Side-effects of Punditcitis

March 9, 2001

Skepticism reigns supreme. Hooray. We have our own at certain levels, especially if we fail right here around the 1265-70 area (ideally we won't); but at the same time the comeback from last week's nearly universal media berating of the market (which included all kinds of participants suggesting investors sell their remaining funds and stocks), was just the kind of mood setting-up the big forecast upside to subsequently occur (and nicely underway for days now) in the wake of that psychological chaos.

Of course our thinking remains that if we can get through this week without a further deterioration of the improving tone (other than intraweek squaring of minor extents), that we'll move-on-up ahead of (but not necessarily all the way through) Expiration, and then have only a minor pause before some firming ahead of the FOMC meeting.

Meanwhile, Wednesday's finish was pretty powerful (and as outlined in our intraday work on the 900.933.GENE hotline), despite the nervousness surrounding post-close expected warnings from Yahoo! (YHOO), a company who's business model we have never cared-for (or owned), as frequently noted in our work over the last few years. If it folds all the way into single-digits, we might find some speculative takeover value in it, but otherwise really don't care much, given the bargains last week that prompted a few new representative guideline selections of beaten-down truly large companies.

It goes without saying (though we have for decades) that when a market's crumpled, it is not essential to look for 'niche' or special situation plays, when the big-boys are 'on sale'; and then when those stocks are much higher (and risk is extended, despite the 'comfort zone' some investors and managers have with already-advanced stocks) we frequently will look for a few speculative undiscovered speculative potential jewels that can be diamonds in the rough, or occasionally cubic zircons. That's why diversify is always encouraged; especially when it comes to what we call 'Vegas size' bets. It's also appropriate ('cause some simply luv YHOO!) to note the bearish opinion always has suggested they would be among the survivors; just not the best market performer among the trio. These are always just our opinions; which could be wrong, right or in the middle (on this stock right about excess for a long time). We wouldn't get bearish on it just now; as anyone downgrading after negative news is reactive, anticipating so little, even if it works a bit lower. If it moved into single-digits, we might start liking it. If it didn't we probably wouldn't pay attention, as AOL remains a more-assured survivor. (Our adjusted cost on AOL is around 11; much lower if you factor in our TWX gains.)

The current situation is much different than a bet; it's historically based on probability, barring (previously outlined) blue-bolts, and given that not only did we pick-up on the nuances of recovery in the previous week (before this started), but knowing that there is no historical precedent in modern times for recovery not to gradually transpire if the money supply is growing in excess of 2% (it is) consistently. Pundits that call for this all to expire instead, typically talk about rates, avoid the monetary aggregates status, and sometimes make the same mistake we cautioned about when projecting the Thai crisis spreading back in 1997; they don't consider that money seeks a relatively safer haven in the U.S. That may be why theDollar has behaved satisfactorily, as T-Bond action also has nothing more than occasional corrections. Actually we called for both and the subsequent support; with T-Bonds in a bullish cycle that's over one year old.

At the same time we've allowed for Gold to have occasional rallies; even outlined it in a recent Letter, but believe those are countratrend moves until proven otherwise. It is not that we don't see values in the metals at the recent low levels; just felt we'd get a cap on the move unless things changed worldwide. Keep in mind Reserve Currency and major trading currencies aren't backed by metal; thus protracted moves common in the earlier parts of the last Century or the one before, rarely happen in these times. If you get our blue-bolt worst-case scenario (outlined in the year-end Letter), you may have that prospect, otherwise the expected rebound from the mid 200's might remain in place as noted, but be limited, though the downgrade of Japan helped it just a bit.

Otherwise, those currencies truly imploding, are not major international trading chips, in modern times. However, that doesn't mean (to readers in those countries thinking Gold is much stronger) Gold is basically flat-to-slightly higher in their local currencies, as those that are imploding tend to reflect appreciation in metals. Not so in the U.S.; but in countries with relatively strong currencies, import costs haven't increased as in weak nations, which is really quite a normal function of exchange rates for anything.

Back to equities . . . strategists and analysts are falling over themselves about 'trying not to be the first to proclaim the bottom'. We sure understand; that's why we wrote last week that once this moved-up to resistance (assuming we were right and it didn't collapse, and we were), it would become a tougher decision; hopefully keeping those skeptics on the sidelines (or better yet, short) until (assuming) the market breaks-out of the resistance areas, in generally somewhat close harmony with the schedule we suggested. So far so good; and if we have to reverse direction, we will, but for now it remains a market capable of breaking out, and possibly being positioned just-right for maximum impact from a subsequent rate-cut, though of course the Fed doesn't target the market or strive to produce 'power plays' at just the right spot. (slightly cynical)

Daily action . . . in the meantime, saw the hotline do fine, as it has pretty consistently coming-off the first 1219 March S&P entry, noted as anticipating moves up to current levels (and maybe more, per interpretations we've regularly provided regarding these current and next couple weeks). At the moment, after an earlier moderate successful 1263 short-sale today, the most recent long was from 1257. After yesterday's terrific 2300 point gain, Wednesday's 1000 or so was about all the market allowed (and we even forgot our own guidelines which did better, as a couple callers reminded us; that was kind and appreciated), in comparatively rangebound behavior, but with last hour pops to Dow Jones Industrial gains of 125 points, that we had suggested earlier as a prospect, if the Street could put-aside worries about Yahoo! (balance is reserved).

In summary . . . some of those same pundits continue to speculate about whether or not this rally is a 'false' bear market one, or how strong it might be. And it keeps going on up. That's a valid debate for a market advance that hasn't 'confirmed' strength yet; however, if it does so only ahead of the first Quarterly Expiration of 2001, that could be a trap, where the recent bears turn bullish (next week for instance) just before the market starts to correct anew. We remain optimistic that what will happen is the Fed moving to cut rates again, about at the point (that was the plan, if all went ideally, and so far so good) where resistance is being challenged, so that the Fed contributes to what amounts to a 'power play' or breakout effort by the Senior Averages. This would ideally be more interesting, since our daily targets of Dow Industrials 10,600-700 or higher is already reached (today), with the March S&P into daily resistance now, and eventually challenging the 'island reversal' gap-down slightly above 1300 weeks ago.

Generally, the Fed protests that it doesn't time interest rate changes to impact stocks. That's what they should and must say, unless there's rare systemic risk, such as late 1998, in the wake of the LTCM (oxymoron) debacle. Some now ponder that if market action remains firm, the Fed wouldn't cut rates. We doubt that, and believe it would in fact be a big mistake. If the Fed isn't (supposedly) influenced on the way down, why should they be influenced by stocks on the way up, if it's the economy that's their only concern? They theoretically shouldn't be, which is why we expect another rate cut of ideally not less than half a point at the FOMC meeting, which occurs just a few days in the wake of the Triple Witching Expiration; that meeting being on the 20th. Just the perfect spot to have a market above resistance; (sorry; balance for subscribers).

In any event, we disputed the many nonsensically 'fighting the last war' ideas as best able, not because we knew we'd be right about this (you never know for sure) but because we thought we were. This is also precisely why we thought that chaos in fact was the time for aggressive anticipators to enter not exit (aggressively was at the 1219 long of over a week ago in the March S&P, and subsequent mostly longs as far as guidelines since), with comfort of being able to worry about whether the rally's quality is suspect later-on, rather than buying (more important for equities than futures) into subsequent strength, as pundits (or some elves who just turned cautious recently) rethink those ideas, and probably flip back to being bullish near a short-term peak. Ideally such a speculative peak won't be enduring; but let's revisit that when we are provided more evidence by the balance of the behavior later this week, next week, or even beyond.

Bits & Bytes . . per usual is reserved for ingerletter.com daily subscribers, however, we're touched on some interesting stocks tonight; includingAnalog Devices (ADI), JDS Uniphase (JDSU), LightPath (LPTH),Corning (GLW), Intel (INTC) and yes, Microsoft (MSFT). Some are old, several are new, none are borrowed (including a few new additions that never appeared before March 1, which are heavily pummeled but likely survivors, which were quite 'blue'). Just listing here doesn't constitute our opinion on these, to buy, sell or hold, though obviously we're not shorting weakness.

In summary . . . the market rise continued on schedule, and increased upside late in the day, per expectation. The Beige (Tan) Book was not uniformly negative, which is affirming on our anecdotal ideas of the past week, though the media still proclaim the opposite. While a strong market will not preempt another Fed cut, a strong economy is able to do that; so let's be pleased the Fed Regional Reports weren't even better! (The stronger revised existing housing data would cheer the Fed actually, as they're in a mode to still want to engineer softer, if not soft landings; for the mainstream U.S.)

McClellan Oscillator data continued the forecast improvement from last week's low. For today, the NYSE Oscillator is at +27, while the NASDAQ's around -0-. Movement over the zero-line would be a mechanical (after-the-fact) buy signal, now generated in the NYSE, validating our forecast from last week, but of course increasing the risks to those becoming optimistic only in established rallying behavior. Probably NASDAQ is about to do that too, which will then increase optimism a good bit off of recent lows (it may be appropriate to note none of this presupposes eventual pullbacks aren't seen).

We were right that short-term lows were behind, but see this week yet-higher overall; and thought lows were amidst all last week's 'pundicitis'; as noted. Not to make fun of any player (nobody's perfect; including ourselves); you never hear pundit forebodings at tops; but historically do near bottoms, and that's something we needed to share in last week's remarks. We might have been wrong, but strongly suspected we weren't. Their attack of severe pundit panic attacks (pundicitis), occurred right near the lows.

For now we're long S&P's, after more impressive gains today, on top of overall gains achieved in recent days once again. That includes the long from the previous Friday at 1219 sold last Tuesday week-ago, some subsequent shorts in response to later failures, and then Friday's gains harvested. After being flat for the weekend, it was planned to buy morning weakness on Monday, and we did. The preliminary pattern-call for the new week was down-bounce-dip-up, and higher yet. There is no change in that. As for Thursday, ideally up-dip-up-fade would be very ideal to look for; though there are acceptable variable patterns we would look at if needed. As of 8 p.m. S&P Globex premium is running about 411, with futures little actually up about a point.

The Federal Reserve Bank of New York holds the world's largest accumulation of monetary gold.

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