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Gene Inger's Daily Briefing 6/3/4


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#1 Guru Dudette

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Posted 03 June 2004 - 01:12 PM

Gene Inger's Daily Briefing. . . . for Thursday, June 3, 2004:
Moment of Truth Nears Worry Wall

Good Evening;

Climbing a huge 'worry wall' . . . . has been our consistent forecast since calling for an ideal mid-May low-point; particularly (at the time) observing that historically lows in May did not wait until late in the month when the preceding market had been down in the 1st part of year, rather than up. Here we have Intel's mid-Quarter update coming right in-front of the Employment Report; quite a quandary for those who would like to see themselves spun around (assessments at ingerletter.com). Could it be 'breakout fakeout'? Of course, but thereafter the market could consolidate and rise at least one more time. That would be constructive, whereas 'straight-up' might not be so terrific.

Against a backdrop of robust Crude prices, we suspected Oil itself, if not Oils (XOI), were in some sort of short-term peaking condition (more) while Banks (BKX) were bottoming a couple weeks back and tech was resting from actually igniting the first phase of the rebound. (Discussion), while rotational leadership more than two weeks ago stopped for awhile the bifurcated action, commencing more unified rebounds that at the time we suspected successfully engaged in a secondary test of preceding lows and would rally ahead of Memorial Day, pause just a bit, then rally more in a 'worry wall' climb-out that can be effected by surprising pinpricks from the enlarged threat matrix we face, but nevertheless as opined, had a good chance to do what occurred.

Now it would dovetail nicely if Intel's (INTC) mid-Quarter update isn't so negative as a couple naysayers suggest, and (more). Combine the preceding with 'job cut' reports (causing some to predict a lower-than-consensus Non-Farm number on Friday, with which we disagree, suspecting not only that it may be strong, but that there may be upward revisions to prior month's data), this could complement our belief that recent action has been beneficial for the market's overall structure. Of course challenges on a daily basis exist (reserved), but it looks increasingly to be a fairly healthy (more).

The point has been that this is not a typical sort of 'stagflation' scenario, as some had suggested, and this may well be driven-home again in spades when a bigger picture Monthly Employment Report comes out at the week's end. That may wrack havoc a bit with T-Bonds, or even the Dollar, but generally is a positive for the markets, as we have previously stated, in harmony with our forecast for a struggling mid-May low and revival ahead of Memorial Day, with the 'surprising' (to some, not thee or me) or robust upside move late on Tuesday and continuing with an up-dip-up Wednesday.

In the meantime, angst in response to weekend attacks on Saudi Kobar City facilities, which pumped-up Oil prices dramatically in foreign markets, and then in New York on Monday, yielded (no surprise) to an ease as OPEC indicated new 2.5 million bbl/daily increases in targeted production levels (somewhat meaningless, but shows intent to at least try increasing crude production, though the issue remains refining capacity in most cases, despite the frenetic reactions and concern about infrastructure, of which we've warned was a risk for months, including other geographic areas as you know).

This is an absolutely indispensable contribution to war efforts that is never discussed. It is also why the enemy continues to attack petroleum and related infrastructures as they support the war effort, and we have warned about this occurring for months now; so there is nothing surprising (other than anyone seems surprised by the attacks). As to our market perspective, what remains crucial is to contain the threats (some of that is occurring while the media laments the prospects of the regimes holding up over in Saudi Arabia, which may or may not be the case, but undermines the war effort now at the same time, even if they don't intend that), and to protect our borders more (we mention this in every Daily Briefing) and there are reasons, including the permeability of the Mexican and Canadian borders of course, but also concerns about 'ghost ship' flotillas that the terrorists may be operating (until someone in authority denies that or explains what happened to the missing vessels), and port-security considerations. It is not at all our desire to embrace what some would like to think is a political view as relates to insufficient infrastructure protection domestically or in the Caribbean or the facilities in South America, but the simple security reality of the need to achieve that, irrespective of anyone's viewpoints about Iraq. The focus is the task at hand to meet the threats to this Nation; political views about merit are irrelevant; the threats aren't.

Late today we heard (still not confirmed) there was an attack on an American base in the Kirkuk (big oilfields) area of Iraq, and that a large ammunition cache or magazine was struck by the assailants. There is confirmation regarding firefights between Saudi security forces with terrorists, and that continues to reflect perceptions of vulnerability that Riyadh must have. It's counterproductive for pundits to suggest the Saudi regime is increasingly edgy; as that's stating an obvious (remember ..'loose lips sink ships'… or in this case oil platforms or facilities or regimes). (Discussions of the Draft, etc.).

In any event, the Dow Industrials probed key levels desired, and the S&P, forecast to do what it has, move into the upper 1120's, marching forward right in harmony with the pattern and timing calls. Sure, skeptics will point to war threats, the overbought technical readings, but they generally still don't comprehend at this point the internal market structure, how it got superficially oversold last month or how it got superficially overbought (in appearance) currently. They are be really amazed as we surmount the daily resistance, but lower risk entry points will still have been when indicated (more).

Daily action . . . finds a degree of solace in the market's ability to deliver this move at the same time as the angst that's out there remains, as we suspected it would. That's of course part of the 'worry wall' theory about this projected advance; as it continues.

MarketCasts (intraday audio-emails) called for a move up to the June S&P 1120's (actually the third stage really of the move with a germination in the middle of May) and delivered that (more technical discussion).

Basically, this all comes back to the 'summer of discontent', or the inability of markets to decline when given the opportunity. That's fine; sellers are unable to do much with the market, and that's favorable, and as projected. However, we are not in a vacuum that leaves itself alone to address market technicals or other variables, so of course that is the point of the risks from exogenous or other military/terror related events we hope are merely enormous 'worry walls' for the market to climb; but risk being more, as the pinprick attacks of the last couple days again clearly denote.

Keep in mind our key point the other evening, that higher energy wracking havoc on price levels, is more likely to contribute to the prospects of a higher plateau for prices overall (including the much maligned property or real estate housing markets over the longer-term, that so many consider impossible to persevere), similarly as occurred as the eventual outcome from the energy spikes in the '70's, and other times. That is not to suggest inflation isn't a problem, or discretion as to spending isn't a real concern to many; it no doubt is. But nobody seems to be putting this into the perspective of what it does for perceived future price levels. If it replicates history, then ultimate outcomes are higher regular-levels for prices, as has been creeping forward all year. Given the expected hesitancy of the Fed to heavily press for much higher rates, slightly higher rates amidst the concerns about the war-risks, actually can result in relatively low rate pressures this summer, as may assist the economy during this challenging situation.

Summarized; our perspective was a pre-holiday rally, and included in overall pictures was a suspicion that post-holiday retrenchments would be very brief, due to a limited maneuvering room (week) setting-up a subsequent rise (more). Subsequently, we got a galvanizing of strength, which is how technical indicators rebounded swiftly (to wit; rate sensitives, ETF's, listed bond funds, etc. etc., in harmony with our interpretation).

In any event, as for the stock market, we think this is all coming together at a slightly challenging spot (declining tops weekly basis), which if it gives way to the upside (as should occur over the next few weeks if all goes right and we're not attacked anew, but with complications if there are new assaults against the energy infrastructure of course), is capable of denying entire bearish structure arguments (dome etc.) of the past few months (basically 'confirmation' that an intermediate correction ended, as we have suspected for some weeks would be the evolution of the April/May actions).

So, in this summer of discontent we are (unfortunately) likely to see more attacks and significant challenges, and of course there will be reactive market responses resulting from those, either from rumors, alerts (and we'll likely have some of those), or tragic events, but meanwhile corporate activities are doing about the best they can in these circumstances, and the market was forecast to recognize that too. So, no, we can't assure anyone about the longevity of this move because of these obvious risks; but we do equate this to a humongous 'worry wall' being assaulted as a market desires to reflect real prospects of business and consumers ex-war-risks. At the moment, odds favor upside extensions, pullback and then we'll see (reserved).

Bits & Bytes… mentions Intel (INTC), Motorola (MOT), Texas Instruments (TXN) and little speculative Ionatron (IOTN); as well as Corvis (CORV).

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 foreign news continues to enrapture us. Increasingly we're still interested to hear what this Administration will do to further secure borders ahead of a challenging summer, if anything.

McClellan Oscillator finds the NY 'Mac' reading above neutral at +266 now; above neutral at +46 on NASDAQ. This is acceptable (explanation follows for our readers).

As to flies in the bullish alternative continuing, in our view, it's not earnings or markets as such, but realization terror wars continues expanding, not contracting, with difficult challenges ahead, speculated about on occasion, and as the Saudi attacks show one more time. Plus troubling increased California earthquake risk. Clusters minor but more frequent, in some places, though at the moment replicating those recently seen.

Overall the threat matrix perspectives remain quite high, pretty much worldwide. God be with our troops in continuing battles; as well our citizens who continue at risk while traveling on pleasure or business. Look for higher prices short-run, barring shocks. At mid-evening the S&P is essentially flat in Globex activity. Down-up-dip-up would be a desired pattern for Thursday's continued evolution of this ongoing market trend.

Have a pleasant evening,

Gene Inger,
Publisher
"I'd rather be vaguely right than precisely wrong." J.M.Keynes