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The Inger Letter Forecast

June 24, 1998

Thrilling upside behavior. . .on the heels of Monday's Nasdaq 100 (NDX) explosion, very much keyed-in to our Letter's core holdings, including "pick of the year", Rambus (RMBS).

It was a lot of fun (and profitable) being short our 1998 favorite from 80-85, until the past 2 weeks below-base completion of the pattern in the upper-middle 30's, where positions were advised to be put on the long side (35-39). Not only that, but Tuesday looked like we nearly choreographed the best gainers; as they ran the gamut of our computer, cable & telecom longs. Plus, the overall pattern call for turning-up ahead of Expiration week, and then a little fade before going higher into Quarter's end and early July, very much is marching along. At the onset of trading today, we also stepped-up to the plate via the Sept. S&P, going long at the opening, which likely got executions ranging from 1119-21, and a homerun gain of 1000 basis points (approximate) by day's end. Long all day Tuesday, we go into Wednesday long with a fairly wide trailing stop, for the moment. Certainly Microsoft (MSFT) set the stage for an acceleration of all this (market's don't like heavy-handed Governmental or Judicial hands on things); though lows in most core tech stocks were indicated likely a couple weeks ago. I am of course looking for all time highs in NDX, and elsewhere, as we'll discuss in depth.

The World Series of trading-range swings. . .

Before I get too bullish, let's remember this action is in harmony with the bigger-picture plan that allows risk to return next month, and has very much to do with an overall broadening of the institutional distribution that we've believed for months underlies this wide trading range. I won't take the time to track it from the originally expected (and well-traded) symmetrical triangle of the Spring, though that's all part of it. Consistently we have argued that "an old Bull doesn't end easily" because there is so much distribution necessary, and that it would take months to complete, if not longer. We've also argued that as soon as everyone gets a bit worried (usually near the short-term lows) the institutions will let-off on their selling just letting the market gravitate higher (initially ragged almost every time, even into new highs).

Then, when everyone thinks we're past the risk points, and all is well again, they step on the sell pedal again, which over a bit of time increases the selling, which eventually accelerates to the downside. But, at least through what is becoming the World Series of such moves, we have had a fairly simple argument that this game of buy the dips and sell the rallies, will go on until it doesn't, or earnings and international currency realities prevent it, which ever hits the market first. A bit of both have hit, and are probably more than previews of attractions yet seen; but that doesn't mean markets or governments can't postpone a day of reckoning; essentially something they're actually obligated (from their point of view) to do, if at all they can. So far that's not impossible. A series of interventions, whether by the U.S, the BOJ, or even the IMF, that fails, or isn't followed-up by necessary reforms and stimulus, would have the risk of something messier occurring; but we're not at that point yet, and shouldn't quite be, with the President about to cross the Pacific, and Japan's Election pending. The warning of trouble could be gleaned (if you want to spoil this fantastic day) by Hashimoto's own little remark about higher interest rates, which follows-up their higher taxes; just the ticket that got him the moniker Herbert Hoover Hashimoto around here quite sometime ago. Stay tuned.

Nevertheless, our little strategy of believing that neither big-picture permabulls nor always lurking permabears had the right idea, but that trading a struggling market between both, was the way do go. This same approach also remains at the heart of our successful S&P trading over the course of this year. And while it may look clear now to many, it wasn't so several months, or even weeks ago to most, as "the crowd" was per-usual bullish near the highs of these moves, and bearish near the lows. We even picked up a few stocks that got into our buy-zones, though (and I think appropriately) with what I call entry commitments. In case you're curious, the last Inger Letter added some longs, but no shorts, since we were in the mode of looking for renewed upside from the mid-June hit into July; and then we'll see.

….It also coincides with our view of the inflection point where the Asian Contagion starts to really impact American multinational companies, and the forecast last week for a "period of calm" established, which enables the President's trip to China to be completed before the another shoe falls. We didn't call for an end to Asia's woes, or even anything approaching its normalcy, but we did call for a brief time for anequilibrium before disequilibrium returned, which would be sufficient to get us end-of-Quarter/beginning-of-Quarter rallying, before it is necessary to worry about severe downside bias to trading once again. Keep in mind that stabilizing currencies is very much a first step, and probably the most crucial. However, minus other reforms, such efforts are not assured to be successful beyond the short-term.

Daily Trading. . .

All of this played into the ideas of the September S&P holding the general vicinity of 1080 in front of the Expiration week, then pushing up through the first resistance at 1120, then 1126, with a weekly target of 1134, which could be reached quickly now. Behavior then will be very crucial. Note the Transports are lagging the Industrials, likely of concern in some quarters. (balance of daily trading comment reserved for subscribers).

In a nutshell. . .we expected the worst of the forecast "correction" to be seen two weeks ago already, with technology stocks bottoming before blue-chips. Unfinished business is still expected down the road, according to the original "map" around here, which has that on the trip ahead even if we make new highs along the way (unconfirmed ragged move). Earnings are expected to disappoint, which in the case of the blue-chips could complete the pattern under the "dome" of distribution, while tech stocks would likely do no worse than "test" the recent lows in that sector (slightly higher, about the same, or slightly lower). Of course that will vary from stock-to-stock, as this is a market of stocks, not so much a stock market, and even sub-categories within groups in the tech sector are behaving quite independently. In our case, the focus on core computer and telecommunications longs, as well as the coming hot sector of computer-HDTV convergence, as worked out quite well. In this regard several new stocks were recently added, and most entered their buy zones, which were the lows so far. For now, we're trading according to the overall plan, with daily adjustments as needed.

Finally, we're not forgetting risk of an inverted yield curve, or this week's OPEC meeting, (balance reserved).

Bits & Bytes. . Rambus (RMBS) was a very interesting continuation study, and still is. (The technical discussion of Rambus chart pattern is reserved for subscribers; investors overall may know that we shorted the stock over 80, as our first trade ever, and reversed direction to the long-side at 35-39 in the past two weeks; and there have been no other trades. The discussion that is reserved relates to interim expectations enroute to its final goals.) The idea of shorting and then buying it absolutely worked; in the tradition of Micron (MU) and Texas Instruments (TXN) in the old days here; but don't think I didn't sweat a few moments with any of them. Now, since identifying the high last year, and this year's low; let's leave well enough alone; it's an official long from 35-39; after something in the order of 40+ points was taken on the short-side, and there is no stop as the official long was intended in advance as a "core" holding.

Meanwhile Intel (INTC) seemed to benefit from its Rambus alliance; things used to work the other way around! Our Dell Computer (DELL)did too, possibly as one of the first computer co's to announce it will have a Workstation, not just Server, running the bug-plagued XeonPentium chip that will be formally announced this coming Monday. By the way, the "bug" is on the multiple chip versions; apparently not on the single or dual-processor versions.

(Balance of Bits & Bytes is reserved for subscribers).

In summary. . . the McClellan Oscillator, was deflected at the neutral zone last week, and after languishing at -28, up from -50, is now at +18. Crossing the zero-line again should be a mechanical (after-the-fact) buy we hope; so in such a case we can work to overbought. We go into Wednesday long the Sept. S&P from 1119-21 with expectations to reverse again for day traders around 1134 (via the 900 933-GENE hotline), but expecting higher than that later on, if Bonds continue to work along with us just now. Early 5:30 Globex Premium is 1111, with futures at 1130.60, up 70. The Nikkei is trading +41 in late morning trading in Tokyo. Sept. T-Bonds -2 this evening.

Editor's update late afternoon 6/24/98: we did not sell, and stayed long all day Monday and all day Tuesday; another homerun trade, this time the long from 1119-21; now pushing 1150 amazingly.

The naturally occurring gold-silver alloy is called electrum.
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