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The Inger Letter Forecast

November 12, 1999

Superlative strength in computer and technology stocks . . . offset worries about price levels and some other concerns, to press many stocks (including many of our own nearly-perennial old favorites dating in some cases nearly to the inception of lengthy upward trends either over a year ago or several years back) higher, while the Senior Averages were much more circumspect with regards to Wednesday's action. In a sense they were dragged off their lows, almost kicking and screaming in the process. Had not our old-leadership techs dominated the upside, they would be likely more negative than the fairly neutral finish we got to Wednesday's action.

Check-out the Dow Industrials pattern for the day; and you'll see an easing down to the lower reaches of the slightly symmetrical pattern that had developed over the last week and a half. The majority of analysts keep hawking DJ 10,800, and numbers much higher, while something other than that is taking place in the newly-adjusted Average. We have yet to have a close over a level that many thought would occur almost two weeks ago; and that is significant if you consider that an undertone of sector rotation, bordering on distribution, is structurally occurring.

Further, the recent strength in the Banks (BKX), plus forecast robust Oil price & oil stock (XOI) gains, contributed to the relatively robust behavior of both the Dow and S&P 500 of late. It's very noteworthy how the technology stocks have rebounded in the face of heaviness elsewhere, and is a little closer to normal in front of Comdex; a time during which numerous favorable news and alliances tend to be stimulative. Keep in mind that the normal pattern for techs is to firm ahead of Comdex, then generally ease during the final days of the event that celebrates the new paradigm better than any we can think of (and we'll be there for the annual endurance contest, which tends to be illuminating, particularly off the exhibitors floor, rather than in the midst of the mêlée; while we do enjoy at least one or two quick visits to the formal premiers of many new product designs).

In essence; the best times to buy techs related to announcements tends to be well ahead (if you know specific developments that may be positive), or well afterwards, during a profit-taking wave which almost inevitably follows within days. Though we love our positions in Texas Instruments (TXN), Liberty Digital (LDIG), Lucent (LU) and Conexant (CNXT); the latter two of which were originally conceived for our plans from these gatherings of prior years, it would be interesting to note that we didn't rush out and buy any when they were obvious to investors-at-large, or at peak prices. The same was also true at Rambus (RMBS); it was initially shorted in the 80's, covered in the 40's, then bought in the high 30's, before half was sold on a first rush over 100, with the rest kept.

It strikes us, in looking at the extremely rousing (extreme) movements of the Nasdaq 100 (NDX), that some of the better trades into spiking strength in the next few days, might not be on the long side of the ledger. Not the case for investments, where we're only interested in the buy/hold side. (section reserved) One example of this would be to question why the strength in Oil, even though we forecast it. If it is because of our perception of combination of increased worldwide demand at the same time Y2k occurrences threatens to disrupt shipments from countries harboring the suspect desire to pump-prices given any excuse, or a mediocre computerized crude production / delivery system (which would genuinely be subject to Y2k-related glitches), it's fairly worrisome. That's of course why Dow Transports have been lagging, and basically outright weak of late; a factor we assume every analyst on the Street is aware of by now. Airlines could of course suffer both in a loss of revenue early in the new year, and from the higher fuel costs to fly less-loaded planes. (section on stock sectors reserved)

Do we thus see a shift from lodging and gaming and airlines into computer stocks? That's clearly not the point either; as the rates of profits growth in technology stocks that haven't broken, aren't likely capable of exponentially expanding just now (modestly the opposite potentially), while quite a number of the first two sectors might become exhausted by tax-selling towards the end of this year, that they actually rebound amidst (factors) early next year. Airline loads will compel new rounds of fare wars, which price levels should realistically anticipate already, or soon start to.

In the interim, there's a battle going on right here in the Averages. The DJ Utilities & Transports are hovering right around their 40-day moving averages, after most meek upside breakouts. Also the Industrials are doing the same, while the December S&P is stronger. Why is it stronger? The answer specifically is because it is less multinational sensitive, than is the DJIA. (parts reserved)

Veteran's Day . . . brings reflection and remembrance, but it doesn't bring T-Bond trading. With no Treasury activity Thursday, and limited currency trading, there's every reason to expect that "the boys" might try to sneak-in another rally effort; and frankly we expect that. However, with the approach of next Tuesday's FOMC meeting, such rebounding might be short-lived indeed. With a daily resistance for theDecember S&P around 1387, and above that 1394, we'll be looking for something in that nature, before the downside is attempted again; most likely and subject to what we decide given opening action. (support and resistance comments reserved)

Daily action . . . overall on the (900.933.GENE) hotline's S&P guidelines is reserved. Gains were in the theoretical vicinity of around several thousand via catching varying swings this week which included much of the early week upside, sold in the upper-middle 1380's, and a short from 1390. Wednesday featured moves both on the long & short side, with no overnight suggested stances.

Bits & Bytes. . . is reserved, but includes comments on Liberty Digital (LDIG), Time Warner (TWX), Texas Instruments (TXN),Cabletron (CS), Lucent (LU), GM Hughes (GMH), and in the annual favored long from the year's beginning, Conexant (CNXT), which ran-up very huge. Also remarks regarding Wave Systems (WAVX) and America Online (AOL). This and regular sections on Economic News Releases and Technicals are normally reserved for subscribers. The primary vehicle to discuss stocks is the monthly Letter; the Daily Briefing focuses on action in the interim, and of course the daily condition and outlook for the stock, bond & dollar markets, with focus on interrelating factors as pattern analysis requires, in our dynamic view of the arena.

In Summary. . . the S&P market failed a bit on Tuesday, taking out the rising bottoms pattern, technically and minor, from the last few days. Wednesday gapped down, but recovered more than initially thought; then faded late in the day, without breaking the pattern to the upside. This did contain rebound efforts; that are not likely completed, with Veterans Day likely trying a rally.

Little has changed in the overall concerns about the financials and general market excess of late. We are not particularly on edge about this market, which did deal with the short-term overbought, and a weekly that wasn't expected to get more overbought if this was a completion of a glorified rebound effort; as we suspect it's developing into. Also next week's FOMC is a risk that's simply increased by the market's carefree attitude, which invites a paternal Fed's intervention. That was what we suggested last night, and was amplified by a Washington think tank service later, and is reiterated today. The low 1360's will be a key on any eventual breakdown; not likely Thursday.

The McClellan Oscillator reading presumably turned-down a bit today again, from +115 to +94 as it eases down. This is extremely in harmony with a mild decline going on in the broad market. Globex S&P trading is quiet, with futures down about 30 from the regular Chicago close. We are flat in the S&P hotline (900.933.GENE) guidelines in front of Thursday's early action.

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