The Inger Letter Forecast

Fed recognition of real "Wealth Effect" impacts. . . from the equity arena as increasingly key to our healthy economy going forward, was a perfectly realistic interpretation on the part of Allen Greenspan, which proves that last week's "air pockets" and near meltdowns (that we forecast in advance) were very instructive to him. Now, inline with our call last night for his comments to be on the benign side, as far as attacking the financial markets, we properly admonished excessive bullishness (after Wed. opening) as likely being initially sold into, and then bought, once advance texts of Greenspan's comments were released.

This was a "doable" scalping maneuver ahead of his "Way and Means" committee testimony, but not something we wanted to abort our homerun long-side S&P trade from the prior day, so we treated it a big more as a "macro" play, while properly letting those who wanted to play his testimony sell the up opening and suggested buying on the brief hit that occurred when the pre-release text was released (we didn't think most players could move in quite such a rapid manner, and we did not think he was going to say anything quite so drastic yet that risks breaking the financial markets, so we avoided formerly trying to do "structured trades" of a reflex nature that most -other than floor traders- couldn't have easily caught.

Such was not the case later in the day, as a preliminary topping midday did not restore the highs in a host of key stocks; fostering first a warning on our part that the pattern was changing, then a mechanical short followed by an intentional expectation of another rebound, following by a short in the S&P from the1278 level (in the March contract) which is a homerun paper gain overnight. By the time all was said and done; traders (even rigidly) following our guidelines (we suggest not doing that, but just adding our input to your own judgment of the market's ebb & flow), had gains in the neighborhood of 3000 basis pointsrealized today, plus paper gain of 1000 in a new trade.

Structurally . . our suspicion last night that the Fed Chairman would minimize the impact Social Security investing in equities would have on stock prices (based on factors we mentioned) were also validated by his essentially saying just that. Not that we're trying constantly to read deep into the Chairman's keen mind, but we've actually done a pretty good job of that if you think about it; especially in regards to beliefs anything he'd say today would not more than momentarily break the market. That was the case; that's why we held long, and that's why our forecast Leg 3 "inger wave" move-up in the market specifically forecast to come from the mid-month decline last week in the up-down-up January pattern call remains intact and extremely healthy if getting extended.

(New readers should know that break of 'net stocks inline with our forecast moves, and the first additions of any new short sales in equities since doing so in early July at the then-market-high, tempered our zeal about the nature of the last January upside, in a way that prompted more of a short-term trading stance, with recognition fundamentals like Brazil & HK can cut rallies in ways not related to technical analysis, so that's why our previous warnings overrode ideal technicals.)

On our web site; we've presented a special annual summary of 1998 results. We present it here:

Best performing 1998 stocks as ranked among all in the S&P 500 (followed by the year's gain & Letter's est. cost):

The Inger Letter's gains since purchase, exceed these Jan. 1-Dec. 31 year-to-year percentage gains in all of these. Other of our longs exceeded these results, as they are in the Nasdaq 100 which handily outperformed the S&P 500 Index.

We humbly have not mentioned before (just noticed it actually), but we do feel honored that probably alone among all advisories, throughout 1998 we held five of the eight best performers of the entire S&P 500. (We sold parts on spikes, but never more than a third and in most cases argued putting them back on after panics, which in fact would have accomplished gains in excess of the year's net changes, by the way.) It might also be noted, for those who keep thinking our approach isn't about as good as it gets, that results in our core holdings, of which numbers 1, 2 & 3 are part, have exceeded the performance of all major mutual funds and U.S. Indexes in 1998…again.

It might also be of interest that most of our core stocks were also retained similarly throughout 1997 and (where they existed) in 1996. Some were bought in 1996, and this is not the overall list. Also; and maybe this is more interesting, these aren't even the best performers in our list for the last part of 1998, where they did great, but InfoSeek (SEEK), EarthLink (ELNK) and a few others like Comcast (CMCSA), Intel (INTC), Texas Instruments (TXN) and Time Warner (TWX) also excelled, and should be recognized. Also, Netscape (NSCP) and Rambus (RMBS), not in the S&P, beat all of these. Rambus particularly, since it was a short from 80, covered in the 40's and bought in the 30's, and pushing 100 at yearend. (Remember part of this has been sold, and that the easy money in Rambus, which is about 300% if you include the short, has been made.) (We advertise our service in the media very little, because we don't need to. Word-of-mouth between investors and brokers tends to increase our readership. We do appreciate it. And our sincere thanks for all the kind words after last year's forecast debacle, regarding many portfolios saved from disaster. We are rarely super upside-cheerleaders as some are, so even when bullish we're looking for lurking risks. At the same time, we're always net long, with history showing that the key is not getting creamed during the breaks.)

All these stocks are ahead multiple times initial costs, and the purpose of posting all this is to remind everyone why our trading focuses on retaining "investments", while trading with simply speculative portions of capital in S&P's (also doing gains extremely in excess of any of these numbers, though we're sure it's hard to believe, unless you've been watching it all along, and we don't take the time, or have the time, to calculate cumulative results; not in these years of semi-retirement). We have not succumbed to temptation to ever fully liquidate these stocks, and have also done shorts in others at times, as a way of preserving capital, and (for those who did it) enhancing results more than even this. We could care less about out-of-context gains in a few Internet Rocket Stocks (including our own). It is an approach to investing, and playing small parts in non-core holdings (not all of which work, but all cores have, often for years) or small-caps occasionally, that shapes tactics.

The foregoing is our once yearly statement of basic results. Overall 1998 strategy summary: distribution last Spring; top precisely called for in July's first half, purge, rally into Labor Day, new purge, then astonishingly bullish from October into early January '99. Every year we note past performance is no guarantee of future results; surely. But unless we get more demented; we'll simply go forth.

Daily action. . had another great move; by widening early Tues. S&P hotline (900.933.GENE) trading stops on the long-side from 1243-45 basis the March futures, enabling us to stay, without overplaying it (though giving the outline of how to do that for those that quick-fleeted) and maybe surprised a few participants by our consistent bullishness from last week's reversal, with two key longs reflecting the bulk of the most recent multi-thousand point gains. If there's a key warning about this market; just take a look at the overall pattern of the Dow Transports. (S&P sold 1275)

(For those who missed Tuesday's DB; here's the exact words we used to suggest how traders in a mood to catch the Greenspeak effect on the advance text release would act; and that included selling ahead of that..here's the quote: "scalpers know to sell the opening thrust, buy the dip the minute it breaks on an implied warning, and then look for yet-higher price levels, albeit this is getting a bit frothy. We of course know how hard it is to insulate the country from shocks, we thought he wouldn't divine how high is high for the market (so as not to again be embarrassed), and we think that if the Fed is going to "take the punchbowl away"; they'll do it at a Fed meeting; certainly not at a testimony.")

(Balance of specific trading parameters, including those going forward: reserved for subscribers.)

Why not just go "whole hog" in bearish strategies? That's just gambling, and it is not the way money is handled professionally; as discussed at length preparing investors for an approaching moderate wave of liquidation, ideally in the timeframe outlined, but not essentially according to our (or anyone's) roadmap. (The market, like a highway in real life, follows it's own curves or lots of detours, and it's downright stupid to base trading on some rigid system, cycles or preplanned target number, reserving the use of such things for basic outlines so you're not dealing in chaos.)

Fundamentally. . (most remarks reserved for subscribers only, as is appropriate).

. .And again; you hope not to make a dime on the options (unless they simply double or triple in a few days and you take the profit anyway), and your stocks just fly anew. The point: a strategy for investors, separate and apart from our S&P analysis and trading (we could even day trade in equities if we wanted to, humbly said, but we don't want to; just trying to be helpful with the ideas last week of using the move back up to get a little bit more defensive, regardless how it goes). To us, as investors, not just "prognosticators and traders", we know that portfolios are not liquidated completely (nor should they be) even when "signals" or other reversal indications threaten.

This approach of scaling-in during extreme duress & scaling-out into great strength is not one that always catches the highs or lows; though most will agree we did just that last July and last October too; the latter on a dime, watching the Fed and seeing the "W" bottom formation as a potential looking back. The approach assumes that people that sell everything will overstay their bearishness, and those that don't let the other guy get the last few percent (thanks Jesse) in fact are destined to hold all their stocks until well past the peaks, while lamenting missing even a small part of the "finale". We bought Merck (MRK)in the 40's and sold some around 110; but in retrospect early, with our original investment retrieved, and playing with profits. What's wrong with that approach? Nothing. You don't go broke taking profits, and in this case we kept most of the stock anyway. At the same time other of our stocks with more focused themes for the current market, were kept until more recently before being trimmed, or not sold at all.

(I'll never forget the lady that came up to me at a Money Show in Las Vegas last May -as I mentioned then, forecasting her outcome by Summer's end as some of you will recall- and said she had some of the same stocks we did, so "why did she need a professional?" I said; "madam, when your stocks double or triple, do you routinely sell a third or a half so that you're no longer playing with your original investment?" She said; "I don't need a professional to tell me the easy stuff like that, and I'm in for the long-term." To which I said; fine, do you see any? She said "no". I said: "if you never take some chips off the table, you'll sell nearer the lows than the highs most likely, and you do need a pro". Then I asked if everytime she gets a roll going at the blackjack table, does she pocket some of the gain. Her answer: "I don't play blackjack; I play slots, and no I don't". Figures. Bet she lost a bundle by Summer's end.) The point is that investing is rigorous, and that no one should get carried away by his/her success, especially the crowd that probably is waiting for eBay (EBAY) to go back up to 320, so they can sell it, where we wrote (not much time to act, but two days was enough if you were fast in it or other 'net commerce stocks) it was a short. Wonder if it will ever see that again, or go to 100 first. (Today it hit 230, finishing at 210.)

Clearly we don't think this market survives mid-February without a serious selling wave no matter what happens thereafter (that too is generally outlined; but not necessary to repeat here tonight).

So we continue finessing a topping process of the market, at least on an intermediate basis, with limited shorting (on sharp rallies only) in equities, to complement our net-long tech positions (first embrace in months of any bearish thinking in our strategies; which of course is the main point). It was our pleasure to already trim some of the Internet stock gains and warn that was topping well in advance (two weeks ago) of the infrastructure and facilitator stocks, which are core holdings.

Tues. night. . . we accurately speculated Greenspan would not formerly embrace a more activist policy, saying he knows that could wrack havoc in thederivatives and debt markets, and thus in fact cause just the type of implosions we forecast (in late '97) would be seen -and were seen- last year. Our call was: he won't do it. It will happen in time; but not from anything deriving from a Ways & Means testimony speech. His remarks about capital marketscame quite close to ours.

(Yesterday's conclusion regarding strategies for varying investment objectives: reserved.)

Bits & Bytes. .and Economic News & Releases: (reserved just for subscribers as per usual.)

In summary. . . the Fed Chairman as expected "downplayed ideas of investing surplus monies into Social Security". The McClellan Oscillator posting today was -57, up from –60. That is by the way a nominal +3 change. About 3 out of 4 times that means a 1% move of the market is to be seen within 2-3 trading sessions. And 3 out of 4 times that would move in the direction of the nominal change (nominal is + or - 5 or less). However; this was a market sort of screeching to a halt today, and you may be seeing this as an exhaustion instead. We don't yet know, as the late slide, which we caught much of in our S&P reversal from long to short, isn't confirmed, and was based on worries about a Brazilian vote after the NYSE close. But we are short from 1278.

We do know that the S&P futures, which scrambled back at the very end in day-trader squaring, are off 300 at the time of this 7:30 posting to our computer staff. Right now the Globex premium is at 868, with futures at 1265.30. Our overnight March short from 1278 remains live, and is in play from quite near the highs, the way things worked out. That's the good news. The bad news is; that unlike a very precise forecast for today's market, based on the idea of a post-State of the Union rally Wednesday morning, which would fail as the first words of Greenspan's testimony was leaked, only to come back thereafter with a vengeance (it all worked out quite that way), and then the reversal later of course; we don't have a good feel regarding what we'll awake to in the morning. (Isn't that humbly a shock.)

However, with a good homerun paper gain, on top of a day that netted something like over 3000 basis points profit on the prior day's long today, I think it's o.k. that we not be required to have a particular call for tomorrow on this occasion. We're trading, we're worried about the market, and we've already structured things in a reasonably defensive manner, especially for the most 'net & overdone stocks, which were played to the max., and while not disagreeing with the worrywarts in Fed. theory, at least we stayed totally on the long side of this market for months, while many of them fought it tooth and nailas it climbed higher for our forecast historic 90 day run-up.

If we have to pick a pattern for Thursday, it will be down-up-down, with a chance of a late up. (So I guess we just picked on.) That would imply that day traders buy the first dip, but intraweek guys and gals aren't interested in missing the next chance to exit at prices available just a few hours ago, so they'll do some precautionary selling into strength (which if that's their plan won't reach those higher levels for exiting). Then a new down, which might get a little recovery at the end. Then on Friday, much will depend on fundamentals and price levels. Recently covering the technical levels extensively here and on 900.933.GENE, we won't tonight, but will again in Fri.'s DB report. Enjoy the drop. We go into Thursday short the Mar. S&P at 1278. Caveat emptor.