Market's Not As Fragile As Easter Egg Rolls

April 20, 2000

Forecast dynamic upside continues . . . amidst many increasingly vocal protestations from an assortment of analysts, some bears, but mostly wounded bulls who found religion after the fall, many of whom have been championing investing in "conservative" plays like the blue-chips while bemoaning the broadening wild rally in the NASDAQ run. Indicating ahead of this big run why we thought the Nasdaq 100 (NDX) would lead the projected recovery out of the hole, we're actually not against the idea of a pullback in the fullness of time but not where others see it, and also not when they expect it either. (Probably it gets trickier again after the holiday, with a failed key effort to extend this week's projected recovery, but which in that first pullback holds high level support.)

Technically . . . there are several keys to this; one of which has to do with the explosion above a reasonable 1420-30 goal, and the next target, which was the yawning gap in the June S&P seen from the close April 13 to the opening on April 14. That we've made it back to the top of that (and will surpass it handily tomorrow) is about as bullish an alternative you could have for this market.

Also, as observed on the hotline repeatedly, if you could do this, then though there will be pause-to-fresh behavior ahead of the Passover holiday. This has a better chance of holding higher level support (like the 1420's or so for as a for instance), because the upside punch is great enough to give sufficient maneuvering room for a fairly normal pullback which won't automatically resume end-of-the-world talk. If it does (balance of forward commentary reserved).

Now, we know certain aspects of this market that are disconcerting; and the ones most bears are likely pinning that hats on is the "confirmation of downside momentum" that was delivered by the Friday carnage last week. We know that, but figured all the powers-that-be did too, which is why it would be unlikely to crash the already crashed, not to mention that the institutions had so much recent money in the "undead" stocks that they weren't about to drop the ball on that if avoidable. In the perspective of the entire month of May that may or may not be sustainable; we'll assess it as more is known; and no we would not be chasing the upside of this rally; no reason to as most players agreeing with us essentially nailed the lows for this move, and will now be looking for a pause. The only decision is where or if to sell, and then in what proportion. For that we'll let the market tell us, and the market tells us it is going to try to attack key moving average resistance just above current levels on Wednesday before trying at least a modest pullback, and then will try to breech it at least via two attempts before giving up. (further comments reserved)

We knew all this before it started, or thought we did anyway. And because we disagree about the type of stocks that would assume the mantle of leadership for the forward precision (near military charge formation) advance, we made a point of suggesting since Friday night, that trading gains would be superior in those delivered by the Nasdaq 100 (NDX), which would exceed the gains in basically all other Indexes. Yup; that occurred with a huge 10% gain yesterday and another 5% in today's session, exceeding the 2-3% gains in each day in the Dow Industrials and S&P 500.

All these Averages are approaching certain resistance now, as trendlines and gaps (etc.) staring at the market are sort of lined-up in-front of us. Any number of permabears are arguing this can't be happening, that the market must fail, and that these levels can't be overcome. Well, these for the most part are the same crowds that didn't think the market could turn as it did this Monday. It might be of interest that we concur this phase of upside, or ferocity at least, can't be sustained of course indefinitely; but we're not going to embrace any necessity that the market fail overall with the market not saying that, even though people are saying so throughout this spirited run-up. It's almost as if certain strategists or technicians can't stand the idea that the NASDAQ could do this; that people would come right back at the market; that historic gains could follow historic losses; and so on…mostly because they didn't catch it and don't know what to do.

Ahead of Monday's turn we mentioned it by suggesting (for all who embraced the key approach, of being partially long, not short, and without margin leverage) new buying within reason, but not the whole enchilada, just in case. Individual decisions of course, and we outlined that we thought it might even be an important bottom, but that wouldn't be known until later in May (still the case). We made our point about the market going to go up, not down, and left it at that essentially, with a suggestion that each investor determine not Friday night or Monday how long positions be held but rather get in there, and then decide whether to scale-out of all, part, or none, depending on a course of action as the advance proceeded. Well, so far it couldn't be stronger, so what possibly we can add we have no idea....except that it pushing key resistance very very shortly coming up.

Daily action . . . now, moves to what did we do in the June S&P today. The guidelines called for an up-down-up session, and we added sideways-and- up (the latter two via the morning hotline comments). Hence the (900.933.GENE) hotline adhered to that bullish posture, as firmly as we did yesterday, throughout the day, and that meant that Monday's key long from the 1362 area was retained, all day Tuesday. We continue long with no particular stop going into Wednesday.

At this time, we suspect the bears will see what they can do with the market early Wednesday. In our view the answer will be "not much". Buyers will stand back to see if meaningful profit-taking comes into view in the wake of (certain corporate results, which are not automatically bearish but we are looking for some pullback in anticipation of traders leaving early for the Passover Seder. Keep in mind that as Thursday is an Expiration, action may not be an thin as many think likely).

Bits & Bytes . . . is abbreviated; as many stocks (today more than yesterday) rebounded, which is perfectly normal as you had to have the "Grand Dames" move first, and then the rest chime in. It is ridiculous to hear writers now, after the burst of the biotech & Internet bubbles tell investors to worry, as they had plenty of warnings here that things were long-in-the-tooth weeks and even months ago. We would agree with those "concept" biotechs that have high cash-burn without a pending product, and certainly with respect to the old e-commerce plays. Those were warned of one year ago, and many have not made higher highs since then. With respect to painting broad brushstroke negativity, that's nuts…as these are focus areas of the Nation, will and are going to experience consolidations, but won't depart from the general center arena of investment interest.

In summary . . . as postulated, Friday's swoon did set-up a compelling washout pattern, and it was played about as best able, which was bullish throughout, allowing for the first Monday rally to falter, but the last to be sustained, and actually to gather a following as it proceeded rapidly uphill. The Tuesday session did essentially the same thing, but was more procedural in nature. The sharp 11% drop in Housing Starts is a plus, as it suggests to the Fed that their policies are having a bite in the real economy, which in a sense should help hasten the end to rate hikes.

The McClellan Oscillator finally improved, and rapidly, to -19, which reflects the better breadth today, as any important reversal has (such as yesterday) to key-off the major players first, not the minor players, which will join in later, if the move is for real. And they did. But now a pause.

Overnight Tues. continuing optimistic and still long the June S&P from 1362. As of 8:00 p.m. ET the premium on Globex is 739 in the wake of the selling after good earnings from several major companies, with June futures at 1449 or so, off about 370 from the regular session's Chicago close. For tomorrow, an effort to decline, then rebound-dip-up-dip-up-fade overall is most likely. The reason for the first drop is to see what (not much) sellers can do, and the late fade because many traders will be leaving early for the first night of the Passover celebration. Our very best wishes to everyone celebrating Seder, and of course a very happy Easter week to all. We'll be here for the normal commentaries both Wednesday and Thursday, which is an Expiration day.

With gold stolen by Conquistador Francisco Pizarro from the Inca Empire in 1532, Spain financed its conquest of Europe.