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Stock Market Mortal Kombat

June 23, 2000

Through thick and thin . . . (and mostly forecasting which phase would be soft or firm), we've in fact been generally on the enthusiastically bullish side of the market's ledger coming off the key year's forecast lows, and particularly since the overall outlook for the year included and really got under way with the desired parabolic (described as unsustainable) swing-up in February, and in March, followed by the long-anticipated April / May purge, which culminated (almost surprisingly so close to our time-mark, in all humility) both in a late April turnaround for the S&P & Dow Industrials, and for sure that well-nailed ideal May 23rd / 24th low for the "grand dame" techs, called to break down last-in-line, as well as indicated secondary tests of the April low for the general Senior Averages. (These movements, such as the NASDAQ crash, were sometimes at odds with the action in the Dow Industrials, and were pointed out as so, given we believed that a key bottom in the Dow was in late February, but not in the overplayed technology and dot.coms.)

Led by the Nasdaq 100 (NDX) and Semiconductor Index (SOX), both of which we felt were the places not only to invest (to the chagrin of those belated movers into cyclical or defensive issues) in for the comeback, but which were clearly and emphatically projected to lead the market up out of the abyss, we got the market up to the most recent "battle royale" levels, which are still being challenged a bit, but which for the bigger picture are showing ways of resolution. We're honored to have stewarded many investors approaches to the market this year, in at all times challenging market environments, and once again probably surprised many with the dramatic turn and in fact enduring shift, from big bearish warnings during the 1st Quarter, to near-enthusiastic bullishness thereafter. We do not get more enthusiastic than we did during the May break in the tech stocks, because of several reasons, not the least of which was their low interest-rate sensitivity, much of the after-the-fact bearishness at the time (some of it amazingly is still out there, which is great; it helps the upside chances of breaking out of any short-term congestion), and our great Q3 goals.

Daily action . . . on Wednesday's was seemingly ho-hum; but it's not so simple. The market got support when and where needed, and proceeded higher later in the day (per forecasts) with just a bit of typical intraday squaring at the end. The hotline (900.933.GENE) S&P guidelines caught virtually all of it, via a continued September S&P long from 1489 or so, (balance reserved). So, meanwhile NASDAQ is up almost 35% off the lows; the NDX is doing even better, and several of our favored stocks, many of which we did warn would also succumb (just) temporarily in the April / May swoons, have actually doubled in price, from those May lows (incredible for just a month or slightly more), and some long-term cores in fact have done about as well, with a couple of the best moving into position to challenge highs. (The 1489 effort referred to was on Wednesday.)

Mortal Kombat

Volume is not expanding enthusiastically (yet), nor should it be. Cynicism (or basically fear from the majority of wounded players who didn't heed our cautionary alerts comparing the market to a "1929" back in mid-March) dominates the market, with only tepid venturing back into the waters of investment in growth equities, which is desirable (that reticence) and inline with psychological profiles of how this year's low, and subsequent months, would ideally unfold. What we said back in April and May was that "after the horse was out of the barn door", they'd get defensive, and in fact only gradually (or embarrassingly) re-embrace the best of the best that they probably weren't desiring to sell near the lows, but in many cases compelled to. This is why we argued repeatedly that the more recent clarion calls for fear and defensiveness were aimed at spooking investors to sell their perfectly fine holdings, we thought (cynically) so they might have a chance to try buying them cheaper. It has been our view that while June markets would pause & correct periodically, this was not going to occur hugely, as a strong market shouldn't let those who missed the bottom in cheaply. And that -simply put- is why a further drop towards the lows that many seem to desire is'nt necessarily desirable from a bullish structure, which should "lockout" those who spent April and May preoccupied with the then-present disaster, rather than building positions for the rally.

It's of course Mr. Market, and Mr. Market often tends to reward anticipation, rather than reaction to rearview mirror events, or news. Yes, technically it would have been nice to fill another gap or so during the corrective action, but this market, led by Intel (INTC) as forecast, is just too strong. As noted Tuesday, Microsoft's (MSFT) story would help psychology a lot, as it did do so Wed. The "Mortal Kombat" of this generation's fast markets don't allow investing in "comfort zones", as those who buy a spike in the wake of any Fed non-action (or minor moves) might find out. For us the expectations for the future; particularly the second half of this year, remain totally unchanged.

For the majority of fund managers (especially those who were spooked for the first time in their lives possibly this Spring), they're engaged in a catch-up strategy now, that really gambles upon the Fed being cooperative, and ofOil prices easing, along with the Dollar and T-Bonds staying mostly friendly; (our analytical views and conclusions for each are reserved for subscribers only).

In harmony with our views (which might not have been right but once again were, we're delighted to observe, hopefully a selection of repurchased (from earlier March partial sales) or even newly invested potpourris oftechnologies, semiconductors, and optics, were bought at the bottoms identified here in April and May, with June's pullbacks expected to be more "irregular chop", and primarily in the first half after that little spike at the month's start (then mortal combat during and after the Expiration, ahead of the FOMC). All along, we warned against loosing carefully built-up positions by getting "too cute" with stock trading this month, believing investors, having bought essentially the lows of April and May, needed to do nothing but hold through this choppy period, looking for gradual gains and then eventually the (balance of our forecast, which is reserved).

Mortal Kombat of course is a game, where the players always emerge alive, regardless of how it goes. In the real world of the market, that's not always the case. And in this regard, we again do assure investors (we could be wrong but haven't been, on the significant trends and shifts hardly at all for eons) that while there are no guarantees in life (less so than video games, thus past fine overall results may or may not be equaled or exceeded in the future, which may not be assured), we sincerely believed that what we would get would be a cyclical (not secular) decline, leading to a (shockingly to some) strong comeback, which has already occurred precisely where it counts.

Technically . . . for the market's future, we discuss the pattern of the NASDAQ, which we've said for two months was going to reverse the decline and then penetrate 4000, not 3000, as well that of the NDX, which we projected would lead the market out of the hole (targets are reserved, as is discussion of current daily risk, in harmony with the irregular corrective action indicated for June).

Bits & Bytes . . does not intend to indicate a buy-sell-or-hold to non-subscribers, but does note we comment tonight (just to give a feel of the type of stocks we primarily focus on), on the leader as expected, Intel (INTC), a first-ever small favorite (which has been notably volatile)LightPath Technology (LPTHA), Liberty Digital (LDIG), ACTV (IATV),Texas Instruments (TXN) with a notes on the buyout of Burr-Brown (BBRC), Apple (AAPL), AT&T (T), Conexant (CNXT), GM Hughes (GMH), Hewlett Packard (HWP), iBeam (IBEM), Lucent (LU) andRamtron (RMTR).

In summary . . . the market had negative breadth, despite overall NASDAQ and NDX rallies in most of the session. . . .but cannot be enthused about such an overbought daily condition for the broad averages, as has really been the case for about a week already. That of course should not be misconstrued as being bearish, (reserved). Today's Oil agreement in Vienna was essentially irrelevant; as OPEC agreed to increase output by 700,000 bbls. (if they can), but this market is more focused on end-of-quarter mutual fund buildouts. Crude Oil actually gained about 65 cents today, after the recent drops, but that's likely transitory.

The McClellan Oscillator reading is currently is around -7, deteriorating slightly in recent days as it eliminates an overbought short-term condition, as outlined during this time. We do not (this is forward analysis and forecast, thus is reserved). Most of our views about the pattern this year were based on solid fundamental analysis as we saw it, and thoughts that analysts were far too bullish ahead of early Y2k turmoil, which particularly included absurdly robust earnings forecasts, which many fine firms were very clearly challenged to meet. A more realistic assessment of last year's late inventory build-up, such as outlined at the time, would have in fact resulted in a milder correction this year (had enough investors and analysts concurred), without the nonsense about 36000 Dow's and "new eras"; as all of that made plug-pulling simply that much more dramatic, when many unprepared investors realized that certain fundamental principles of the market, and the business cycle for that matter, weren't outlawed by absurd giddy euphoria into that moment.

Last weekend's report again suggested Intel was in fact the market here, and would have a very good chance of putting a better tone on the market than any other single stock). Action since has clearly borne that out, within a bullish extension framework and gave us supports during modest noted pullbacks. Thursday will likely see some modest follow-through, hard pullback (or similar) into midday, and then yet-another (and probably still not newly key) effort to extend this further. If it fails, it doesn't matter given nervousness building as the week goes on, candidly. (reserved)

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