Market's High Anxiety

Neutrality surrendered . . . to more robust upside, very much as desired in the sort of down-up pattern contemplated going into midweek; though certainly stories of one large and persistent buyer, working through Goldman Sachs, helped boost prices in a way that tended to telegraph ahead of time that shorts weren't going to be let out very easy; nor would you expect them to be in any robust rally after months of weakness.

In essence, while corrective actions probably aren't over for October as a whole, this just happens to be the Wednesday before a nominal Expiration week (often is an up day); it's a day in which unfettered and barely-opposed access over Afghanistan was clearer. It was a midweek day that often features upward price behavior, regardless of what comes later. While still leery about some aspects of the weeks ahead (with quite a confident view of America's difficult task), we continue to believe, as we did before the war started incidentally, that September purges would mark the low-points (pre-war forecast of ingerletter.com incidentally), as October tests hold higher levels.

Technically . . . that was affirmed by the prior two week's advance moving above the nominal levels that were needed to amplify the 'V-bottom' characteristic of the climax that preceded it, which doesn't mean that you don't end up with a 'W-bottom' (likely a worst-case scenario) or a period of basing/consolidation now and then, but portends a market structure that ideally won't make last month's prices available to those who at the time were against taking any positions, or waiting for a serious October break.

The high anxiety will likely continue of course, though at least we were able to get the December S&P to both move below the rangebound condition of the previous action on Tuesday, and 'pop-the-top', at least from an expectation of some short-covering rebound. We also suspected that this wouldn't be a sustainable move, outside of the indicated parameters of closing the gap; though also believe that we'll see the much higher numbers over time, then have to allow periodic periods of uncertainty, just as the news can be assessed and even projected, but never known until realized. If you believed, as we did, that players were 'washed-out' back in September after attacks on the United States, you bought the capitulation and/or liquidation at that time. An impossibility of pinpointing the war's progress before it really got cranking (even now) nevertheless caused us to suggest buying into the extreme purges or any others than come along. While the precise scenario is unprecedented, the market's pattern isn't.

In that regard, just the early signs of military accomplishment (such as said confirmed killing of a number of Taliban leaders, as reported in some quarters today), definitely contributes to helping the Allied morale, and indirectly market confidence too, in that lots of the challenges against freedom and movement are being addressed in heavier form, so that we can hopefully clear-up many of the world's criminal movements with a protracted effort. As we said last month; the craziest thing to do would be to panic at the time of the 'surprise attack' or sell everything; but rather gradually scale-into it.

At the same time that does little to impact our patriotism or economic conviction (as noted) about the longer-term. All of that is not because we believe every obliterated sector will quickly come back (though many will over a period of time), but because a rather traditional doze of medicine had already commenced being injected into a U.S. economy in recession; and that monetary and fiscal stimulus was even increased, or will be. All of that contributes to helping the equity markets in a fairly traditional way; or at least sets-in-place a backdrop by which a focus on stocks-versus-debt evolves.

For the moment, the 1104 December S&P close on September 10th, just before the attack, might be an approximate maximum to a best-case extension of the rebound; though interruptions or not, we ultimately expect much higher market price levels. As it bears repeating, the primary reason is the forthcoming pent-up demand, monetary policy in-place prior to war, and rather traditional factors like low-yield in T-Bonds or other basically riskless monetary instruments. When confidence seriously returns (the one day is but a preview of what can ultimately occur; like a 500-800 point rally in the Dow Jones for instance, if bin Laden is eliminated), and a feeling of security prevails either in the wake of more incidents and massive arrests, and/or we succeed and no (at least imminent) attack again occurs, gradually the markets will ramp-up one more time. That also will coincide with the new fiscal year for mutual funds; another plus. A lot of what you're seeing is adjustment to position funds for desired 2002 holdings.

Daily action . . . realizes there are many more layoffs to be dealt with, though realize that in some cases this will contribute to eventual shortages, not inventory surpluses, as the war either ends (more likely enters an eerie sort of ongoing state) or consumer demand starts to increase as citizens take advantage of favorable financing, or just as well people embrace an improved acceptance of the anxious routine, such as the people of parts of the United Kingdom, France and Israel have dealt with for years. It may not be the preferred scenario, but in reality it may be a safer environment than what we've had for the past few years; basically because ignorance of threats was in a sense an illusory comfort blanket of complacency. Now, while layoffs increased and desires to spend remain constrained, note official data inventories continue to shrink.

Meanwhile, the (900.933.GENE) hotline bought Wednesday's first dip around 1057 in the SPZ's; then briefly reversed direction in the low 1070's; for a homerun theoretical gain; but got long again, with another good gain taken into very near the day's close, and expectation of some follow-through to the upside Thursday morning (reserved).

On the warfront . . . we're tried to denote the highlights (or lowlights if you prefer) of this conflict, and how resolutions may impact both the short and longer term aspects of market possibilities. We've also tried to cull-out some of the lowlife comments from the terrorists or groups, with similar remarks in the past; to calm increasing panic that may come from edginess by those not familiar with a sort of 'party line' emanating in their diatribes. We're delighted the FBI's created a '10 most wanted' lowlife scum list; and would be delighted if some of them were 'captured', so to speak, by an F-14. In any event, the stories seeping out of Afghanistan tonight suggest some targets hit.

How this affects the markets, relates to how it affects the future of mankind. If history is really at some sort of major transition away from the leadership of the last 50 years or so, then indeed there will be no feasible way of restoring valuations on blue-chips that have become primarily multinational stocks over two generations, and market the bulk of their goods and services to parts of the world other than the U.S. and Western Europe. If so, then nobody will drink Cokes, buy McDonald's, or smoke aMarlboro (though some should increase their smoking, maybe even adding some additives), or for sure never use a Gillette blade. If so, it dawns that only those U.S. stocks with a primarily domestic-centric focus will truly shine at their best in years to come, and that includes (actually requires) a technological lead that's way ahead of those 8th Century megalomaniac theocrats. Most modern Moslems -for the most part- would heartily be in concurrence. (In fact they're even more threatened by such retrograde movements that risk unraveling everything they've worked for over this past thousand years or so, including abilities to live their lives nearly as they choose, in the tolerant few nations.)

Bits & Bytes . . . does not constitute a buy, sell or hold, but touches nightly in the DB on stocks in the list with notable moves or news. Mentioned in this DB: Nokia (NOK), Motorola (MOT), Texas Instruments (TXN), Analog Devices (ADI), Apple (AAPL), Conexant (CNXT), General Electric (GE),Home Depot (HD), Intel (INTC), Micron (MU), and Microsoft (MSFT).

In summary . . . we continue with no choice but to apply approaches both as relate to indicators and psychology to what we know, with willingness to adjust to the many variables, but the outcomes of which are not known; aside from great confidence that continues about our Nation's addressing of matters with a very steady determination.

We suspected this week might be generally down-up-down with likely failing midweek rebounds as we've seen, though this could need to be revised, depending on events, or a further roundup of the barbarians that reveals any truly key information. As for now, in absence of news, and as the Nation continues tense about bio-terrorist attack risks, we suspect Thursday will possibly be something like an upside follow-through, then a pullback, and then key secondary efforts to come back later-on in the session.

As for the McClellan Oscillators, the NYSE data is at +139 or so and NASDAQ now perking-up a tad to near +39. (Reserved comments on where this stands for now.)

We think trading considerations continue, with investors buying purges, not chasing a very obvious short-term breakout, and waiting for long-term resolutions that still are expected to (later) carry prices higher; much higher than even the optimists expect, over the subsequent years ahead. But, while lockouts can tend to prevent prices from reaching the former lows, the first rallies postulated to exhaust, shouldn't entice buys into strength, which is precisely why we thought investors should consider doing so in the S&P 940's last month; not after everyone recognized the validity of an 'automatic rally'. While we clearly wouldn't emphasize short-selling, and have said that for weeks because no intelligent money manager or analyst would do so after a collapse of that size, and would do so occasionally only in S&P's as deemed reasonable, it still also remains likely that the primary trend of the market was expected to hit a low about 3 weeks ago, and we continue to believe October declines will be tests at worse; that's of course barring other blue-bolt news developments which don't go as desired by all.

God bless our Forces in the various phases of operations; now ongoing, and as they transition to a 'target of opportunity' phase, at least as far as the air aspects likely go.