Post Holiday (Bullish?) Blues

Holiday returning 'blues' . . . are oversimplification for the market heaviness (earlier) this week, so far, but are not surprising to readers of this site, who were forewarned not to get giddy or too greedy, given that everything we looked for this Summer had been achieved before Labor Day, with anything beyond seen simply as a 'gift'. Selling pressure is repeating daily-basis patterns, as many are moving from elation to despair almost on a dime (about which there's actually a plus).

That plus relates not to worry or concern (though we'll touch on some we have about potentially excessive Dollar strength), but to the ability of the stock market to ease back from what was fast becoming an extra-strong rally, which by our work would have been even more dangerous from a short-term perspective. That we have taken the 'edge' off an overbought condition without such a parabolic thrust first, actually increases a probability that what we're seeing is at little variance from the desired first-half of September's 1st part decline, which we (hope) is merely a correction.

In that regard, it's good that we didn't get masses of speculators and money managers throwing their funds at the market after Labor Day, in some orgy of ecstasy, after the market had gone up for months actually. The failure of such funds to appear (which we thought would be stupid if the buying had materialized) is actually a plus, and suggests that negative psychology can evolve to a crescendo earlier than had such buying shown-up in the immediate wake of the recent holiday.

For example (as we'll explore more) there shouldn't be a surprise that many companies are now described in the media as 'leveraged'; after all how could they complete the rash of deals we had in the last year or so; many in telecom and other areas that still haven't matured for business or consumer delivery and products. This is one reason we didn't expect problems from the Fed; and is also a reason why you're getting some lagging mainstream slowing from the Fed's action, but in ways that probably turn out to be healthy in the long-run, and for which the interim setback is welcomed, provided it's not getting out of hand (especially in the Nasdaq 100 (NDX), and holds reasonable levels, but not necessarily precise support or trendlines; forecast Thursday rebound).

Daily action; Technicals; Bits & Bytes and Economic News: (are reserved subscriber areas)

Guidelines saw the (900.933.GENE) hotline engage in numerous efforts to try to catch moves on Wednesday; which was about the only way to approach the session, since we'd thought there would be efforts to rally (and were), but repeated efforts to sell into those attempts. For anyone who stuck with it, the session was likely nicely profitable, maybe considerably so on the short-side of the ledger, which was the majority of the efforts, for the day as viewed overall. (Thursday was essentially a single effort, the last theoretical long in September S&P's -we don't give trades- from the approximate 1499 level, and as of this posting finds SPU's around 1505 or so. It is often noted since retiring from money management ages ago, we're happy to share ideas to consider, but manage funds for nobody but ourselves. Thanks for asking, but we don't suggest brokers or advisors, will not provide referrals, nor in retirement years will we consider managing any funds.)

In any event, this week's start substantiates our view for corrective action in September's 1st half, and that it was an insult to the intelligence of most investors -or certainly institutional players- for any to suggest that 'vacationers' would simply come home and throw money into an overbought market. Now (Wed.) we're increasingly oversold at least on an hourly basis, if not more than that. By the way, we're sorry time does't allow us to accompany tonight's charts with any indicators; though prices are correct. Running late due to comments you'll likely enjoy about fiber optics and interactive television, thus there's not time to update any indicators. (Much to our surprise, those Wed. remarks were followed by some similar mainstream comments Thursday, as occurred last week just days after some DB discussions about battlefield & airborne laser weapons systems.)

Certainly, 10-year highs in Oil just before an OPEC meeting (that may not accomplish much with a trend so established; at least not instantly beyond the psychological impact of words promising to expand supply, etc.) are not a plus; and though the American economy is not so sensitive to it (high oil) as in the past, psychology sure is. In the rest of the world it's a very big deal, which is a reason for the strong Dollar, something that while long forecast here, risks becoming excessive. (That might have something to do with slight upticks in Gold, but probably not dominant factors.)

At the same time, we've become considerably less enthused for almost two weeks, since all our upside targets at the same time had been reached for the Labor Day target area around 1520-30 in the September S&P, and as some people were getting giddy about the market when it was to us time to get a little sober, and look forward to picking up some additional shares during periods of contraction during September, interspersed by rebounds as generally outlined late last week.

In Thursday's action, now that we're hourly oversold, we're thinking the market maybe has a poor early rally, folds, then tests or takes-out today's 1493 low, then turns and rebounds fairly smartly. It is not out of the question that such a comeback is only transitory, coming within the framework of a corrective first half of September, and allowing for periodic intervening short-covering pops.

(several reserved sections here; including discussions on the Euro, Dollar and Oil probabilities).

Bits & Bytes . . . discusses not just stocks but sectors tonight. Among issues included in these discussions are: Liberty Digital (LDIG); ACTV (IATV); TiVo (TIVO); AT&T (T); America Online (AOL); GM Hughes (GMH); Comcast (CMCSA); OpenTV (OPTV); Time Warner (TWX) and in addition little Wave Systems (WAVX). Also touched upon: Texas Instruments (TXN); Micron (MU); Rambus (RMBS); Ramtron (RMTR);Intel (INTC); LightPath's (LPTH); WorldCom (WCOM); Winstar (WCII), and Analog Devices (ADI). Not all are in our Letter; no inference as to any being a buy, sale, hold or short (or even included) should be inferred by mention; plus one is totally responsible to do their own due diligence or confer with their broker or advisor regarding any action, or even suitability, of any investment. There is no attempt on our part to cover every stock in any group; though there's opinion on what sectors may be maturing or newly interesting. In this regard there was extensive discussion of interactive TV, and some optics, on Wednesday.

In summary . . . the market became labored, which was the forecast not only after Labor Day, but just before, given the resistance seen at the targeted September S&P 1520-30 area, which was projected to precede a September correction to the low 1500's, and probably higher 1400's. We repeatedly warned last week that the most improper approach would be to join the mentality of buying after the holiday (which we considered a seasonal anomaly from ancient history which presupposed, on the part of financial media, that investors or fund managers were absent from markets during August, which was ludicrous for the modern connected age). That was partially in our call for a strong August, particularly the 2nd half, and a soft September start, certain rebounds (and the continuation of our forecast outlook for the month, reserved for subscribers).

The McClellan Oscillator is around +16, which actually reverses a modest contraction we saw as likely from overbought (though by no means are we oversold yet); essentially about what the market was expected to and is doing. Too early to conclude if it will hold higher lows on pullback, though is hoped, at least for interim rallies, also as implied by Wednesday's nominal +5 change.

The most important aspect technically is that last week essentially completed the rally into where we targeted, and the market initially failed to break-above the remnants of a 'head & shoulders' top in certain Averages like the S&P, as hasn't existed for sometime in other Senior Averages, such as forecast and assessed for months now in the NY Composite Index and the Value Line. Though the market swooned, which hopefully will be contained and controlled as suggested, this may in the overall picture actually be a plus for the stock market, mitigating selling magnitudes, by virtue of not throwing money crazily at the market right after the Labor Day holiday; which we thought last week would be totally absurd to expect any informed investor to do. Though further corrective action won't be permanently ended on a dime, we are envisioning a rebound, then the (reserved) interesting set-up later-on for upward action down the road.

As to Thursday, we'd ideally see down-up-dip-up, and will watch to see if some program selling (yes, we think we saw some of that today) is reversed, especially as we work to a forward roll in the futures (as noted). As of 8 p.m. ET, the S&P premium remains soft at 185 in the September, with futures little changed. After a reasonably profitable downside day, the 900.933.GENE S&P hotline guidelines are flat overnight Wednesday (looking to buy an early dip Thursday morning).