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The Inger Letter Forecast

November 6, 1998

Our call this week . . was for a "pop-up" after Elections to convince many others on the Street that it's onward & upward once again. We felt Wednesday and/or Thursday were generally ideal sessions to complete this pattern with "the Elections followed by a subsequent deflection". Action on Wednesday worked out very well with our (900.933.GENE) hotline call for the day "strongly to be up in the early going, even with a gap, but not nearly as much at day's end as initial rallying". From the opening bell comment, we stepped-up to the plate with a price level for a specific short-sale above the market at the December S&P 1133 level, which just under a couple hours later hit the goal, with an intraday peak of 1133.50; which was never again challenged. After days of very sensitive markets it will be interesting to see if those chasing greed blindly into recent strength -in an already short-term overbought uptrend- get their just dues for more than a day from the spike.

Interestingly, we forecast "the boys" to try to sneak-in a new rebound effort during the lunch hour when presumably many players would be away, which we saw as being a defensive maneuver. I point this out not because we were right (though we were), but because the idea was they would not succeed, with sellers returning anyway after a failing effort into the 2 o'clock balloon. The key to my call in the afternoon, besides what you already knew from prior DB's, was Mr. Greenspan's luncheon speech Thursday, which comes in the wake of mostly strong domestic economic action that brings into question the need for future interest rate cuts. Not to say we won't get a trending series of cuts (which is so typical), but simply noting that the market should have feared that with earlier efforts successful in bringing about a myriad of new currency stabilizations abroad, and in some cases higher stock markets (such as our forecast for the Nikkei to bottom near 12,000) we thought the afternoon Wednesday would feature trepidation ahead of his speech. For instance, if he was to say (he certainly won't admit that he panicked in earlier efforts, even if that's the case), that new stability shows they're on the right course, and that domestic strength may obviate new necessities for domestic rate cuts, well…T-Bonds would take more hits, and so would equities.

Going into the high..T-Bond buyers were told they were likely going to make a trading mistake.

No doubt we've warned that the T-Bond rally was an accident waiting to happen for weeks, with the pattern rather obvious, and domestic buyers coming out of equities and into T-Bonds exactly at the wrong time; we said that at the time, just as stocks were in the process of the intermediate bottom (note that I didn't say major bottom). While indicating the move into the mid 130's for the December Bonds was likely a sale and short, not a buy during the scramble domestically in, as foreign dollar-denominated-asset repatriations occurred at least mildly (probably against what we described as the unspoken agreement with the Fed & Treasury not to bear our bonds big time if we accommodated their crucial needs abroad), we thought everything did change for equities, at least for awhile. That was right after we showed (technically) positive divergences creeping into a slew of indicators while certain technicians and strategists were downgrading their outlook at that time. Just in the last few days, some of those same analysts upgraded their outlooks; ludicrous. (It should be noted that we didn't personally risk trading the bond futures or options; noting risk in a market where more unknown derivatives positions may remain exposed, then or even now.)

Neurotic stock market again at a "moment of truth". . .

None of this has been easy in a news-spooked, politically & economically sensitive (a bit neurotic even) stock market; not even for us at all times (and despite humility, we think we're pretty good). But we were right about the market turn a month ago, right about the extension of the Dow to 85-8700, along with an allowance that 8800 was realistic this week (today's high was 8854) but not a straight-line move to 9000, and we seem to be right about exhausting the short-term early in an interest-rate sensitive post-Election environment. We would actually prefer to see, from a bullish perspective for the yearend rally and beyond, a sharp hit to the market over the next few weeks. That would actually take the edge off the "new complacency", restore a modicum of fear, which very neatly could play into setting-up the next important rallying phase of the market then ahead. Now, let's summarize some numbers on this, which aren't changed from what subscribers know.

Technically. . .today's short-sale in the December S&P from 1133, which is already a homerun, has potential to break the 1100 area. Now, we can't say that we'll stay in it that far, even though very clearly it was a purposeful sale to try to catch an up-and-then-down reversal day. (That, for new readers or 900.933.GENE hotline callers, is rather evident when a trade is by intent and in harmony with a pattern-call, and not just implemented by stop, though when we aren't gunning for a particular number, that type of trailing stop and/or reversal approach in many cases will do.)

For a prospective short-term trend, we envision a low-point over the next couple weeks no higher than 1090 and probably not lower than 1030-40, as we've likely touched on before. After that and assuming no horrendous economic developments (or further hedge fund debacles, which always are out there as risks), we continue to anticipate renewed upside into the new year. Therefore, in deference to those who don't play Indexes, or who never short the market (most investors), most important would be the idea that a sharp decline over the next 2-3 weeks would provide just new opportunities for filling-out whatever portfolio proportions are intended for yearend candidates not already aboard. On a much shorter timeframe, yesterday and this morning were decent spots for some lightening up on stocks that traders have been in for the past few weeks, as already noted in a general sense Tuesday. It is not particularly surprising that the market is trying to snapback in the late going, and may do so (after opening down Thursday). The Street will do everything possible to retard this from appearing to be the reversal that it wants to be. That's why it takes the combination of both of these days; and if at anytime on Thursday (particularly after lunch), we should take out Wednesday's low (for the first or possibly second time), that's when we would likely be looking for an acceleration to the downside with Friday then likely down-up-down.

Daily trading. .(description of S&P daily action primarily, along with specific pattern analysis), Bits & Bytes. .(individual stock commentary about moving issues from our Letter, though not always just exclusively so), and Economic News & Releases: (are all segments reserved for subscribers only as a courtesy). These sectors always appear in our nightly Daily Briefings.

In Summary. . . no doubt buyers were available on the market's first real break from the highs. It is noteworthy that those highs came right where expected, at the 1133 level, which sets sort of a benchmark for immediate forward action. If those highs can be tested, and fail (whether slightly at a higher or slightly lower level), that would give them a broader credence among traders, than simply my own work which pointed to that number at today's opening as an ideal spot to reverse.

The McClellan Oscillator posting Monday was +259, Tuesday +227 and on Wednesday +247. The market remains in very short-term overbought territory. Whether or not it can "spike" above the highs yet once more before coming under renewed pressure into mid-November depended to a degree on this morning's response to the Elections. Sellers came in which eventually (over an hour or two) migrated into full-blown sell programs of Dow and S&P type stock baskets. The volume was high on an hourly basis in both directions, including the snapback late in the day. A total volume of 862 million was not necessarily climactic, nor did we get an outside-down day. We may migrate into a trading-range of sorts; but if so the next meaningful move within such an environment should be down again, even if we get an important rally try in the a.m. Any rally try should thus be short-lived, and be sold into on a short-term basis. Therefore the next significant trade may be live already, which is the current (hours in advance) projected Dec. S&P 1133 sale.

At 5:30; the early S&P premium on Globex is 583, with Dec. futures around 1124.50. As the S&P premium was "pressed" in the final minutes of trade, there is the possibility of a slight gap-down Thurs. a.m., particularly if this late adding of premium walks into fears of Chairman Greenspan's words tomorrow, or an early further weakening T-Bond market. On the 1133 short; we might give it more room (let me prepare everyone) beyond a breakeven trade; depending on early action. If the market takes the Cisco call for a lead, then you could get another upward move, even if it is sold into later on. I'd love to see Dell (DELL)make a new high, which might be a coup de grace for the rally, interestingly enough. Clearly, there is a crowd looking for Armageddon from here; in this pack we're not included. However, as we haven't increased allocations, and we are short at the highs now, we have no objection if the market is able to mount a significant break soon.

In a perfect world, our call would have this as an overbought short-term leg of the intermediate wave up from an indicated low a month ago. That would mean that it is a nominal (but tradable decline) break coming, or underway, that probably won't take out last month's lows. That doesn't mean that will be the case later next year, though that's too far off to worry about right now, and subscribers already know how and when we believe that action will evolve.

Please remember, the Dow Industrial's extended target was 85-8700; anything such as 9000 on this run is dangerous. 8800 was realistic, and surpassed this morning. Today had tinges of a top and even a buying climax, but not convincingly, as much as we might love to say that was so. It should be noted, after all, that we're short just now, but try to be realistic in assessing all this. In any event, the daily hotline trade goes into the a.m. short from the highs, 1133, and that was (as a by-intent targeted reversal price) an above-market potentially important short-sale, which so far is working on proving its merits, but this is a real bull/bear struggle, which is not quite resolved on a daily basis. Keep in mind, while looking for more hourly volatility up and then down, we are not in the camp expecting catastrophe over the next several weeks, while looking for pullback action.

Gold is impervious to rust.
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