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The Inger Letter Forecast

January 21, 2000

A little break in the Dow Industrials . . . accompanied by further rallying overall in "new media" plus not terribly overexploited tech areas was the general idea here in front of nominal Expiration this week, which (while complex) dovetails-in with the forecast ideal January pattern progression.

Meanwhile favorable earnings reports after the close today argue well for yet another early push. It is helpful that IBM (IBM) reported better-than-consensus results, as did our Apple (APPL) and America Online (AOL). Because IBM made the statement that once Y2k adjustments are over, it should be a good year, that likely contributed to the rapid comeback in the S&P at the tail-end or in the late day's Globex activity, and pretty much ensures some rallying action in the morning.

This behavior should also help embolden further climbing in many of our newer additions, which for the most part were strong or consolidated nicely earlier today, like Analog Devices (ADI) and LightPath Technologies (LPTHA), as we'll detail just a little in the Bits & Bytes area. This sure continues to remain a fractionated market of course, as visibly shown by the disconnect by the Dow Industrial Average (as noted all day) from the real market which was consistently stronger of course, as defined by breadth by the NY Composite; and even by the S&P 500 Index. That's why we were long the S&P during a good portion of the session, despite the Dow's solo decline.

Of course the Dow's drop was primarily a function of the implied increased volatility of one stock; Microsoft (MSFT), with some assistance from Honeywell (HON) & United Technologies (UTX) also (plus pressure noted the other day in General Electric (GE), of likely sector-shifting nature. Microsoft's remarks suggesting business was slower, but market trading helped quarterly results, certainly disappointed a lot of people, creating minor (likely unwarranted) worries about broader entire tech groups, at least on an immediate basis. Lots of what MSFT is doing is sort of "woe is me, poor Microsoft", or so it seems, until they settle their scores with the Justice Dept., we'd just guess. Our own view is that they should have a terrific year, but we won't own the stock (said so very recently) unless it again takes a hard enough hit. If it does (and today's 8 points is not that), we'll certainly address the subject again. Meanwhile, many companies are being conservative of course, in their analytical guidance to the Street, so that's part of why the market's wishy washy.

Also, as far as the trading outside of their main business, they wouldn't be the first time for such: years ago we actually got a buying opportunity in Dell (DELL), after it was revealed that Michael Dell had been trading foreign currencies for the Company; losing a bundle doing it. We believed (correctly) that the Board wouldn't let him continue trading, and indeed he relented, promising to stay out of the currency market. Everything has mostly been fine since, and they've left trading to those who specialize in it, not just the boss. And the shakeout on that news set up the buy spot.

Further new highs in NASDAQ . . . however, are likely on a short-leash, as unaccompanied by expanding available cash, and already somewhat after the rotation from old tech and cyclicals to the newer tech areas (whether in computers, Networking, Optics, wireless or media content), has been mostly played for the very short-term, or so it superficially appears. Are these stocks sales? Probably not, though such considerations depend on one's time horizon. Alternative directions of investment appeal have already been discussed for some time, and now what we're looking for, generally inline with pattern calls, is completion of rebound efforts, and markets on the defensive in front of the February FOMC meeting, (balance of idea pattern extension forecast is reserved). For the moment, the idea of new highs after January's first break; an ideal forecast made before the year even started, very much continues to be the correct, if very volatile, outcome; and we're still thinking that (the next phase of the pattern call can increasingly evolve; details are reserved).

In such action, while the Nasdaq 100 (NDX) would doubtless have another interesting decline, of potentially the magnitude of the early January drubbing (albeit not necessarily quite so rapidly), it isn't out of the question that some of the newer areas, which generally are not yet embraced very heavily by institutions, would be the beneficiaries of buying-on-the-dips, which is why we suspect they aren't the areas that are most subject to heavy downside hits, although in an outgoing tide it isn't unusual for all boats to settle at least somewhat; as such things become a matter of degree (this isn't vague, as regular readers know rather clearly which particular stocks are emphasized).

In recent weeks we thought that institutions would frantically leave the weaknening techs (then), for a perceived safety in the cyclicals, which was the basis of forecasting a solo-walk by the DJIA to higher levels, which might not immediately be accompanied by NASDAQ and/or S&P 500. Of course we modified that as soon as we forecast Intel's (INTC) results to be stellar (in advance); a determination that allowed the call for money to come back out of cyclicals, returning home to where money loves to be these days; technology. However, we suspected this concentration would be shifted from the old overdone e-tailing, to optical networking etc., as indeed occurred.

These are not particularly easy markets to swing-in; nor where they expected to be this week. At the same time, it's interesting that we've held-off embracing any new equity shorts or Puts, and even now continue suspicious of the downside at this point. That's of course influenced not just psychologically by most of our own stocks advancing or consolidating in favorable fashion, but it has to do with the number of analysts who (for a couple weeks now) haven't believed the market could come back to an all-time high in the DJIA and later the NASDAQ, which it's done closely to the projected ideal pattern call for January. Not just to be contrary, but we'd be more enthusiastic about the downside if a lot fewer seemed to be, although we're not taking any reckless chances.

In this regard, that doesn't mean that the stock market can't go down, but it does mean we ought to "pop the top" one more time, before pressure becomes the real possibility. That the NASDAQ and S&P 500 could do so well today in the face of Microsoft's decline, says a lot favorable for the daily basis action, in our view. Nevertheless it can quickly become long-in-the-tooth around these Expiration finales, and we're not sure that we don't get an up-and-then-down reversal along the way, which expands somewhat in the days ahead, in front of the well-watched FOMC meeting. Finally, we'd remind everyone of the pattern that we had in mind when the year's first hard hit took place, and how that (until proven otherwise) looked to be a secondary test of last October's low, and not the commencement of any generalized liquidation or very bearish event. Just the opposite, it got many managers out of tech and into cyclicals, and now they are returning to tech. (We used earlier weakness in November, in December, and earlier in January to position some new technology selections, and are not chasing any kind of big-caps in this newly extended run.)

Daily action; Technicals; Bits & Bytes; Economic News: (are reserved sections for readers)

As far as position plays, we generally didn't feel most needed to have one aboard until we see an effort to rebound tomorrow (Thursday), though if one did probably he or she will have to deal with an upward gap in the morning, followed ideally by a dip, and then even higher numbers in just an immediate basis, in the wake of the favorable numbers reported (in several of our stocks), along with whatever final Expiration pressures remain. If we'll move back into a "position" bearish trade on S&P's again, an answer is probably but ideally around mid-session (that's what we did; so the 900.933.GENE hotline's better than seamlessly short from 1483, due to yesterday's long gains).

Probably, this market is where you evacuate the women and children first, before everyone else takes to the lifeboats (and yes, we realize some women are well able to fend with the best men). Given the beautiful news in several post-close stocks (the reward for calm and orderly optimism in several of our stocks), we'll see whether there's any meaningful upside (after what likely will be the requisite upgrades after-the-fact from the Street), and if not judge accordingly (be careful). If there is, then maybe a few hours remain (hard to tell, but this is getting newly frothy); or if not, then this market could rollover in theory before the sun sets on this week's nominal Expiration.

(Analysis of the Microsoft action and S&P moving averages is reserved in fairness to readers.)

Bits & Bytes . . (reserved of course, but remarks on our) long-held Time Warner (TWX), action of America Online (AOL), partner GM Hughes (GMH),Andadigics (ANDAD), big-cap "pick for the year" Analog Devices (ADI), LightPath Technologies (LPTHA), and also ACTV (IATV). In mentioning this here, it is meant to just give an idea of the kind of stocks we tend to focus on; so while it is fair to say we have conservative approaches to aggressive stocks, it is unfair to say we are bears per se; as any glance at our stock list and where they were purchased says otherwise; though that doesn't mean we don't think such stocks have interim moves within long-term action.

In summary . . . incredible volatility and events continues characterizing early weeks of 2000. The market is relieved with the flow of earnings reports, and economic releases during this final phase of a nominal Expiration week. Chase, AOL, Time Warner, Apple and IBM are all pleasing to the Street, and absolutely are keeping (or rekindling) hopes of a popover the top of the highs. With the QQQ at 190, we don't know why that wouldn't occur, and personally have not and do not hold any shorts, but are looking for a spot to take such partially protective shots, sooner, but not yet (that may not be so by the time you read this if we get a pop above the pop early Thurs.)

Keep in mind that not only was the idea of the January pattern call (that of the year's first break not succeeding, then the rebound, with extraordinarily fast-paced upward action in the NASDAQ) will likely culminate (with details that must, in fairness, be reserved for subscribers).

The McClellan Oscillator is now down to +73, and there are a couple non-confirming negative internals. However, this remains an unresolved tug-of-war which we are not willing to cheerlead the downside in, because of the pattern call, the proximity of Expiration, and the continuing very stellar string of earnings results, especially in our own long-term stocks, not to mention favorable price action in many of the more speculative issues that don't yet have meaningful earnings. As of the 7:30 hour, ET, S&P premium is 2056, with futures around 1475.60. We wouldn't be short in front of Thursday, although beyond an opening rally, that's not unlikely for short-term players.

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