Warfare Talks Sway Indecisive Market

Dramatic snapbacks . . . alternated with sharp pullbacks at midday, to result in the impressively firm upside romp today; very much in harmony with the pattern outlook, as denoted intraday, and with a hunch that yesterdays breadth and 'normal' levels of retracement, in this continuing volatile week, didn't deny the prospect. While gains in the Dow Industrials(which is relatively pricey compared to other areas) garnered of course the most attention (per usual), it was interesting to see NASDAQ hold the low from Monday (within a fraction of a point). That has certain resulting subjective hints, (balance is interpretive; hence must be reserved for ingerletter.com subscribers).

Also important, the Nasdaq 100 (NDX), which contains the biggest-cap NASDAQ of course, actually made a lower low than Monday, while finishing midrange of the area from Monday's low to Tuesday's high. A couple tech companies hinted they will come in with earnings about inline with expectations (which of course were lowered earlier, and are in harmony with our idea that it's going to be hard for the better ones not to be able to make their numbers, given how pessimistic their CEO's were last Fall); but at the same time we don't see this particular retroactive reporting period as important to the extent others do, because this is a transition time amidst war, which continues to let the reasonably (and not excessively) indebted companies shore-up their coffers ahead of what (in a perfect world) would be dramatically higher profitably later on. Of course part of that depends upon whether we're in the early stages of World War III.

If we are not, and Arab countries (more so than anything Israel does) are somehow able to reign-in their surrogate terrorists (well; somebody's paying for all the sorrow at the hands of the so-called non-country-supported extremism, which is supported by a couple likely candidates, which we all know about); then maybe there's shots at more than simply muddling through, but also seeding the prosperity of the remaining years of the decade. That is not impossible; as improbable as it seems to so many. Maybe, in fact, that's why this idea isn't ludicrous; anyone who really believes the worst, has been out of the market for weeks, months or years; thus a question isn't who will sell, but will they again become buyers; or more precisely when or if they'll play catch-ups.

In the meantime, because of the period of indecision internationally, and because the Europeans are making it tougher to engineer a peace (the failure of which threatens their hegemony more than that of North America by the way, so they should smell the coffee their so-called internationalism has decaffeinated to some extent), by catering to the daily noise from potential 5th columnists and innocent supporters of that cause; they actually risk increasing their own risks, versus standing united with the cause of both peace and freedom; since to do otherwise encourages enemies of civilization. It has a market impact; interestingly a potentially positive one. Europe's confusion sure reinforces a forecast we've had for months: that the United States (unless attacked), will not move to exorcize Saddam (well, can you think of a better term?), at least until after the hot Arabian summer; a time that forces would see heat reflections off the dessert, and certainly not be easily able to engage in ground combat. If those still suppressing the Iraqi people in Baghdad decide to preempt us, then they will feel a tougher kind of sting than otherwise might be the case; but we'll just have to see.

In the meantime, erring on the side of caution (the opposite of a stupidity as we called it in late 1999 and early 2000), the U.S. Fed is less likely to hike rates; at least they're not likely to do so appreciably until a clearer status of where the world and domestic economy stand, and that includes Oil prices, which barring an explosion, aren't seen as heading meaningfully higher (eventually just the opposite as a matter of fact). And both are factors we have long-argued, having as you know, identified exact ultimate interest rate lows back in October, essentially to the week (which is not expected to be exceeded incidentally; just relatively low rates prevailing for quite awhile, even if it results in a little bit of inflation). As we mentioned last week already noticeable higher charges from a slew of insurance, professional, medical and assorted other fees, that are creeping higher despite the perception that income levels aren't doing that (yet). I suspect that is coming; despite the contrary arguments for a new stagflation period. It is a likely outgrowth of one of history's most persistent efforts to reflate the economy.

Daily action (including comments on the Dow Industrials and Transports); reserved.

In any event, the market remains one focused on continuing world tensions, more so than in-line earnings starting to be reported; technology stock warnings more so than upside surprises; and after previous new lows for the NASDAQ, ignored what actually was positive NYSE breadth on Tuesday, which almost nobody recognized as a direct result of that day's pullback in the Oil stocks, that incidentally rebounded a bit today (thus contributing to comebacks in the Dow, though action mostly freaked the shorts).

Wednesday again, after mixed results Tuesday and the stellar outcome on Monday, was just super for the S&P hotline guidelines (direct-dial, with the new varying terms for subscriptions, and of course the 900.933.GENE access to the identical comment).

We were able to book a theoretical approximate 2000 point gain for the day; more or less, and whether they were with us on an earlier short-sale on a suspected pullback into the middle of the lunch hour, from the morning's first rise. So players sufficiently flexible could readily have had a double-homerun result Wednesday; accumulating flexible moves that we thought realistic from the start of the session, or even before.

(sic)..enough reason alone for admonitions about playing it close to the homefront, by remaining in domestic-centric stocks, over all these months of tension. Now that the world is shaken almost to its core, we can't help but ponder whether the wake-up call isn't just Washington's to reflect upon, but is even more important in places like Paris, Cairo, Kuwait, or more specifically Riyadh. Direct or indirect financers of terrorism can't change their support for vitriolic hated of the Judeo-Christian world for many years of course; but they can begin to reform their systems. Not to, is clearly at their own peril.

Again, we've felt that there is little likelihood of Oil being used as a weapon; which is how we reacted to Iraq's blatant declaration, which caused oil to spike and sell-off; all in the same day. Now, the Saudi's flat-out said they won't do that (as we suspected in advance), and the oil market weakened then stabilized in a holding-pattern (balance reserved for regular ingerletter.com readers).

This is a time of year that investors are psychologically reluctant to take wild chances and it's a time to look for frenetic moves (lots of volatility) in both directions for awhile. For example, you have the current wild ride, after a light-volume decline primarily due to an absence of buyers than heavy selling, and (as suspected) you then get similar rallies without a lot of funding, particularly in event there's any news to tempt shorts to hurriedly cover (or technical action having the same result). It was probably a sell program that broke yesterday's market back (superficially); probably a buy program or two is all we thought it would take to reverse, given any reason, sustainable or not.

In summary . . economic data continues the projected consistent improvement type of indications we've suggested since targeting the economic low in the Third Quarter; although there's no doubt that profits are comparatively slow, and somewhat 'on hold' in a world that almost unanimously is sure tensions or stress (not just economic ones either) aren't over; and we concur with that, though were on alert for snapback rallies, such as the one we got today, and were fully prepared to see this afternoon, even as we shorted the morning rally, emphasizing that we still thought things would rise later. The market may very well get defensive again ahead of Mr. Powell's Mid-East arrival.

As to the McClellan Oscillator readings: recovered more; about +57 for the NYSE, and similarly to -1 for NASDAQ. No activity pattern analysis change (expanded on).

Our prayers and thoughts remain with our troops fighting anywhere in the world, and as events of the 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; while all free peoples certainly hope for the best. As of mid-evening on Globex, the S&P futures are up 20, with futures just over 1132 for now; with a 153 premium. It is clear everyone nervously awaits Mid-East events that can range across the board.