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[TTHQ Staff]

Gene Inger's Daily Briefing. . . . for Thursday, May 6, 2004: Good Evening; An 'erratic upward bias' . . . was the forecast for Wednesday, as markets remain in sort of a 'ready for rate-hike' mode ahead of a (potentially solid) Employment Report on Friday. We suspected a decent start for Wednesday would make it tougher to rally in the morning, but not at all impossible to still cull-out a modest climb over the whole day, but that it might be quite ragged, as it certainly was. No adjustments in how we suspect this effects the next day or so are necessary, most especially interest in how strong the jobs number is (we'd like to see substantial -sic- reporting period gains, as would probably provoke an upside spike, profit-taking thereafter, and then ideally a recovery that regains the upside initiative; hence opportune for nimble S&P players). This may not be coincidental that the June S&P finished Wednesday right on its daily moving average; (reserved for ingerletter.com readers). It might be recalled we were looking for S&P's to hammer-out a recovery to the low 1120's, and that's where we are. We would prefer to see broken-out daily-lows first (intervening plunge) so that a turn could be more dramatic but it is as it is; suspected it would be more erratic if we didn't get a washout type turnaround (we didn't so far; more discussion for readers). Daily action . . . remains extremely tentative or defensive, so as combined with other variables, still is absolutely not assured in any way (rarely is, but a little more fluid this go-round). In the psychological realm there's enough fretting to assist the market, but that's only favorable for so much in rebound behavior; after a point you have to have basics support a struggling rebound, so as to become more spirited or gain 'legs'. This is all fairly important on a short-term basis, because there is so much cynicism in the marketplace, and it's all occurring amidst pressure on the energy market that has little to do with supply and demand (per se), and much to do with threats upon supply that are (this time) not associated with restrictive efforts by OPEC or any legitimate or cartel-like authority. Technology, led by some Semiconductors (SOX), but not all, is trying to join the Nasdaq 100 (NDX) plus other areas in rebounding now, but none of it is definitive as yet (suspected wouldn't be), but yes, may become vibrant if (more). Not that we knew (or know) how it all settles-out, but because if that was an erratic secondary test of March lows, it's not something one wants to address by jumping-in during subsequent strength in the days ahead, because that endangers establishing positions in what could be just a temporary buy-spike that subsequently settles-back (or even more). Thus the daily-basis approach embraced at the moment (more). MarketCast comments (intraday audio-email) knew rigid guidelines could be too tight so we emphasized avoiding rigidity, allowing erratic ebbs-and-flows during the day. Touch-and-go on occasion, but the idea that if we rallied early it would still backtrack into the middle of the lunch hour, and then try to cobble-together a rally thereafter, essentially identifying the proper pattern behavior for the overall session. Thursday could be similar in that a shaky opening precedes a false bounce, washout and rally. There is little doubt but that higher Oil prices, or the realization of having to use U.S. Marines to guard some Persian Gulf facilities (civilians are evacuating key locations) does not contribute to a comfort zone about the energy price rises impact on matters ahead. Oil stocks (XOI) rose, slightly bolstering big-caps, with Banks (BKX) stable. The greatest reticence was in multinationals and some small-caps, that are involved with foreign demand in particular or cycles of speculation that remain agitated and/or sensitive to almost anything in the news. Normally one would suspect oil prices were or will soon be spiking and reversing, but there are factors at play outside of normal supply/demand and even political questions (more). For instance, refining capacity is sufficiently stretched that any accident or attack can thwart expectations of a cooling of price rises, and this is all occurring just ahead of the driving season (stay tuned). There is no reason to be particularly perplexed as we see it for now, and we believed acceptable behavior of the market telegraphed odds of the next significant daily-basis move coming up in the American stock market. Ideally roiling in T-Bonds settles into a stabilization near-term, and that's by probing a little lower in an ideal pattern; then higher, whereas the Dow Industrials probe a little lower too and then higher, as we'd noted Tuesday. That is especially so as we approach the monthly Employment data. Little need be reiterated about the Fed; clearly they got the message that the markets in most cases are ahead of them, and they're preparing everyone for a series of rises in rates; with the debate somewhat muted by their statement, if not quelled as would be the case had they just gone ahead and hiked the Funds rate, which we expected they wouldn't. It would (however) not be shocking (and might be an interesting way to do this) if the Fed were to respond to some forthcoming robust economic information by hiking rates (this suspicion plus a pattern evolution is reserved for ingerletter.com). Certainly there are remaining intermediate or even macro factors to be concerned or at least aware of, as regards this summer and even beyond; but at the moment the downside is becoming ridiculous on the short-term, so that was why we're forecasting an erratic rebound, including oscillating movements hourly in both directions, with of course the roiling that often follows an FOMC statement and then the 'jobs' reports. Once we complete consolidation, the Dow Industrials face daily-basis hurtles near 10,375 (give or take) at the moment, and if it can get through that, hold shorter-term pauses thereafter, stocks could be positioned for a potential stronger extension later on super Non-farm payrolls (if that's the case). Because of cynicism about the quality of rebound tries or overall market environments, this isn't going to be instantaneously resolved, though it's not impossible that Thursday's lows will be significant, if the S&P can subsequently surge over a threshold that makes such a prospect evident to wider majorities of participants, in harmony with our projection for moves already achieved. The seasonal aspects have been surprising to some, who thought money inflows just at the start of the year could persevere; but we weren't in that crowd. If anything, we'd been looking for a setback starting in January and ending for example in March, but it turned-out to be a bit more protracted in some aspects (though not entirely as the low point in late April and so far did not challenge or penetrate the actual March lows for the big-cap Averages or even for the techs… part of that was interest-rate sensitives of course, part tech corrections suspected getting overwrought) and (more reserved). Again none of this is not to suggest there won't be vulnerabilities later-on, generally because this is a summer of discontent ahead, if not real risk, as regards the political environment and probably the military/terror situations, which increasingly are linked, like it or not. Unless one expected a 'crash' (reserved) there is little reason to envision why an investor would sell oversold conditions, or why traders would heavily weight the short-side of the ledger into soft markets on an hourly basis. Rather, they should be focused on the extent of rebound open to question, but remaining fairly good or at least interesting, for the short-term basis (especially if we can get a washout first etc.) Bits & Bytes… notes Intel (INTC), Texas Instruments (TXN), Motorola (MOT) and the small-cap softness visible in Corvis (CORV) and newly-trading Ionatron (IOTN). We think (outside of the China and commodity stories we assessed before the shifts) little changed in fundamentals of these, aside from mass psychology perceptions. In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including assorted terrorist groups. A world awakening to terror threats grows, as news from continues to enrapture us, and is difficult to contend with (including attacks in Greece apparently from leftists, and an inauspicious time for the Mainland Chinese Navy to parade its might in Hong Kong as a defiance of commitments to the people there, and as they threatened democratic or other supporters of universal suffrage to the point where some reporters have fled the country to Europe). Increasingly we're still interested to hear what this Administration will do to further secure U.S. borders ahead of this challenging summer, if anything. We're also still dismayed by a recent ABC News story about stolen passports. About 80,000 missing in France alone. Thefts occurring in European allied countries that do not require VISAS to visit the U.S., are suggestive of conspiracies among organized terror groups (who are basically criminal organizations seeking economic control and social power) for purposes of infiltration into other nations. An alert summer looming. McClellan Oscillator finds NY 'Mac' reading at -75; at -19 on NASDAQ. In a normal (non-wartime) setting conditions would create potential for yet-new recovery highs in the long run. That may occur anyway, though there are variables this year, explicitly market intimations that war progress is not exactly going clearly well, plus a growing mesh of terror threats or even infiltrations, which are extraordinarily under-reported. So if there was a fly in the bullish alternative, in our view, it's not earnings or markets, but realization that the terror war continues expanding, not contracting, with difficult challenges ahead, speculated about on occasion; plus troubling increased California earthquake risk (a couple heavier quakes, including one around the central Coast in the past couple days ago offshore Santa Monica and Malibu; though it's quieter now). Overall the threat matrix perspectives remain quite high, pretty much worldwide. God be with our troops in these continuing battles; as well as other tensions continuing to increase. For now, we'll expect to see erratic or defensive early behavior once more, then get a tepid rebound, with prospect of a stronger rally late this week, potentially to the dramatic chagrin of new after-the-fact downside bears. A continuing saga, inline with expectations. Have a pleasant evening, Gene Gene Inger, Publisher