Momentum Preceded Targeted Price-Break & Turn

Much more volatile action . . . on Wednesday, accurately got us the twin declines in which we suspected the second one would break the June S&P 1100 level solidly in comparison with previous attempts, while the first one (after a likely upside try) would only do so nominally, if at all. Actually the first one stopped at 1100 on the dot, which is a bit contrived, and typically not the kind of low that can be particularly substantial.

Then, after some oscillating (very much in the anticipated manner for the early going) we got a sharp, albeit brief, upside extension on the 'Beige (Tan) Book' report, stating that almost all areas of the United States are experiencing better business conditions. That didn't phase most interest rates for long, because of the subsequent fearsome stories that surfaced, that psychologically eroded an upside achievement underway.

There are reasons both that the rise transpired, but the rallied expired, with a market unable to turn around in a sustainable way. First of all we expected any rally tries this week would be unsustainable. Second, we thought Wednesday would open firm, but falter a bit, then try again; yet have a secondary decline, Third, we had an idea that if a drop happened sizably below the S&P 1100 level earlier, it might have turned back around. But in a late afternoon decline, traders are unwilling to press their luck late in the session, so aside from some late 'squaring' of positions, there would be little need to have turn up's that would hold for more than moments. Note this was less the case in NASDAQ, than for the Dow Industrial Average. Tough, but we got the pattern.

And, given our assessment of smaller-and mid-cap stocks for some time, this isn't at all surprising, though we call to your attention the little 'island formation' overhanging both the NASDAQ (daily) and the Nasdaq 100 (NDX). Combine the previously noted 'head & shoulders' of the S&P monthly, and you can see why we'd suspected there would be a breakdown below the recent lows, and temporary washout action later on.

Further, the financial press is 'blaming' the decline on more disappointing economic reports, including the Durable Goods numbers and a poor Beige Book. Not exactly; the Durables were 'ex' semiconductors, and the prior numbers were revised upward. The Beige Book confirmed economic recovery almost everywhere, and actually had started an upward revival, but almost immediately a new threat matrix appeared. This time it came from the FBI, in the form of a warning (as usual of unknown credibility) of terrorist attacks against American shopping malls; implying continuation of barbarian threats and targeting of civilians and economic targets. As threats can be almost just as heavy as known risks, there is an immediate psychological hesitation, often dulling any rally a market might be attempting at the time; that did fit the pattern game plan.

We actually mentioned Tuesday that the approach of the June S&P 1100 level itself was an interesting spot for terrorist threats, because of the combinations of technical breakdowns (at least temporarily) and psychological responses, combining. As these threats apparently emanated from one of the key al Qaeda prisoners, we suspect that the timing of this had more to do with the Justice Department not considering markets more than the terrorists being that smart in their timing. However, as sadly mentioned before, we will not be surprised if the day comes when you can't go shopping without going through metal detectors or inspections; one can only ponder when that day will come. (Portion on Oil and the Dollar reserved for ingerletter.com readers.) Needless to say, if enemies start that kind of stuff, the citizenry response will be overwhelming. Meanwhile, Gold continues its moderate, but anticipated, rise in Dollar terms. Has of course been stronger in deflated international currencies, firming more recently here.

Daily action . . . notes tomorrow might be another story for the market however, with the proviso that washouts and turns on a Thursday are tricky, as they do not get most intraweek traders on the same side as intraday players and those with interests lying in moves of greater duration; but can be contagious if they catch shorts napping. And little doubt, as the market does dive and reverse (balance reserved for subscribers). In summary; after a disappointing Monday and successful Tuesday (for the intraday S&P players), results were nevertheless fairly rousing Wednesday; with about 500 points net theoretical gain before the afternoon swoon; which added another 900 or so; thus a theoretical total potential hotline (900.933.GENE or direct-dial access) gain of around 1400 for the day overall. And now that we've broken technically, to at least a great extent in harmony with both the psychological towel-throwing in, as well as the continuation of a declining predating for almost two weeks nearest -term, and as far back as early March overall, we are on increasing alert for washout activity, as the expected 'confirmation' of negativity is not exactly occurring based on anything really new; and business fundamentals will be the same tomorrow as they were today.

Technicals . . . must be a reserved subscriber section; as specifics are denoted, as well as discussions about some sectors in better positions for rebounds than others.

Anyway, we had suspected that early week downside continuations might only briefly but sharply, penetrate the 1100 area;; keeping in mind we could be flirting with heavy washout scenarios as people again throw in the towel. That's would be particularly so if enemies of freedom try to cease upon market weakness to time (feared) assaults of an inhumane nature against the U.S., if it happens. In this case it was threats related to revelations that may or may not be reliable from a captured #2 terrorist, rather than an event. While it sped-up our timetable of a more notable break expected anyway, it's fine from at least a trading standpoint (we caught it), but questionable in terms of a perpetration of actual horrific acts. Certainly no technical pattern can be finessed without allowing for news sensitivity, though we suspected some sort of hard break of 1100 would occur anyway before a meaningful lift. Remember, unlike conventional wars or civil disobedience, these al Qaeda monsters are specifically targeting civilian economic morale. Non-specific threats against shopping malls emphasizes the risks.

In terms of levels, keep in mind that washouts do not often accommodate technicians trying to measure precise levels for an interim or even final low, more so than tops by the way. (For subscribers, we're providing these measurements, and our hunch as to how deeply they might be overrun or not, with emphasis on what's even more key.)

In summary . . economic data shuffles along the projected improvement in indicators on a trending basis (upside revisions to previous numbers, and we don't think what is being reported is a reversal of that trend), we've suggested overall since targeting the economic low in the Third Quarter. Overall, given the stresses and demands of war, coupled with a retrenched consumer a bit (but not much), this economy is doing about as well as one could really expect. We continue to not dismiss the prospects of failing rallies and more downside, but probably only briefly or superficially traumatic in absence of truly egregious acts against Western Civilization (such as radiological bombardment in an attack on the U.S., or the use of chemical or biological attacks, given some of the stories about capabilities of the terrorists discovered by our folks).

(Balance reserved; including discussion of home sales and de-urbanization trends.)

Such may be why stock markets are of course sensitive to threats of attacks on the Country, not just banks, as it's been clear for months all the enemies of freedom are aiming both at civilians and economic targets, because of both their understanding of soft spots, or their hatred of all advanced nations' prosperity. We also have the clear warnings of Chairman Greenspan that we noted after his speech earlier this week, as well as never-ending debates as to risks of derivatives and mortgaged-backed debt.

As to McClellan Oscillator readings: moderately lower Wednesday of course, now around -36 for the NYSE, and easing a bit, down to nearly -14 for NASDAQ. Surely a 'complex' April continues, working steadily on fully-completing this incredible tough-love market, in a news environment anything but certain; finally breaking those well-watched 'supports', that probably needed to get penetrated, to convince pessimists of their merits, setting a pattern for another reversal, even during Thursday's action, but of course certainly realizing the market could subsequently work lower (reserved).

Our prayers and thoughts remain with our troops fighting anywhere in the world, and as events of this 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 as civilization cheers human progress, but worries about those trying to reverse hundreds of years of modernity. This evening a -134 discount has S&P's unchanged.