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[TTHQ Staff]

Gene Inger's Daily Briefing. . . . for Thursday, July 22, 2004:

"'Summer of Discontent: Interim Low Brewing?"

Good Evening;

A 'one-day' reversal . . . haunted the market throughout the Wednesday session; inline with concern that the 'least bullish' pattern would be an upside start to the day.

Rumors of a 'threat matrix elevation' (alert-color change) circulated (in the wake of a roundly-dismissed story suggesting discovery of nuclear-tipped missiles in Iraq; as is highly unlikely and dubious, but at the same time capable of spooking markets, so part of the earliest reversals in the session). These were never affirmed as anything more than spurious fear-mongering (more). There's no further information refuting the UPI report, or subsequent Reuter's remark (quoting the Interior Ministry) denying it.

Regardless, ingerletter.com suspected a most 'negative' (least bullish) pattern would be a strong upside opening, thus that is why we were inclined to prefer the short-side of the ledger, from the start of Wednesday's action, around 1115 in the S&P. Prior to all this (in terms of rebound) we suggested something in the mid-teen's of the 1100's for a rebound (more reserved for readers), regardless of later hits. One-day reversal implications became increasingly obvious in the Dow Industrials & NASDAQ too.

Of course part of the outside-down behavior was occasioned by new Oil stock (XOI) weakness (more discussion follows). Financials and Banks (BKX) were also weak, contributing to pressure in key Senior Averages. But nothing more eye-catching than Semiconductor (SOX) behavior, or to a lesser extent that of the Nasdaq 100 (NDX), which were very heavy today, persistently, following opening follow-through rushes after favorable earnings in a couple key players in the sector (Texas Instruments and Motorola). They too made higher-highs and lower-lows (more) for the session.

As a result of this one-day reversal, 'bottom-feeders' were inactive (at all really), and as noted yesterday, that is fairly normal as markets reward trading anticipations, not follow-through reactions, almost regardless of what is in store later-on for sectors or markets. In this case we suspect the S&P has downside follow-through of some note, or maybe (at last) works towards the (reserved) area mentioned for quite a long time here, though none of this has been in one fell-swoop or without interruption, or is an exact target (really no such thing in the stock market; given many variables). It was noted we'd likely get a 'confirmation' of bearishness, a sharp rebound, then decline.

In theory they got (it) from the Federal Reserve Chairman, but many don't believe it, as they conclude he's going to put a favorable 'spin' on matters even if unwarranted. In this case, however, we think the Fed Chairman has it about right (we don't tend to automatically disparage what the Fed says, when it's logical and there is nothing that is glaringly obvious to refute their position or posture). There is however something of import bothering the market; probably anticipating the risks of a challenging climate of fear and concern (more discussion for our readers on these subjects and areas).

Is this a year of negative returns? For companies no; for investors so far yes. Will we get a conclusion to downward whipsaws resulting in subsequent upside behavior? In our opinion, yes, but this is one of the tougher times of the year to get markets rising, especially given the terror threat matrix, which is likely to be actually ramping-up quite a bit, in the weeks just ahead. So that's why you're likely to get a series of bumps, or grinds, effectively allowing markets to transition from this corrective phase to the next upward phase, as may or may not be accompanied by 'event' air-pockets, depending on actual events (in that regard threat-related; not normal economic considerations).

Daily action . . . notes that aside from that 'risk' (and we would not be surprised with increased threat elevations in the course of this), current market implosions are going to get reduced in chances to permeate much further; though a couple days (more).

To us it has been evident for weeks that things were settling-out just a bit in Iraq, but it again is clearly difficult to pin-down with any high degree of confidence, and we're just now moving into that time before the 'conventions' which some Islamists seem to have threatened to disrupt, though there's (said to be) no specific threat information. At the same time there are enough 'official' warnings to deter excessive investments, as many investors (probably even some money managers) perceive no great rush at all to commit, as the failure of a rally such as yesterday morning's, tends to affirm.

MarketCasts (intraday audio email) hence garnered pretty good resulting gains from the downside move of the September S&P, telegraphed by weak technology actions after the initial push higher. The movement to lower-lows was deemed likely in later afternoon activity, for primarily technical or emotional reasons, not fundamentals. So what's afoot? It's psychological at this point, and a determined (reserved discussion).

The bottom-line of testimonies (our interpretation): no systemic risk of a type that is somehow simmering out there that markets can't 'figure out'; that this Fed Chairman believes this year is seeing a normal continuation of an ongoing macro expansion, which should be self-sustaining (barring catastrophe). We'll also not dispense ideas that the gradual accumulation of stock into weakness may be a well-placed strategy, though it certainly (depending on events) can evolve for some time, as in fact we've suspected would be a logical way for the 'summer of discontent' to evolve.

Terror threats remain the primary impediment to increased financial commitments to the stock market, though many analysts and money managers will avoid confronting the issue, as they are uncomfortable basing market projections upon such unknowns. To a great extent we understand their angst, because this is what we thought would be a condition of the summer… (more discussion for ingerletter.com readers only).

Bits & Bytes… comments on Intel (INTC), Texas Instruments (TXN), Microsoft (MSFT), Motorola (MOT), Ionatron (IOTN), and 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 domestic observations absorb us, and at least some investors fret inflation or reflation, more than the more-fearful alternatives.

McClellan Oscillator finds the NY 'Mac' at -87 and the NASDAQ at -37, increasingly erratic overall, with instability preceding a washout and eventual rebound later, of just moderate proportions tempered by risk (or at least fear) of 'event-triggered' temporary airpocket behavior as we've described, (more discussion reserved on the subject).

In normal (non-wartime) settings, conditions might create potential for eventual new recovery highs ahead, or structurally important highs in the very long run. We suspect that may occur, though there are too many numerous variables to address here, most explicitly terror threats or infiltrations this Country forgets about too often.

Overall the threat matrix perspectives remain quite high, pretty much worldwide. God be with our troops in continuing struggles; as well citizens who continue at risk while traveling on pleasure or business.

Have a pleasant evening,

Gene

Gene Inger,
Publisher


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