Symmetry and Sustainability

Occasionally stressed intraday action . . . was not batted-down significantly, after the midday assault against weekly-resistance was deflected, much as expected, shy of the 1230 level on the first assault of this projected late-July/early-August series. It was our forecast that the market would fade late Tuesday, but recover Wednesday in a perfect scenario, which is what took place. All the longer-term ramifications remain. (Early Thursday we have a strong gap-up, which should be faded, then higher later.)

The scenario was, that in the wake of a projected gap-up opening on Wednesday, as outlined Tuesday evening -provided a new 'worry wall' (the 'Code Red' virus concern) proving not to be particularly daunting by the opening- would let a buying pulse once more resume. That was the case; and though there was an intraday alert about how it was starting to propagate again; it was during business hours, and IT managers did rapidly move to plug-the-leaks, which allowed the worm's expansion. Well-handled.

That's fairly key, not only in terms of maintaining confidence in the Internet itself, but a bit calming to frazzled nerves of many corporate executives, who increasingly have been running their businesses electronically (and aggressively), contrary to (in some cases) more conservative public images. It also may have proved to be invaluable as 'training' to both public sector and Government intrusion experts, who are worried as regards thecomputer terrorism fears, that we weeks ago suspected were brewing.

It certainly is not that an intruder was involved with our overall bigger market forecast; it wasn't. But 'worms' were a factor that could have short-circuited anticipated further extensions upward; thus its containment was desired, and expected to be friendly for the markets. Now we'll see how the market does on its next assault (yes, this isn't by any means over yet on the upside, though certainly the best buying point was about 10 days ago), as we projected would be the progression all the way from emotional overruns, per calls for our earlier July downside S&P breaks to complete July 24th.

Technically . . . that emotional overrun was speculated as a prospect coming along with the filling of an upside breakaway gap that was still close-enough to have some magnetic pull, dating from the opening on July 12th. And of course, with the multiple failures at the 1230 September S&P area around July 19th and 20th, we were looking for the market to 'fade' back down, before another turnaround try of significance. For an overall summary; the 'symmetry' of the patterns have been perfect for what took place after the emotional overrun on the downside 10 days ago, and 'sustainability' of the upside is dependent upon a number of factors; maybe even whether there's yet-another inter-meeting Fed rate cut, and where (technically-speaking) it might occur.

Now certainly, we have not and don't consider complacency as appropriate regarding these current efforts, though some fundamentals and technicals are supportive of its being successful. Even if it is, that doesn't mean we don't get a midmonth decline this August; (balance of technical section, in fairness, must be reserved for subscribers).

Why so many technicians and advisors are newly negative throughout this advance, outside of the obvious flip-floppers who shifted right at the lows a week ago Tuesday, is fairly obvious. They are banking on the Dollar being weak for some protracted time, and on profits recessions continuing for another couple of years, not just few months.

While we ourselves don't expect meaningful earnings improvements until next year, or late this year at the very earliest, and then only in some sectors, we think the stock market has to discount this well-in-advance, and has been doing so since the fakeout breakdown low of July 24th, where it filled gaps and completed a second secondary test of the March lows; which is nothing to sneeze about. That doesn't mean equities can't catch a late-Summer 'cold'; but means that if they (forward analysis reserved).

If we can get such an outcome, it would intensely help the fundamental case, that is otherwise a somewhat tentative one. Consumption has remained generally strong, inventories are contracting, particularly in state-of-the-art or new lines in various kinds of products (or goods); and this is as we culled-out from nuances over recent weeks. Traders for the most part do not want to hear bullish arguments, despite an oversold condition that had developed going-into our last 3rd of July projected short-term lows, and investors are so reeling from their experiences of the last couple years, that for the most part they're disinterested in the markets. Guess how lows traditionally form?

Go back to the Summer of '96 low, and you'll recall a forecast by us amidst emotional disgust with technology by most investors then, that theSemiconductors (SOX) and eventually the broader NASDAQ as a whole, would come out of their then-deep hole. Few wanted to hear that idea, and fewer yet a subsequent warning that the Spring of 1998 rally was an important internal top, with the extension immediately assessed in the wake of a Fed-led LTCM-collapse intervention expected to be a temporary trap of sorts; a phenomenon that it certainly was. (Investors moaned that we urged restraint, holding back their 'enthusiasm' in 1999 and even early 2000, while now they bemoan relative 'optimism'; the psychological inverse of that euphoria completing the upside.) Basically the point is markets overdo it on the upside, then overdo it on the downside; both moves of extreme occurrences, and manifestations of emotion. Investors don't want to hear of a 'bottom', or they simply are tired of hearing that. However, many (especially newbies) are probably unaware that historically, after purges, it takes months to achieve patterns that have meaningful upside potential; sometimes years.

Most of such naysayers (whether technicians or investors) are either responding to their emotions again, or disbelieving that 'humpty dumpty' can be put together again. 'Mr. Market' may again succumb to the debt bubbles of modern times, have a great fall, and take the longer-route to recovery. (Explanation of what this means in current environments, and generally how we think it should be handled, must be reserved. If visitors recognize fairness to subscribers, they'll understand statements of conditions are appropriate to share, just hints of the future, with forward analysis for readers.)

Back in '98, we were at (then) a memory-price bottom, and a basing structure of sorts was being attempted in the semiconductors. While this is definitely a tougher time for techs (and we have no illusions about sustainability or immediate recovery in some of the most depressed areas, like telecom, though percentages from the lows may be at least satisfactory), that doesn't mean this forecast year of consolidation doesn't finish (reserved) as we have generally felt it would, after the various sharp dislocations.

Daily action . . . doesn't lament missed entries by such participants, or expect to hit all moves either; that's impossible. But we do hear unmistakable moaning from those who somehow feel 'denied' by a market rallying amidst continuingly poor earnings or profits; or who expect the castle walls to crumble, just because they don't find this a 'comfortable' place to be invested. History says it always feels comfortable at tops, as it feels miserable at bottoms, and both take longer to transition than anybody likes, in the challenging sport of market timing. We see signs (like the SOX) that are seriously encouraging; and worries (like the pressures for a softer-Dollar policy making rounds) at the same time as we work-through a very key short-term symmetrical pattern.

The resolution of these disparate matters, will likely define the outcome for much of the rest of this year, if not beyond. (And that's what much of our analysis addresses.)

As for Wednesday, and extraordinarily, while of course outlining progressive support and resistance points intraday, the hotline(900.933.GENE) maintained what is fast becoming a very lengthy -though theoretically very profitable- 1171 September S&P long. That 'official' position remains onboard as we go into Thursday. Guidelines indicated that we'd hold it overnight Tuesday, despite expecting a late fade that day, as long as it maintained itself in the 'teens, which it did. Expecting the first renewed shot at weekly resistance to likely fail, we are more focused on the 2nd or 3rd efforts, which are anticipated, with the 2nd likely occurring quite soon now.

In summary . . . we continue to see hints in formal economic data meshing with our forecasts and nuances about the economy, such as regards inventories, that we've discussed occasionally over the past month or so. And the pattern is very on-goal.

As for earnings power in the future; so many companies have contracted costs quite severely enough to allow forward estimates (once the economic turn is later affirmed, down-the-road) to ramp-up results faster than many will expect; and that's the best hope for recent selling-on-news to be comparatively well-absorbed, as it has been for some days now. Sustainability of this run-up: still questionable of course; though we are delighted to have expected the turnaround earlier last week, resuming this week, and barring the imponderable 'Code Red' matter, into the middle of this week after a brief fade, which had everyone (pleasantly unnecessarily) nervous; giving us the rally today, expected in a gap-up fashion if we got through last night successfully. We did.

And yes, a bearish alternative is still there technically (risks as outlined). Complex of course; but sometimes (often lots of the time) that's the market, or better said, the markets. Again; if we can avoid Dollar meltdowns, sidestep computer terrorism (it has crossed our minds that the attacks on the FBI and even the Pentagon were not a prank of some teenage hacker, but maybe something more sinister in motive), and if the low returns of derivatives don't trigger a new debt implosion; then we're preparing for better times. Nevertheless, August may still be a tricky month to navigate markets.

McClellan Oscillator data remains stabilized. At this point we're near +65 for NYSE data, and at +15 for NASDAQ; both again engaged in positive postures, after having traversing the zero-lines again as suspected; consolidating, then up. Ongoing; we remain optimistic that the markets can work higher (for now), barring blue-bolt news.

For the moment we're looking for further extensions on the upside, despite working a bit overbought on a minute-to-minute basis (breakouts come from overbought and of course breakdowns from oversold; the trick is to recognize which are worthy from the longer-term perspective; as we did both with the earlier July short-term peak, and the subsequent short-term low in the 1170's of the SPU's. After we see how this market's response to another breakout effort is, we'll have new visibility on the potency that's really out there currently. Holding long September S&P guidelines overnight from 1171 in the interim on the 900.933.GENE hotline, after believing in repeated firmer tones during good parts of recent sessions (Thursday too; oscilating). S&P futures around 8:45 p.m. ET Wed., are up fractionally from their regular close around 1221.