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A Question of Endurance

March 3, 2000

Is the "Bull Market" back? That's the question many on "the Street" are asking today, as stocks generally have moved back up in recent days, very much inline with our call after last week's big drubbing, which showed an exhaustion of selling compared to other similar Dow Jones declines, as analyzed at the time. That was partially the basis of our forecast turnaround early this week in a belief that the market was going to rebound regardless of what came "down the pike", while at the same time recognizing that the "bull market" never ended in virtually all our favored stocks, in direct contrast to the "bear market" that existed for almost two years in a blue-chip cross-section.

A Question of Endurance

We felt there was essentially no chance for the market to "crash" as the "unadjusted" DJI already had, if you left out last year's changes to the most psychologically noted stock market Average. It is not out of the question that risk gradually returns to the market as it probes into higher levels of course (forecast resistance); although if we can clear key resistance here sufficiently in the days ahead, chances of the next pullback holding the breakout point (current resistance at prevailing prices for the S&P most notably) will be meaningfully enhanced. This remains a test of strength of participants, but so far, with this market dominated by technology, especially semiconductors, which have been our most focused-on sector for over 7 years, odds are still with the bulls in this. (After Intel and frequently Micron, and then Texas Instruments, came Rambus, Anadigics, a buy soon after Conexant's spin-off from Rockwell, and more recently a now-tripled Analog Devices.)

It was viewed as fairly comical to hear recent concerns about "margin debt", when the stocks that the majority of players are in, are doing well, not burdened like the financials for many months. In that regard, there is even a bounce going on in the Bank Stock Index (BKX), which is helpful for the moment in trying to resolve this entire strategic conflict in favor of the market's optimists, that we are very much behind since concluding the "exhaustion" probability in last Friday drubbing, at a time some were making a big deal of a decline that was very long-in-the-tooth for blue-chips; a factor in doubting the wisdom of all those who suddenly had discovered the difference between a cyclical and technology stock. This is a tough time of year to get the upside to succeed, as you of course know; but so far so good, and that is the point, as markets rebound from a daily oversold.

Strategic battles were under control . . . in recent day's, and that has been the key point about all this before the week even started, and that becomes a bit obvious to everyone now, and thus a bit less certain beyond here as targeted technical levels are rebounded to now in crucial March S&P futures. That means that a battle royale is currently roiling, as some observers speculate in after-the-fact fashion about maybe the market going up, right at an indicated crucial resistance in the 1382 area of the March S&P. We got through that slightly, but not impressively, although the forecast up-down-up general pattern was indeed the outcome for Wednesday's session (forward outlook portion of discussion reserved for subscribers).

Daily action . . . on Wednesday action saw a likely couple thousand point S&P gain on the S&P hotline (900.933.GENE), which moved right back to the long side of the ledger every time trailing stops got hit, which was more than once in a choppy rangebound mid-session against a forecast backdrop of an up-down-up day. We continue expressing relative optimism for at least a decent odds of penetrating resistance, but just as the area in the 1440's (the "island in the sky") was the optimum place for bearish trades some weeks ago, the forecast filling of the gap and the Monday turnaround, was the optimum zone to reverse to the long side of the ledger in the low 1330's or so. In our view the dangerous times to get bearish is after a confirmed decline, and riskiest time to get newly bullish is after the market's proven its ability to rebound, such as forecast and done.

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Further, we came into this year looking for the down-up-down January, with some early up into a surprisingly firm early February (to the majority, not readers of ingerletter.com), and we also had a viewpoint that if breadth could improve (small-caps in particular) regardless of what older DJIA types did (and many of them were impacted by the continuing firm Dollar, which made it harder to increase profitability from foreign markets for multinational companies, who have the majority of the last two decades growth in gross coming from overseas, as you are well aware of course).

Some most recent upside may have related to needs to "touch-up" portfolios, with some little bits of "window dressing" in the final moments of the month of February and start of March of course, but we're just looking at the market as it is, didn't overreact to certain worries about a leap-year phenomenon, which some thought to be a negative, and we did not (per earlier week's remarks); considering that the frantic selling a few days ago had a chance to conclude selling of a frenetic nature, not initiate anything. Hence, playing a positive S&P trending move effort; not yet simply enough to view as merely procedural, but definitely procedural in terms of expected resistance coming at predetermined areas right now, just as the low-point Monday virtually nailed the turn.

Also, there is a major risk out there; OIL. The continuing climb of Crude Oil, not just Gasoline in the U.S. markets, is a major impediment to a calm and resolute economy continuation pattern. It is ludicrous to hear the White House talk of tapping the National Emergency Reserves, when no National emergency exists. To do so simply to bolster tourism and consumerism in the Summer, without any actual supply disruptions, begs the question of wisdom regarding a real emergency, should it ever occur. "Price", not "supply", is the problem, and much of that is a result of "taxes", that were put on Gasoline at a time when Crude Oil was artificially depressed by OPEC, when they were worried about increased production on the North Slope, Gulf of Mexico, and European North Sea drilling expansions; all of which threatened to erode their production hegemony. At the time we wrote that eventually Washington would pay the price of increasing taxes on Energy just because raw product costs were down; and that's exactly why Crude can be around 30 (not 40), but have the price at the pump for gasoline up there where it was (or higher) than Energy Crisis levels, the last time these prices were so high. That "event" throttled the economy faster, since it was a supply disruption (manufactured, as many of you will recall), not a price only aspect.

That being said, while economic activity wouldn't have dropped-off so rapidly if supply held up in the '70's, we still face similar implications on inflation given that shipping and other costs must be passed onto consumers, over time. In the coming meeting tomorrow between Venezuela and the OPEC members, that could be an interesting spot to confirm or deny our unfolding equity rally. At the same time there is no doubt that "telecommuting" and other digitally enhanced aspects of the "new economy" help greatly in dispelling some of the undercurrent of inflation and even of a stagflation risk, which absolutely are a factor in the generally depressed prices of cyclical stock areas, as previously assessed. Ongoing "tales of two markets" can be resolved (so far so good), but it's not going to be "shooting fish in a barrel". without some help on the Energy front. And by the way, to all those who said there was "no inflation", or a new era where such things no longer mattered, and to which we argued (for cyclicals) they were wrong for years … well, we've been proven right, and sincerely appreciate the notes of profits from investors who enjoyed the fruits of their perseverance and confidence in semiconductors, optics, "new media", and other stocks. We would caution that much of this has gotten ahead of itself, so if you had a period where NASDAQ or the Nasdaq 100 (NDX), or both more likely, correct, that's o.k. and reasonable, providing the Dow and S&P remain stable or even advancing concurrently. If both go up again; well great, but how much are we all expecting from this huge single forecast move; my goodness.

Psychologically the important Dow 10,000 measurement was broken only slightly as the Senior Averages got ready (per forecast) to claw their way back from beyond the edge of an abyss, as anticipated last weekend for this week's turnaround efforts. Last Friday's downside action clearly was less destructive for key stocks than similar Dow Jones Industrial Average point drops in recent weeks, which was the exact opposite of the "island" breakout three weeks ago, and hence a perfect set-up for Monday's expected turnaround. The call was to exhaust negative short-term price behavior, amidst typical "confirmation of weakness signals", so often triggering capitulation (or at least defensiveness) on the part of market "mechanics", which often heralds key reversals from down-to-up, whether the rebound is short-lived or not. Probably this is not quite finished, though it will be crucial for DJIA to extend further than today's high, given the chiming-in of the S&P and the NASDAQ just now, that we hoped for, but was a bit of a gamble of course. What we really need is for the DJIA to move on up into the zone between 10,300-500, a goal that without a miracle is probably going to have to be postponed until (reserved call, as a forward projection).

Now, if this doesn't work (because it's not all resolved yet), and you find us back leaning short in S&P's; don't be too shocked, as we're trying to catch swings in the S&P, besides expressing the parameters and/or bias for the market, which remains firmer than we suspect at lease a few hard core bears thought we'd project (probably our upside stocks are mostly among the tops out there in this market, that have actual businesses, so we certainly hope many of you've been aboard). It is based on experience that we know when so many are again "panting" about hot stock sectors, the chances of some sort of corrective action returns to the fore of thinking, or at least a prospect to recon with, although this is not necessarily concluded at all yet; though hourly it runs that risk. And that is why our S&P action for scalpers is flat overnight, as stocks continue acting fabulous.

Bits & Bytes . . . (remarks tonight touch on) Anadigics (ANAD), Apple (AAPL), Intel (INTC) and DELL (DELL), as well as long-held Digital Lightwave (DIGL), Hauppauge Digital (HAUP) and LanOptics (LNOP) 7. Also remarked on: Wave Systems (WAVX), Rambus (RMBS) and little Brilliant Digital (BDE). (Simple mention of any stock does not imply a buy, sell, hold or short.)

In summary . . . the hotline is flat overnight, for those so inclined, after a moderately successful day swinging in S&P's as noted earlier, and with good success particularly in the afternoon after fairly spectacular success in catching the forecast Monday turnaround from down-to-up. We then suspected it was not time to get overly excited into weakness about a collapse in the market and that somehow, over these two weeks, the market would attempt a meaningful rebound that will be crucial in determining the future beyond. That rebound is more stressful than "prices" reveal, due to the proximity of key resistance levels no longer particularly above the market, but crucial at this time. We are there, and still bullish, but assessing it one day -even one hour- at a time.

The McClellan Oscillator continues recovering from oversold, and is around -22, with the also watched Summation's dots tightening-up, reflecting expected comeback after evolving downside exhaustion for at least temporary rallying as noted late last week. This turn's apparently caught a few by surprise; so we're especially pleased to have caught the vast majority of this upside, as well of course as forewarned of this move after last Friday's downside close many worried about.

So, even if this turn-up is just a "B" wave within an "A-B-C" decline for the DJIA, it was forecast to occur, and is taking place where and when it needed to, which does make it fairly self-evident as to whether it works. If it does not, that also will be evident, since the resistance and support zones are fairly delineated, as we reviewed again tonight (with appropriate conclusions reserved for regular daily readers). Right now, at 7 p.m. ET, the S&P premium on Globex is soft; 351, with futures at 1382.90, down 210 from Chicago's regular close.


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