Acceleration Risks

Observing 'they couldn't take it down' a week ago . . . we put readers on alert for an upside effort, not a downside extension; partially related to improving (by virtue of oversold daily) technical conditions, partially related to real economic fundamentals improving (that few were watching amidst the tragic Enron psychosis), and partially related to other factors involved in the following (this) week's activity. Some of those included the complete disinterest across a broad spectrum of the market (always an interesting accompaniment to some sort of low; never to a market about to collapse), and the perpetuated belief (partially valid, partially not) that all the market is looking at is the specter of more Enrons, more Global Crossings, and a wider war footing. (May be that a sleeper of the day is a Muslim group operating for 20 years in the U.S., that is now coming under closer scrutiny, and has tentacles in many States of the Nation.)

Even these popular comparisons are not as straight-forward as many suspect. Enron evokes empathy of course, but was a major corporate collapse presumably based on chicanery and/or mis-booked revenues from lateral in-house transactions. Global was a different animal; an already depressed (not such big-cap) fiber player that reflected (fairly acceptable) trading of fiber capacity with competitors (or others in areas of the world they weren't present; but had shown top-line revenue instead of just capitalized acquisition costs they (and maybe others) should have (that is where the auditing and accounting responsibilities had very credible challenges). It is also why many smaller NASDAQ and telecom stocks either faded further, or didn't participate in the rebound, thus requiring a lead, not by the Nasdaq 100 (NDX)though it's advancing, but mostly by traditional big-caps, to spark any interest coming off the February lows, as argued.

At the same time, we suspect that while necessary oversight and reforms will surely be strengthened, there's a little-noticed aspect to all this: disinflation continues in lots of advanced technology sectors; heavy competitive pressures keep broadband costs down (no; the sector is not finished; actually barely started), and that allows initiation and dissemination of new products and services, at affordable prices, which ironically will help the industry (and spin-offs) to develop over the coming several years. In fact, the reticence to travel in these treacherous times, will make the embrace of business and consumer teleconferencing, more achievable, rather than less so. (Reserved.)

So instead, are we drawn to many conventional cable companies and big-caps? Not at strong price levels, but during periods of concession (such as September's panic in particular identified as a low for key stocks including major technology issues..more), there remains interest in primary companies that can pull-together the necessary distinct competencies to get the jobs done in the months and years ahead, with a sprinkling of more aggressive niche-type stocks too, which include major wireless companies and semiconductor stocks that in essence have to participate to some degree, by nature of their business. There are a few areas (like nanotechnology) that some see as the next speculative wave; well it's possible, but that area is already dominated (financially…reserved names), that we suspect are in position to make early inroads into that field very challenging for others to easily join the nascent field.

That we are not particularly enthused about many of the orthodox multinationals is of course not news; nor do we believe the basic fundamentals have suddenly changed for such companies. What we did say last week (and earlier this week), was that you could not have a turnaround without the Senior Averages leading the initial charge up to challenge 10,000 on the Dow and 1110-20 on the S&P, and that has occurred for the most part. Later, kick-ins by the technology leaders would be necessary (some in fact already occurring; in fact some are at the helm of the DJIA these days), and with the broad list comparatively languished but prepared to kick-in later, it's an interesting stage being set for a Spring rally, though we suspect this won't be evidenced further until we see the Nation meander through the current nervousness a bit more, and the (probable activity suggested to ingerletter.com readers for next week). If that action is not beyond parameters, then bears better look out, as rapid acceleration risk returns.

Remember, late last week the move accelerated without much pause, and that's very clearly what a lockout looks like. That it occurred concurrently with the psychological hang-ups of this market, and with increased terrorist tensions, makes it something of a more important milestone for the market, rather than a millstone on its neck. (Parts are reserved here.) Certainly, another catastrophe could radically alter suggestions; but that's why we've repeatedly said if that doesn't happen then wow..what a wall of worry the market is negotiating…incredible.

Daily action . . . all week, and in fact from about the middle of last week, primarily is dominated by our point has been that it is not 'in vogue' to think about the generalized economic improvement creeping along; not popular to contemplate the troughing-out of a recession being well behind (other than areas directly impacted by 9-11, such as travel-related industrials that will have to struggle for a long time to return, if ever, to profitability levels of previous years), as if (to coin a term) there was some crime in watching the big Dow Jones Industrials again attack the 10,000 level, and actually surmount it. Again, that will likely occur Thursday, though technically the movement up and over the daily-moving average, as noted, already occurred several days ago; so anyone doing anything into strength now is responding, rather than anticipating.

The upshot of all this was to demoralize investors into believing more Enron's were on tap (they may be; who knows, but the point was the diatribes in the media were so off-the-wall, that you had to believe that was occurring going into a low, not before a new fall), while investors should have been preparing (as suggested) for new rallies.

In any event, here and on the (direct-dial and 900.933.GENE) hotline, we looked for a turnaround, particularly for this week, but managed to hit the late upside last week as well. (Balance is forward-oriented, and must in fairness be reserved for readers.)

Technicals and Bits & Bytes (are reserved sections; but we normally touch on a few stock of interest. In tonight's DB, Comcast (CMCSA), Intel (INTC), Merck (MRK), Micron's (MU), Microsoft (MSFT) and Texas Instruments (TXN). Mention does not constitute a buy, sell, short, or hold; simply noting they were highlighted to readers.)

In summary . . there's not a lot of conviction to this market, but neither is there much pressure. And that could indirectly be taken as a modest plus, as we have said every day. Retail Sales were strong from a seasonal perspective, and that too was a plus. Wednesday's McClellan Oscillator readings are about +17 on the NYSE, and -4 for the NASDAQ stock market, as markets traversed as expected, without drama starting any sort of big downside follow-through in the morning, and with expected additional subsequent rebounds. Thursday should again be interesting, in that we've already had further breakouts speculated about; so after short contested periods of defensive infighting in the morning, if there is no terrorist incident, the market's should try to rise again. Be on the lookout for optimism, and hope for a continued lack of enthusiasm.

Our prayers and thoughts remain with our troops fighting anywhere in the world, and as events of the week explicitly continue to remind us of various new risks the Allied fighting forces face, or may face, we try to keep in mind that the unexpected remains a risk; while all normal human beings, certainly hope for the best. Mid-evening S&P action on Wednesday evening is up about 170.