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The Inger Letter Forecast

November 5, 1999

Relieved that business is slowing . . . based on corporate reports from housing and autos, the stock market seemingly views this as a favorable sign to embolden it not to fear the Fed, as time marches on. In a few ways we concur with that logic, except for the little detail thatmultinational stocks mostly are priced for a perfect world, which with few exceptions this still is not.

Whether from General Motors (GM), Ford (F), or even Daimler Benz, the sales of housing and autos, and within that category particularly trucks of course, can be indicative of the generalized earlier phase of slowing, that is especially noteworthy in the absence of any "event" or new stock market meltdown. Within this, the trucking (versus autos) sector reflects not just utility buyers of working vehicles, but the popular SUV (Sport Ut's) class that is commonly included. It is a given that this sector becomes less attractive as fuel costs go up (though fewer notice that), or as the sector becomes over-saturated with new models, at a time when most of baby boomer buyers of such vehicles are commonly reaching the age where comfort takes the fore over practicality, or as their kids become old enough (amazingly) to have their own vehicles, allowing Mom and Dad to buy vehicles with actual comfort, not requiring visits to chiropractors after every short outing.

The razor's edge to all this may be provided on Friday, because the rumors still swirl regarding a host of new job creation, with numbers circulated as high as 500,000 new non-farm payroll jobs. Of course that number stretches credulity given the lack of domestic employables one thinks. At the same time the average hourly wages are more important; so if you see a lower (realistically) bit of a non-farm number, but nevertheless increase in wages; that's not a bullish formula for the daily-basis movements, at least as far as kneee-jerk reactions. And indeed if the economy's very much milder in terms of job creation and wages, then it begs the question about the evaporation of elasticity in the computer industry combined with slowing technology sales, plus a contracting volume of housing and autos, which can combine over time to ease rate fears, but also margins.

Therein lies the rub; as what's good for T-Bonds isn't necessarily so favorable for pricey equities even if it's one key ingredient to pave-the-way for another advance (and we believe ultimately the case will be so). As we've indicated not just for days or weeks, but a couple months now, most of the downtrodden (value plays) are either making lows or have modest erosion to contend with in front of tax-selling time. This has been proven by the absence of decline in many such stocks (in our list in several cases), even when the Senior Averages imploded in the post-Labor Day break, and then relative stability or firmness in the wake of last week's fairly-crazy explosion, which ran into trouble in the S&P 1380's, as expected would likely be the case (which set up the nice gains of this week for S&P players). Our view remains that the market action then didn't cement returns of value to the big-caps (nor should it), while the emaciated masses of stocks already had value.

The big fight . . . as far as determining whether the market surrenders all the gains, part of them in a secondary test of the mid-October lows, or does something milder, hasn't yet been decided, by the market. Our parameters on how to potentially recognize that, were spelled-out at length in last night's Daily Briefing; so we won't repeat what is an ongoing correctly-assessed struggle this week; other than to note that the short-selling efforts just shy of the 1380 area, or on subsequent rebounds, not only made our point about such a battle shaping up, but in fact were good efforts.

Please do note developing overbought short-term conditions of the daily Dollar Index. As you've got European bankers considering rate hikes in the days (now accomplished) ahead, that could be a factor to bear the Greenback temporarily, and push the Fed further into a tightening mode. Thus while few are looking at the Dollar now, it could come almost out-of-the-blue to be a player.

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

A new purge of size. . remains to be seen over time, of course, and we remain extremely open-minded regarding the probabilities of this becoming a test of the mid-October low-points, rather than any important reversal from up-to-down; though the pause-to-refresh was a minimum goal. However, what we thought was important at the week's beginning, and again in the 1375 area in yesterday's expected failure, was something virtually very few were considering: the idea that the market was having trouble just shy of the 1380's in the December S&P, which we did think likely (in advance) to become some sort of resistance as limited information allowed us to conclude. It follows that a market capable of taking that out would deny a bearish alternative, or a double top.

In Summary. . . the McClellan Oscillator reading did become reasonably overbought, moving to +169 on Wednesday, with a slight breadth gain as the market tries to extend the move. It is not out of the question that this can resemble a sort of "exhaustion reflection" in the indicator, while temporarily improving breadth, preparatory to working it's way all the way down to the neutral zone, or even below it, for the Oscillator itself.

After trying to extend in the morning Thursday, the stock market could easily be on the defensive again, in front of the late week economic data; particularly the Employment Report; so that could make Thursday an up-down-up-down overall session, with smaller minor swings within the day of course, as it unfolds.


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