Shadowing Market Ground Hogs

January 26, 2001

Ahead of Greenspeak anxiety . . . our stance remained perfectly in harmony with a month-long forecast for final decimation in December, an attempt at giving the tone of a 'brick wall of resistance' at the January start, but that the expected 'hiccup' wouldn't hold, with the 'real McCoy' rally commencing thereafter. That it did, right to our target.

Whether that goal can be exceeded or not, is essentially a matter of finessing what in most cases would be a completion of this projected upside phase, though we know at least nominally, that there's some 'risk' of the market penetrating resistance, and thus climbing-out above the measured goal of March S&P 1370-80 by virtue of emotional reactions. That would primarily be a function of events, such as (for instance) the Fed Chairman embracing a multifaceted series of economic stimulus; monetary and fiscal combined. Conventional wisdom holds that the Fed Chairman wouldn't endorse both, in deference to considerations that inflation might return. However, this Chairman by now has got to understand that Oil prices and commodity demand are not always (at least as seen these past years) correlated with anything much the Fed can influence.

For that reason we've suspected that this Fed might just be 'in-sync'; our deference less to the 'rock-star' adulation (not justified either) this Chairman might be accorded at Thursday's testimony on 'the Hill', but rather some symmetry in thinking arrived at with his meetings at the other end of Pennsylvania Avenue; thus potentially putting a synchronous tone to his monetary stimulus, and White House fiscal stimulus plans.

So, with the ideal goals attained, and a little advance caution about chasing this, very clearly noted in the last couple of days here and on the 900.933.GENE hotline (not to mention macro thinking that included a sort of tough-to-define February correction; though likely within a grander pattern), we're still long, but prepared to cut-back if the market tells us to, or should Mr. G's tune be somehow classical, more so than avant-garde. If it's more modern music (that means less attuned to the Industrial Age), with more understanding about the need to indirectly provide sustenance to the 'New Age' by rewarding those who've been prescient, or who've taken forward-thinking moves in their companies, we'll find the market breathing a sigh-of-relief (strategy reserved).

It is necessary to again emphasize that these prospects (ironically) are mitigated if an orderly pause takes place (such as late today), and is emulated in the wake of his Hill testimony, rather than the kind of 'spike' which would invite more aggressive selling at the same time as the euphoria temporarily peaks. Wall Street will be closely focused on all of the Humphrey Hawkins testimony, with thoughts of clues for next week. Sure nobody expects the Fed Chairman to preannounce next week's decision (nuts if they do), but he could comment on acceptance of 'reasonable' moves towards moderate tax-cuts, as long as they don't get out of hand and over-stimulate the economy. We're thinking Wall Street would take that as a 'cue', and rally the market thereafter a bit. If they do nothing so dramatic, interestingly, the ensuing pullback will be (as outlined).

Why is that interesting? Because most traders (some managers too) are less taken by all the media hype about whether the Fed cuts a quarter-point or a full half-point; a fairly nonsensical concern. Because if they do more now, they might do less in March and if they do less now, they might do more in March…makes little difference in what the longer-term outcome will be, because it would still be a steady series of rate cuts (though of course impacts on corporate results in the 1st or 2nd Quarters are greater). (Balance of this section reserved for readers.)

First of all (to new readers) it's clear by virtue of being on-guard for a short-term peak that we're surely not permabulls (believe it or not, many used to think we were bears, but we simply did what the market told us to do in 1998, which was look out below). It is also not true that we never met a tech-stock we didn't like; plenty of them were not and are not embraced (nor do we have time to seek-out more than representative or sector leading plays, as has been the case for years, though often some do very well) by us, and are probably past their prime. These are volatile markets in our times, and have been for years, contrary to publicly-decimated stories about investment-grade unending moves, which actually never took place (at least not without interruption of sizeable magnitude). Period. There; we made a very short sentence for those who care about such things (this is prepared after the close, with rarely time for proofing).

You might say we're flexible realists, without overly rigid focus on technical analysis, or sometimes anticipating what orthodox viewers of that (already arcane) science are thinking, and trying to get an edge on them; as that's all it takes in the stock market. It is also an overriding emphasis for years 'not to fight the Fed'; something we don't trot out as much as those who've made a career of proclaiming it; but suspect we've hit a few more moves (and been more bullish in the heart of the '80's and '90's uptrend for years, and more worried from the 'irrational exuberance' speech forward), than some proponents of that very appropriate admonition (who may be peers known for years).

This realism necessitated expecting the 'dot.com' bubble to burst, and the best techs to break last, though there was no way to identify the chances of having an Election without resolution, last November. This realism necessitated believing that the Fed is not so ignorant to keep their heads in the sand (and it was there, with cuts overdue) once that event occurred, and hence the tail-end of December was seen as a market bargain; of rare quality, and especially in the expected-to-survive technology stocks.

It is important to emphasize this here, because first of all the Fed is likely to affirm the strategy we thought they'd embark upon, before they did it, or maybe even decided to do so. Secondarily we are not necessarily at the cusp of mediocre results, though for sure confidence may return (reserved, on the consumer side) if things don't get much worse in the general economy. Granted, and as projected, this market had to bottom well before the domestic economy; but to say an 'affirmed' realization of that (which is what the Street broadly is praying for tomorrow and from the FOMC meeting) means stocks go up in a straight-line without correction, which isn't too realistic. Therefore, as realists, we have to temper enthusiasm as others find what is thought to be the courage to wade-in, during (these and other) temporarily higher price extensions.

Are we calling for a top? Not exactly. (See, another short sentence. Enough said, and goodnight.) Seriously, syntax aside (well this Administration would probably increase that tax), we'll probably get a short-term (roiling) to make it interesting. Technology has been a great place to be, but to just now discover it, is well after-the-fact on a short-term trading basis. (Forward aspect to any pullback's duration is reserved.)

Daily action . . . in deference to this possibility, despite very clear awareness that orthodox indicators, at least of the short-term variety, are somewhat extended now, has us continuously maintaining all week a single guideline long-side effort on the (900.933.GENE) hotline stance. ThisMarch S&P long from 1344-45 is thus retained because the market allows it, not because we have any extended illusions for a sharp upside move on-top of our (now) achieved target goals, that may be briefly exceeded.

Last night's discussion, that we were developing towards the end of the beginning, not the beginning of the end, pretty much outlines our overall structure, barring any totally unanticipated shocks, which as you know can always occur. (Withheld notes.)

Concurrently with being better-than-seamlessly bullish on the March S&P all the way from the high 1200's (viewing the breakdown then as a 'hook' to set-up a reversal), it isn't a time for us to get carried away (why, when you captured the entire upside run), though now we've reached (certain) levels that our forecast called for by late January in harmony with the overall game-plan; and that's what we're reiterating in this DB. At ingerletter.com we don't like being caught by surprise; there are never assurances of course, but we suspect that just as the implosion provoked cries of panic and despair last month, any explosion or complacency now, would set-up at least a mild pullback.

That (strategy) partially is what we meant last night, about fund managers that might be forced into realizing what kind of animal they really are, awaiting 'better bargains'. We call them, in the spirit of the forthcoming season, not bulls or bears, but call them the 'ground hogs' of the modern era. (Balance withheld.)

Our hunch remains (can't know so of course, but if the lead Fed singer's 'in-sync' to the new Administration's strategies (and no, we don't envision the Chairman in a new 'boy band'), he'll stick by his monetary ease, and endorse fiscal stimulus too; a rock & roll song for the market. Regardless which tune's played, we are absolutely perfectly positioned for a more immediate bullish alternative; just run-in all the shorts, or take this market through the roof. However, what we described technically, is probably the more likely outcome. Did I forget to mention that our optimistic progressive alternating advance well underway's actually a bearish alternative? Clearly having a little fun, but imagine what it would do to under-invested skeptical 'ground hogs', if it's that strong!

Bits & Bytes . . tonight touches on Corning Glass (GLW), LightPath Technologies (LPTH), Rambus (RMBS), Metricom (MCOM), and Digital Island (ISLD). (All aren't on our list, and simply mentioning these doesn't constitute a buy, sell, short, or hold.)

In summary . . McClellan Oscillator data is around +64 for the NYSE (reversing the nominal positive change of yesterday), while a +65 for NASDAQ markets actually is a nominal -5 negative change. We would not make too much out of that, other than the normal squaring and nervousness expected here to prevail just before the Hill talk. If the market's able to climb-over the hill after the Testimony, the manner of that assault will be crucial, and assessed on our hotline's commentary. Preliminary, Thursday call is mixed, and then reactive to the Testimony featuring that aging rate-rocker; Mr. G.

Globex S&P premium late Wednesday is 600; recovering about 300 from a post GLW selling squall, that followed their report (was buoyed later on after a conference call or coincidentally). We looked for and got something hearty into midweek, underway structurally still, with minor pauses here and there. With futures around 1370, so little changed from the regular close, remains a favorable (but nervous) discussed pattern, with certain risks as outlined. It of course is normal few players stay long overnight (in S&P's, not equities), but makes our point that our (900.933.GENE) hotline see this as higher again by maintaining a 1344 long-side effort, one more time; currently around 1370 and change tonight. Do not assume that we'll remain enthusiastic in a spike up.

According to the Talmud you should keep one-third of your assets each in land, business interests, and gold.

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