension on the tape is far greater than a superficial look at the market would imply, given the overbought conditions developing potentially incredibly over the coming weeks, or sooner, and a skeptical crowd of experienced players, which probably lets this go somewhat higher before real chaos hits. (Action described; so discussion thus must be reserved for readers).

The McClellan Oscillator is at +84 now, up from +38, with internals extraordinarily neutral other than the breadth improved as expected in crosscurrents prevailing generally this time of year. Up Thursday morning, with some subsequent profit taking the ideal, followed by a bounce and then sideways. If there is a profit-taking wave of substance, ahead of the holiday, look for it later in the session. (Holding a 1487 guideline short effort, as of midday Thursday, with normal discipline.)

The melting point of gold is 1337.33 K (1064.18 °C, 1947.52 °F).
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