Vacillating Psychology Nears Resistance

November 17, 2000

Conviction vacillated on-cue . . . with respect to the projected rally to the 1400 December S&P vicinity preceding an estimated 10 full S&P point drop (got just a bit more than that), as well as the forecast of a subsequent comeback of sorts (primarily intraday squaring in Wednesday's final hour). All of that stemming from the briefly renewed specter of financial market tightness (at least superficially) combined with ongoing political legal wrangling that seemed to defy moves toward a resolution, whether shaky and ill-defined, or other form, throughout much of the day.

It's our view that the Fed is simply being careful; that it was unrealistic to expect a rate cut (we do think one would help, but given the Capacity Utilization data early today; that alone would clearly retard the Fed from doing so), and we think it doesn't hurt to keep that in reserve. However, what we have is a market that rallied just about as far as it could in the NASDAQ and NDX with today hitting a peak that was essentially the levels outline above which one could conclude the rally as more than a rebound to the breakdown point. Though we did comeback somewhat late today, in the manner desired, the closes remain shy of those levels outlined over the last couple nights. In the event we horse around for a few hours (likely) and then take-out those levels into Expiration on Friday, and then (by some good fortune) have a resolution to the Election (regardless of how) by the time next week's trading commences; things would be in a very excellent position to move higher, in what historically is one seasonally frequent upside swings; of just before Thanksgiving.

Clearly the action today affirms what one wag described as a desire for 'resolution not revolution' as well as lower rates, or some understanding on the Fed's part that things are slowing, or even at risk of wealth-effect damage (ie: a weak holiday season) should there not be a meaningful run in this market, over the weeks just ahead, and basically coming off of our indicated Monday lows. The Fed's bias statement was unchanged; which probably leaves them behind the curve again; though based solely on official data, it's not hard to see how they arrived at that interpretation. At the same time, we know from history that too early movement to lower the 'official' (advertised) costs to rent money can actually feed expectations of a slowdown, if instigated too soon (Japan was of course a notable example of doing so in desperate tries to prevent normal market drops).

Daily action . . recalls our pattern call for Wednesday was for December S&P's (and especially NASDAQ markets, including the Nasdaq 100 (NDX)tech-laden index) to sprint forward to being in position to breakout in event the Fed was 'friendlier' (which it actually did pop, but not on Fed news); but that in any event after the Fedspeak was completed, there would likely be a sharp but temporary bout of selling. After that wave we suspected that some short-covering would prompt a final-hour rally try. That interestingly left the S&P not all that far from the pre-Fed day's highs.

Now we got that pattern-call; (balance of Daily Action section reserved for subscribers; as is the Technical, Daily Briefing as well as Economic News discussions).

Psychological . . messages to the market (as far as upside attempts) should have been realized by everyone Monday; though the pundits tended to believe the rally synthetic, having no volume and dubious sustainability. We instead chose to note that almost every turnaround coming off a climactic selling wave starts somewhat timidly in nerve-wracking conditions, especially whenever many investors and traders were previously mesmerized (or pulverized) by the downside. In this case they had barely proclaimed a 'confirmation' of weakness resulting from breakdowns below NASDAQ 3000, which as you know caused us to become immediately optimistic upon such very 'affirmations of negativity', not pessimistic as a result. So many of the usual suspects were filled to the brim with 'gloom and doom', that it may have made them myopic at seeing the turnaround.

For now, with our concurrence that equity valuations were about as attractive as imaginable for a few weeks now, and with the Election chaos pressing things seasonally (and abnormally) lower, it was our view for several days that what we were seeing might not turn until this week (because you'd have intraday and intraweek traders on the same side of the ledger as participants whose interests lie in moves of longer duration), but that it would turn, have a bump-up ahead of a well-watched FOMC meeting, then a profit-taking wave, and more upside. Then, after a pause if or as needed (possibly impacted by politics) we need to surmount resistance. Hence; an 'end-game' strategy is possibly in the second-stage (the first was the projected Monday turnaround); with the second difficult to be any more precise about, given the political circus. We aren't astride center rings of this circus, having used recent weakness to buy; though if it appears to be a 'big top' in lieu of what we prefer here, we'll adjust accordingly, finessing it on our (900.933.GENE) hotline.

Late this evening, despite more talk of a Federal Appeals Court hearing down the road, we have a special statement from Vice President Gore; after the decision by Florida's Supreme Court not to intervene. He's indicated a willingness to be more statesmanlike, and to lift the tone above the rhetoric we've been hearing. Also indicated; a willingness to accept either a 4 county hand-count (including Miami-Dade, which had declined doing so last night, as well as Broward, Palm Beach and Vollusia counties), or even a Statewide hand-count (which holds a few more risks for Gore); and finally, a request for a one-on-one meeting with Governor Bush to settle this, and to agree it should be binding regardless how it goes. Will they agree? Probably not; but the tone is the high road; and the one to take. The timing was interesting too; just as the nightly newscasts began on all the networks (East Coast time). The market is not phased by the announcement, as premium on the S&P (on Globex, which trades through the night) were little moved by the late statements. As for the American people; they would probably embrace a winner-take-all and be done with it approach, as would Congress; already having mixed feelings about what either victory means.

Bits & Bytes . . . which out reflecting on any issue considered a buy, sell, hold, short or neutral, touches tonight on Liberty Media Group (LMG.A),Liberty Digital (LDIG), Sony (SNE), Dell (DELL), Intel (INTC), Analog Devices (ADI), Conexant (CNXT) and Hewlett Packard (HWP), as well as to the reaction to the Applied Materials (AMAT) earnings report after today's close.

In summary . . . stock action rebounded satisfactorily, did not do more than the hotline estimate of the low 1400's today; did have a subsequently post-Fed selling wave, and also came back as projected in the final hour. Tomorrow will be crucial in surmounting (or attacking) today's highs.

The McClellan Oscillator has moved above the zero-line recently, and is now at +56, after what we tended to call an after-the-fact mechanical buy-signal (following our turnaround call Monday). This case remains news-sensitive, but can continue to the plus side overall into the Expiration. It was called likely to move up Wednesday morning, then move into a pause ahead of the FOMC. The market's character continues changing and continues putting the bears more 'at risk' if the market surmounts resistance this week, and if political uncertainties move closer to a resolution.

Challenges for the market are greater given the incredible news as it contributed to the 'buyers strike' of the prior week, but believed since the weekend remarks as probably not insurmountable obstacles over time; with an ideal turnaround having it's geneses on Monday. Action will remain volatile in the days ahead; though the timing is newly variable as outlined here tonight. This new week speculatively should end (reserved for readers).

As of 8 p.m. we understand that the Bush campaign has rejected the Vice President's offer; and that the Governor will make a statement in a couple of hours regarding his current positioning. We don't know the meaning of that precisely, or even if that's so. We'll all know by the evening's end. As for the market, it hates lingering uncertainty, wanting a resolution without much delay.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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