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The Inger Letter Forest 2002

March 22, 2002

Heaviness prevailed . . . across many sectors, which does not come as a surprise to readers here; who have recognized that the market was fighting not only an extended short-term technical condition, but a couple other factors prevalent for the moment. In fact, besides the pullback expectations we've warned of 'from the market sticking its nose up to recovery highs only briefly', there are about three primary contributants to the accelerated downside this afternoon; one technical; one Congressional, and even a 'terrorist aspect' (we discussed this morning on the hotline) to undertone concerns.

The technical aspect of course was the idea of Senior Averages making brief higher-highs; which the Dow Industrials did, but by a fraction the S&P was unable too. The NASDAQ and Nasdaq 100 (NDX) never came close to achieving that this week, and instead exhibited a suspicious effort to hold the recent breakout, which succumbed. It is our thinking they eventually will succeed, but as discussed in the previous couple of night's remarks, not so immediately, and maybe that's actually long-term desirable.

Technically . . . the rest of the structural picture is just as simple as assessments of the past week; attempts to stretch the move, contract, possibly to a breakout point weeks after our 'W bottom' formation signaled the likelihood back in February; then corrections that causes those after-the-fact technicians and analysts to question their own wisdom about 'chasing' prices, after which (barring catastrophe) we can look for the next upward leg down the road. (Section balance reserved.)

Sometimes we know that we have to allow for things to appear to be out-of-kilter in a decline, because that is a way for those who missed the upside romp, who tend to be planning to buy a decline, rationalize not doing so near the end; because something comes along to scare them. Then, in the future advance of the market (later this year, almost without question, if there isn't any catastrophe intervening) they again will kick themselves for missing it one more time.

For sure nothing is cast in-stone, and if there were to be a catastrophe for instance, then after-the-fact one would wish he or she had been more negative at what in most normal conditions would be a short-term top completed in the outlined manner, not a more deleterious environment. So, as noted before, the way to reduce risks was to be a buyer back in September, or even the October pullback, or the February drop, but in any event not into strength earlier in March, or most recently. Hopefully things won't become 'dire' in the weeks ahead, and economically we don't expect that. But we have a heads-up sort of perspective with regards to the war, and exposures that psychologically impact an extended market, surely varying from a depressed one. At the moment defensive market conditions have appeared about when expected to.

The earlier 'terrorist' note above, was mentioned on the hotline this morning, primarily to reference stories making some rounds (but not the media that we've heard of yet), that hopefully has no basis in fact, but is obviously bothersome. (Serious rumors, so we don't want to dignify them further by circulating the possibilities in an open forum.)

Why mention this now? Well, besides the nuclear concern ramp-up, there are Oscar awards coming up, and as we mentioned last night, that made us a little nervous not just about 'Hollywood', but about the long period of quiet from domestic terrorists that is probably not merely due to the number of detentions, but has a calm-before-storm sort of mood behind it, that we think permeates beyond daily-living complacencies. In a sense, some of these secular intolerant barbarians fear movies more than anything.

In the same vein of our warnings over the past couple weeks that this was extended, or long-in-the-tooth, we are going to continue to try scalping moves in both directions; sometimes it's easier; sometimes not. As noted during Wednesday, as earlier March lows came out, you could get a little downside 'woosh'. A mid-month tiny dip probably had some effect, and as we filled a gap left from the close on the 14th to the open on the 15th, the downside accelerated a little bit too. Sure makes that sort of 'island' in the sky we talked about last week look interesting, doesn't it? Anyway, we are not yet at any important interim pullback low, nor should we be; so mostly be wary of rallies, and suspect they will occur, but be hard-pressed to be more than false, just for now.

Catching moves was not as easy as the combinatory homerun guideline gains which were theoretically doable on Tuesday; though after a couple potential small losses in the midday slugfest, the afternoon may easily have yielded solid downside gains via a short-sale from the June S&P 1160-62 area, based on some of our concerns, that we've noted here in the DB's, and on the (900.933.GENE or direct-dial) hotline calls. (In mid-morning Thursday efforts, we have a speculative rebound long, from 1148.)

It is notable that stretched Bank Stocks (BKX) rolled-over a bit (hard not to, in this sort of market, though interest rates are not about to advance sufficiently to choke-off growth or loan demand; just the opposite as the economy improves over time for at least half a year forward; though again those stocks were extended so this is healthy from a macro-perspective), while the strength in Oil had crude at the higher end of the projected target range recently, which in the absence of military action, we did suspect was toppy generally; barring brief reactions upward at (war) crisis points.

Note that the Nasdaq 100 (NDX) pattern was potentially also interesting, as it kept on continuing to try advancing from pullback points, but wasn't making impressive gains. It remains to be seen whether tech will have much actual gain in business activity this year (we suggested it continues one of transition, from down to up, with consolidation in between), though we do believe the inventory cycle low is generally well behind, as demand appears questionable, but eventually blossoms into a fuller response to what in the general economy has to become unfulfilled demand over time. Even if much of that is next year (probably for telco's, etc., but many businesses and Government are increasing spending, particularly on hardened communications, now), price gains are likely to expand later this year, regardless of temporary periods of price contraction. It is what we've been saying, though today's decline brings that point to stark reality; it's also interesting that analysts talk of soft 2nd Quarter tech sales; actually seasonal, so it shouldn't surprise anyone, and has nothing to do with forward prospects eventually.

Finally, there was the 'Congressional' tidbit contributing to today's decline. That has to do with a controversial bill that seeks to deregulate high-speed Internet services. It faced slim chances for survival even before its sponsors failed on Wednesday to win over a skeptical Senate panel; and now challenges the idea that Government will be supportive to endeavors to expand household broadband penetration (reserved).

In essence, television wants to compete with these kind of products, and this is likely to be a battle repeated with a difference, as cable's fight against HDTV is unmasked to be what we all knew already; an effort to prevent multiplexing (rest is reserved).

In summary . . economic data continues the projected consistent improvement types of indications we've suggested since targeting the economic low in the Third Quarter; as was affirmed by the Fed with their guarded comments after the FOMC meeting; at the same time as we have warned for days that the market was extended, on fumes, and going to crack, at least on the short-run (hopefully not more barring catastrophe).

Internally, contractions from recently extended daily overbought cooled some, but not broadly, with moderately negative changes for the McClellan Oscillators.

Our prayers and thoughts remain with our troops fighting anywhere in the world, and as events of the week explicitly continue to remind us of various new risks the Allied fighting forces face, or may face, we try to keep in mind that the unexpected remains a risk; while all free peoples certainly hope for the best. The new week indeed gave us the false start effort to extend, on-hold ahead of the FOMC, some sectors making briefly higher highs, then increased daily risk forewarned, albeit ideally not long-term structurally; event dependant. This evening a 45 premium has S&P's unchanged.

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