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The Inger Letter Forecast

June 9, 2000

"Breaking up is not so hard to do" . . must have been the tune permeating most thinking of technology investors today, as investors focused both on the potential beneficiaries (though the victories generally are more pyric at this stage of events) of a Microsoft (MSFT) breakup, and it even firmed MSFT a bit, without consideration of the myriad of litigants waiting to bleed MSFT if the judge indeed granted a kind of decision that required internal compliance (or punitive actions) regarding antitrust actions. It was very interesting to hear FCC Chairman Kinnard suggest today that Government keep regulations "very light" on everything wireless and including the Internet.

As things stand, the Government has determined that MSFT is subject to remedies of it's choice in the matter (the plaintiff's choice), and that leaves clarifications "hanging fire" for some months to come at a minimum, especially with Bill Gates referring to today's ruling as an "unwarranted intrusion" into the "innovation space". That means MSFT will appeal, and whether overturned or not, almost seems like an anachronism in this more advanced era of rapidly evolving technology.

Mandated Divestiture

Neither Microsoft (nor we) have particular interest in the basics dating over the last twenty years, outside of how the latest renditions come together in ways that may benefit stocks we hold for so many years (like Dell (DELL), and Intel (INTC), who tend to benefit when a more integrated OS is available). As far as MSFT stock, we warned when it was well over 105 that it was vulnerable, and not as simple as matter as "the sum of the parts being greater than the whole". That's clearly because of our concern that they could spend many years fighting the protagonists, much more so than because of simplistic telco-style debates regarding breakup's as related to deregulation.

We wrote months ago that MSFT was headed to 60, but wouldn't buy it (too many other bargains were more compelling without the overhanging cloud this one faced and faces) unless it fell into a lower area, which is how we arrived at the under-market speculative buy zone still un-entered. If it is, then those who continue interested in MSFT might venture in, or those who agreed with us and sold it over 105, might replace those positions at under half price. Otherwise, still no interest. On the other hand, cutting Microsoft into two firms (Operating Systems and Applications) may be too severe a mandated divestiture, and if that happens (versus controlling their dealings with the OEM's etc.) it may ultimately establish a more viable competitor actually, although we're not that excited about such a breakup, because, as noted, of the many pending actions from other firms.

Away from the Center Ring

Overall the ruling will likely be upheld, even if it goes all the way to the Supreme Court over time. In the interim, we're glad the markets and technology have actually leapfrogged basic operating systems integration as the areas worthy of aggressive interest, which would not have been quite the case as recently as a year ago, before the world picked-up on optics and interactivity, which remain our key focus (and likely will for the foreseeable future), and aren't impacted by this other than to the extent that MSFT is actually a player (applications) in these areas too, and investor.

Aside from the anticlimactic sideshow, which remains at the Center Ring of what's become more of a media circus, and the upside in a couple stocks ahead of the decision, it remains the general market pattern outlined before the week even got started. No doubt today's rally at mid-afternoon was stronger than most anybody expected, although just a couple cap-weighted stocks were responsible for virtually all of that; though we have no complaints about that. Several of ours had very satisfactory action today, whether on the defense or on the offense. Generally, it remains a market in transition, in contraction, and in what we presume is a healthy midstream adjustment.

Daily action . . . for S&P players was generally in harmony with the down-up-down pattern we'd suggested, though was quite lively on the upside in the afternoon, with only a modest down later in the session. Best gains were an early structured guideline short from 1465 and long from 1459 and then later short again from the 1475 area. The final hotline (900.933.GENE) idea stayed flat the overnight guidelines. For the session, players theoretical net gains near 1500-1800 may have been doable; with individual decisions or results varying of course from this structure.

Technicals: Daily Action: Economic News: (all are reserved sections for subscribers only).

That is exactly why we believe there should be some backing-and-filling, maybe a correction, but nothing of the magnitude seen before. For weeks (even ahead of the low) we indicated that April was the climax for the Senior Averages (Dow and S&P), that May was the secondary test for the Seniors, and the bottom for the forecast pullbacks in lead "grand dames". We are honored that it was nailed accordingly, and while a complex bottom, appreciate that many of you recognized it. If it turns into something as important as the 1994 "W or frog" bottom, or the Summer of '96 low (also big points for us to be enthusiastic about technology), or even the varied bottoms in '98 and '99 (those were in the Fall, but important), we'll be delighted. This won't be known for months or at least weeks, but if all goes as forecast for the year (which included the May ideal tech lows), it will be a stronger second half without the (lower) lows some technicians expected.

It is interesting to hear that some who expected that better buying spot later this year now say a low of importance is achieved, which apparently means they bought the short-term top before a nominal (but normal and expected) pause-to-refresh commenced, as we suspected they would. Because we do not anticipate a dramatic market purge this month (just the forecast pause after everyone embraced our view), it is impossible to make a general statement as to when individual issues will bottom-out in their pullbacks, as these will vary greatly depending on the absence of a catalyst able to generally hit the market, even briefly. In that regard, MSFT is now a big media event, but is not a big market catalyst for now, though it is very volatile as some make "bets" in the wake of the Judge's ruling. The impact of MSFT was seen in preceding months, as it toned down the technology enthusiasm well ahead of the media sensationalism, not afterwards. And we're not interested in cheering for one side per se here, or daily action of the stock; irrelevant when there are so many others without the imponderable clouds overhanging MSFT, that will do just fine in an upward market.

Lost amidst the media-chaos, was the Dollar's continued short-term weakness, and further Oil price increases, which both have a shorter-term potential impact on the broader stock markets. The Dollar isn't likely sufficiently corrected (although if the Europeans hike rates as rumored, we might see T-Bonds weaken a bit, but the Greenback recover some, on the thought that the Fed might be compelled to increase, which they are not just because of action to support the Euro). It might be more important for investors to leave MSFT on the back burner (balance reserved).

In the absence of lower Oil or a firmer Dollar, we'd continue allowing for a little bit more rebound if the market desires in the morning, and then targeting a progressive (not straight-line) decline this month, possibly being interrupted by rebounds such as related to Triple Witching Expiration next week, and then concluding ideally a little beyond. The Wednesday of the week before any Triple Witching is frequently a favorable day, though some of the unwinding influences likely are already in this market, given the upside volatility last week especially. Downside may resume.

Overall . . . we repeat what we suspect for the longer-term: the market has made an important rotational bottom in this year's first half (which was the expectation and annual forecast); that the market has had too much damage to rise to the heights many would like without interruption; and that the market should not afford investors of a casual nature (or those money managers and technicians who were bearish at the lows and then more recently bullish at the short-term highs) the opportunity to buy as cheaply as before if our identified April and May turns (particularly with respect to the broader market following the Senior Averages reversals), were indeed key lows. A movement to new lows would (reserved), and thus change the pattern progression accordingly.

Bits & Bytes . . does not intend to ever suggest to non-subscribers implied a buy, sell or holds, but tonight touches on (just to give an idea of the type of stocks we follow), GM Hughes (GMH) and recently adopted (first time) Ramtron (RMTR), Rambus (RMBS), Intel (INTC), Liberty Digital (LDIG), AT&T (T), Digital Lightwave (DIGL), LightPath Technologies (LPTHA), Dell (DELL), ACTV (IATV), Analog Devices (ADI), Texas Instruments (TXN), Wave Systems (WAVX), Time Warner (TWX), AT&T (T), America Online (AOL), and Broadwing (BRW).

,b.In summary . . . the market was forewarned to become exhausted, and faltered very rapidly as it was grasped today. We suspect that tomorrow it will try to recover again after an early sell-off but that the effort might not succeed. However, it held better because of the rallying from possible or perceived beneficiaries of the Microsoft matter, as the day worked towards the Judge's ruling.The McClellan Oscillator currently is around +111, which is a +1 (adjusted) change from a prior reading, often a plus, but taking place within an easing down trend from the expected surge over the declining tops taking place over the previous couple of weeks. Little change in our key views. Thursday's action is somewhat imponderable given the news reaction factor in the morning, but may likely be something like up-down-up-down-up-down; that's a low probability call for just now.

Flat the S&P daily action for the moment; and we have a 344 premium as of 7:15 p.m. ET on Wednesday. Futures, are ahead just over two full points from their 1472 regular Chicago close. Recent breakout buyers are likely right about the long term improvement (though late in seeing the changes), but because they paid-up, will have to go through a forecast bit of dicey near-term (if not particularly painful) short-term action, before feeling good as to having chased prices just of late; though even if the market doesn't pullback much, we'll take great pleasure in having very well identified the rolling bottoms both in April and then for the NASDAQ in May. Investors having had their opportunity in those purges, really have little to do but exercise patience now, as noted, and certainly have no reason to be chasing strength after last week's "confirmed" upside action.


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