The Inger Letter 'Inflection vs. Storm Warnings'

Gene Inger's Daily Briefing. . . . for Wednesday, July 26, 2006:

Good evening;

An upside inflection point . . . is being probed inline with the intraweek rally call we had, which results from several post-Expiration factors, including the Chinese change and the slowing domestic economy (as well as lower Oil prices), despite the unsettled conditions in the Middle East (and other factors that ingerletter.com has been noting).

What this does is 'position' the September S&P which broke-out from an accelerated 'declining tops' daily-basis pattern, into a more favorable potential formation (relieving the stress of being poised on the edge of the preceding precipice) for upside gains. It is by no means a 'given' that a move will be sustainable, as the sensitivities are great. But it won't be a slowing economy from the late-week GDP numbers (more analysis).

Certainly, a failure of favorable visibility emerging from the shadows of terror-induced warfare, could forestall this tentative advance we projected to commence this week. It is touchy, because if Hezbollah responds to a notable defeat (yes, there is one that is going to be noted in a moment) by attacking harder, rather than backing-off, there is a risk of in-kind assaults by their agents abroad, including Europe, America, and even though never mentioned, Islamic countries which are not pro-Shia dominated fanatic states. 'The enemy of my enemy is my friend' is the clarion call quietly coming from at least several Arab capitals encouraging Jerusalem's progression of the counter-terror response, though this cannot last indefinitely should the increasingly-evident tenuous hold on power by kingdoms (or parliamentary nations) in the region basically implode.

It's very dicey, and though the 'Arab street' (which buys the notion of the Palestinian crusade that the leadership knows is a 'straw man' kind of fabricated enemy, since it is well aware the real threat is from Iran and the radical Islamist factions supported in direct or indirect ways by the mostly-Shia fascists) is rowdy. So far things are holding.

The Saudi's sent mixed-messages earlier today. And the most extreme statement we know of came from Iran, as one might suspect: "A Middle East storm is brewing and will strike violently", said the radical Iranian president Mahmoud Ahmadinejad. "The use of force in Lebanon could trigger a hurricane". Sec'y. Rice has left, so rhetoric by the extremists, their 'benefactors' and nervous neighbors, risks rising to a fever pitch.

The Saudi's are no friends of Israel or Western Christianity, but they are realists and not on a mission like Iran, which some say needs to decide if they are a nation or just Islamic crusaders, seeking to purge the Middle East of Western influence, and return that part of the world presumably to the 7th Century, but more likely merely purposely to gain control of people plus Oil, so as to dominate the region. Their hatred for Israel is a creation for the masses, to engender support for their (unknowingly by unthinking people) their real purpose; thus removing serious inhibitors to their regional conquest.

Unfortunately, the U.S. assisted them greatly by toppling Saddam; though certainly it was philosophically (if not strategically) justified. It just should have happened in '91, at a time when we had serious force levels there to do the job Bush Senior didn't at time have the stomach to tackle (his Generals were miffed it wasn't finished then). It is unnecessary to recant the scenario that created this situation, but sufficient blame goes way-around, including the failure of the EU and UN to enforce Resolution 1559, which is similar in terms of the power vacuum created when Syria was pushed out of Lebanon. The Israelis knew exactly what the risk was; the rest of the world ignored it.

All-in-all it reinforces the reality of a large Shiite power-play to emerge victorious, not so much against Israel, but against their more immediate neighbors, as they seek the consolidation of power and hegemony in the region, as we argued before this war got started for that matter. (Actually suspect they don't anticipate defeating Israel short of having the 'bomb', which may be why this war has to be fought now, rather than later. And it's not going to be something that ends with Hezballah being simply vanquished, as thereafter the means to ensure Iran doesn't acquire any nuclear weapon becomes more crucial, not less so, as the last couple weeks so clearly demonstrate to any who grasp terrorist tactics in its 'grand design' phase, as relates to Islamic Imperialism.)

So, it's tough, but late today one of the first real 'breaks' in the war occurred. How so? (We'll reserve portions of discussions.) One of the smarter moves the Israeli's have made (and it got little press here; as the press says, but doesn't entirely grasp, how this is associated with a 'grander' Islamist crusade worldwide; maybe they're aware, but just want to downplay it wistfully).. was several air-strikes on four banks in South Lebanon, all of which are handling money sent or laundered to support the terrorists.

By the way, one alert member noticed that (in an NBC report by Richard Engel, who has heroically slogged through Iraq for years and now South Lebanon, and to whom we think GE should give a well-deserved rest and raise following this Herculean task) they showed uncut sheets of U.S. hundred Dollar bills. Back in 2004, the Treasury at the time issued a warning about 'terrorist counterfeiting', specifically citing Hezballah, and their associates both in Lebanon and the South American terrorist triangle area. We suggest a serious investigative journalistic report ought to examine this topic, as for a long time we have noted connections between criminality, terrorism and drugs.

Daily action . . . ... the Dow Industrial or S&P move's sustainability is a major challenge; though we have no doubt that if matters resolve satisfactorily, this rally could extend further. It's obviously not 'slam-dunk' however, and that's the rub.

The 'psychology' out there set's a mood that doesn't want to contemplate seasonally or geopolitically a 'mix' that can set-the-stage for a serious market advance, and that can be a tip-off for something that (reserved probability discussion). However there is actual fire to worry about, and we don't just mean Benedict Canyon in Beverly Hills. If there is not a modus vivendi in the world (so far that escapes direct perceptions other than wishful thinking), or conversely a striking Israeli victory without Syrian or Iran at some point getting into the fray (reserved), as regards imagining persisting gains. Of course the economic slowing late this week (if affirmed) could temporarily assist this.

MarketCast (intraday audio-email) comments also realize the foregoing enigma that bedevils the markets can (vacillate), beyond the projected rebound this week so sure, we're going to be alert for that. Additionally there are interim 'blends' of resolutions for the market to be content with, though that doesn't mean the world antagonists will be.

For today, a superb Sept. S&P guideline long from 1264 was exited around 1276 per the final audio's then-tightened parameters, and that's basically all that was needed. I will explore the technical picture a bit further via accompanying daily 'audio' remarks.

In the meantime, the most interesting post-close feature, was the short-interest report on Ionatron, which incredibly (discussion is reserved for ingerletter.com members) was an historic high, up over 17% from the preceding month's levels. So it continues to reflect not an automatic short-squeeze, but the potential's there should anything fundamentally (or technically) ignite a move that provokes shorts extricating (more).

In any event we came into the week thinking it was either just an intervening rebound prior to the market risk of going over the edge, or soaring mightily, if short-term. Our bias was for post-Expiration upside, as we have and are seeing. But sustainability of the move still depends on factors at least partially beyond the normal market factors; while too many focus on economic data reports. Basically it is simplified (as we note).

Discussion of the Ionatron / Army announcement, or oblique references we located to some of this work in the Fiscal 2007 DoD Budget, were provided via audio in last night's remarks, and references to today's short-interest report was discussed earlier.

Plans to regionally deploy anti-missile systems over the course of the coming year at this point clearly reflect certain 'awakenings' about the risks from rogue states tending to embark on crusades, and conceivably less concerned about deterrent weaponry. It is a dangerous time, and hence remains an area of importance to the Nation, and as a result, has significance to the investor community too. We continue suspecting that most such MDA (Missile Defense Agency) systems will be solid-state, eventually of a new 'semiconductor' or alternatively the LGE (Laser Guided Electricity/Laser Induced Plasma Channel) or LIPC (interchangeable terms) technology. We anticipate these in the not-so-distant future will be integrated into various mobile platforms and systems.


In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including organized terrorist forces in various countries. A world addressing terror threats continues, as domestic issues absorb us less as we focus on the Middle East crisis and World War III avoidance.

McClellan Oscillator finds NY 'Mac' currently around NY at +120; NASDAQ at +12.

Issues continue including oil, terror; Iraq; Iran; Hamasistan, Korea, and Lebanon. As to the situation in Iraq; things remain fluid. But needs for advanced weaponry to protect secured civilized areas will remain as important, or certainly in future combat engagements elsewhere. Further, advanced weaponry to eviscerate vermin without mushroom clouds, sparing harm to the majorities of people (innocents) are necessary for civilization and for the military's armamentarium. We are focused on this area now and in the future. That's partially as 'advanced defense' isn't so sensitive to consumer economics or domestic recession fears as a forecast 'Summer of Discontent' evolves.

By the way, besides the heat wave and power-grid challenges in California, and fires in various locales (the most risky expensive one being near Beverly Hills, which tends to remind me of the two Bel Air fires, which as a young kid I remember viewing from a window at the Beverly Hilton), there is a perceptible increase in minor earthquakes of a 'linear' nature if you glance at the accompanying chart of this generalized activity.

The new trading week had us opt for post-Expiration rebounds that eventually fail not based on technicals, but if matters geopolitically don't fall into line. Remains unclear. Wednesday: up-dip-up-fade may be an ideal overall pattern. S&P futures unchanged.

Enjoy the evening,

Gene

Gene Inger,
Publisher

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