Heavy-handed policies . . . rekindling memories of the PaulVolker days aren't likely returning to the mindset of the Fed; but higher rates tooffset the multiyear inflation as or if it's perceived to be from areas outside ofincreased Oil prices, may be a factor in the future. It's basically nonsense todebate whether there's inflation; of course there is! But the reason we have to payattention to the requisite massaged data received by Government survey, is that so manyentitlement programs are tied to such reports.
So no, we don't think Chairman Greenspan is going to replicatethat older era with an assortment of 'swift' heavy rate increases, but thesteady-as-she-goes (or 'measured pace' as it is called) approach will likely continue. Andfor now that's not a negative.
At the same time, we harbor no illusions about valuations of the DowIndustrials, or other market averages. They're generally not particularly expensivenor cheap either. And the stock market does have this logical period of time to digestprevious gains, after hitting our recent goals (that being theS&P 1210 area) a coupleweeks ago, with a period of time to consolidate before moving forward (as outlined atingerletter.com).
Daily action . . . doesn't particularly concur withtechnicians believing the March S&P has to probe the 1150 area before it canrally; as a matter of fact if it dropped that low now (specifics reserved for members).There's nothing sacred or important about it as a particular price level. And at themoment the 'bearish alternative' would probably be an aggressive but short-livedrally, while the 'bullish ideal' would likely be a market that extends the current(forecast) daily-basis move a bit further, then tends to horse-around for a couple days ofbacking-and-filling, before (trying rally attempts).
It is fairly likely that Wednesday's rally is just a rebound afterthe prior day's slide; so it probably won't last too long or get too far, before being putnewly on the defensive. If so, that would measure the staying-power of this particularrally in hours not days; a set-up for the market's 'mettle' to be tested by (subsequentaction as outlined).
Interestingly, South Korea now denies it's banking authoritiesuttered the story that of course circulated through Wall Street on Tuesday, and that wouldtend to support the idea we expressed that it was an area of concern, but made nopractical sense for a major Asian trading power to intentionally rock-the-boat in thatmanner (really such an issue is fodder for a bearish argument, but the issue would have tobe real, rather than contrived, by interests that had some agenda other than fiscaldiversification for that country, or any other). In essence, we still think that's whatfundamentally roiled the markets Tuesday, but we continue to believe it was a bogus short-termconcern.
MarketCast (intraday audio-email) comments leanedbullishly for Wednesday, just as suspected in Tuesday evening's remarks. Because themarket gapped-up before an effort to sell-off, and given the reasons, we opted to(profitably) fade stocks early-on (shorting guidelines) before resuming the upside, whichwe thought would occur at or around the 1186 level (it did). We projected a rebound to1190-1195 today, and got it. Tomorrows' pattern evolution should approximate what wementioned a moment ago; an effort to hang-together for instance, followed by an easing,another rebound, and maybe later fades, though we'd welcome (reserved comments for ourmembers).
Oil, we think, remains a major culprit in the evolution ofincreasingly choppy activity, which really deflected any attempted buying pulses equatingthe size of a preceding decline. We did not believe the rebound would be of the samemagnitude, and would (for the moment) appear to be merely a rebound after a solid hit bythe stock market.
It is highly unlikely that a financial crisis began on the cusp ofspeculative comments attributed to certain international banking and other sources, butthat it contributed to the prior heaviness, we've little doubt. We also suspected it wasintentionally culled 'for-effect', and doubt that the trader partners identified, wouldreally take the risk that was implied. That's especially so given soft economics inEurope, and developing in Asia. To wit; remove the 'engine' of the American consumer, andthey're totally kaput.
Nevertheless, we started to ponder whether the Administration'srecent tendency to keep ignoring these trends, was based on an awareness that such riskswere 'in the wings' so to speak. Though we doubt it's taken flight yet (or if theseare trial balloons lofted before such a journey) by South Koreans, with Taiwan or othersfollowing..well, it would obviously be troubling to all the markets in the near-term, butin the long-run could structurally revise relationships in trading fields; possiblysetting-in-motion gets competitive hemispheric common markets of sorts (part of worst casescenarios for multinationals; though again, this is unlikely to be a near-term issue ofcontention).
So is such fear getting ahead of reality? You bet it is, for now. Buthints of movement of these kinds is potentially a harbinger of 'sea change'events, that have draconian implications if ever gelled to fruition. As to the Oilworld, it's not involved in this, now.
Overall we suspect most analysts are missing the boat on assessingwhat occurred this week, because they're not addressing the real story; of course we thinkthat was discussion of South Korea initiating moves to pare-back Dollar-denominatedasset-class investments, with Taiwan following.. and the ECB slightlyon that track already. So it's an issue (foisted then denied), but unlikely tofully-blossom now; but the kind of realization that could reverse markets (Wednesday asforecast), as it resulted.
Many purer-techs or related Indexes, like the Nasdaq 100 (NDX) orSemiconductor Index (SOX) did considerably better in Tuesday's trade, and heldreasonably today. Although we suspect a little better hourly from here, the action isslightly dubious for a very short-term outline, as we work forward over the next severalsessions.
Today also had investors on tenterhooks for other reasons, includingreport of a prior FOMC meeting. These affirmed that the economy is growing, but not sostrongly that it would impede the FOMC from maintaining merely moderate policyinitiatives. The Fed Chairman seemed fairly attuned to the 'mixed' circumstances thatprevail these days, and we think that precludes the FOMC embracing draconian hikes at thistime. Obviously the Chairman knows what those minutes say, so his 'tone' might of coursehave been even more vociferous if the minutes were going to reveal anything really wayoff-message from what we've heard from the Fed recently. They didn't and they indicatedthat the Fedheads mostly want to see accommodation gradually withdrawn.
Certainly, the crux of part of our fundamental underlying argumentfor stocks this past couple of years, has been a core component of emphasizing slightlyhigher rates but not high (historical or hysterical) rates; so the absence of really highrates means that these essential moves in short-term rates are by no means animpediment to growth or lending demand. Or at least not now, and for all practicalpurposes little Fund Rate 'bumps' are almost meaningless, which is why we thought too manyeconomists were too preoccupied with them. Ongoing decent behavior of T-Bondmarkets amplifies that point. Of course rates will eventually move mildly higher,and we don't encourage a complacency as relates to the bond markets. However slight moveshigher is a sign of economic gain and as has historically been the case, does not signalan instant rush to exiting stock. Quite the opposite; as it affirms a U.S. growth phasecontinuing.
We have often noted, that while not particularly exciting to discuss,this meant more to the markets than anything (if correct, and it has been), because itmeant that the Fed was merely coming back to some sort of mean or 'norm' for theshort-end rates, and that suggested they would have comparatively little effect on thelong-term yield.
Concurrently,while closely watching interesting events, risks and assorted domestic issues, we must notshirk from monitoring the rest of the world situation as well. Yes, saboteurs,infiltrators, and 5th columnists are
Bits & Bytes… notes mixed action in lots ofissues; Texas Instruments (TXN) and Motorola (MOT) as well as Intel(INTC) and Broadwing (BWNG) (are mentioned). As to Ionatron (IOTN), itfirmed robustly ahead of Tuesday evening's (5 p.m. PT; 8 p.m. ET) Roth Conference;and while nobody knew for sure what they would have to say, we suspected it would befavorable, with shares coming into some subsequent selling, having been bid-up ahead ofthe Conference. (Comprehensive assessments of our perspective on the Conference areprovided to our members this evening.)
In summary . . events continue reminding us of risksAllied fighting forces face, given continued attacks on free peoples, by elementsincluding assorted terrorist groups. A world awakening to terror threats grows as domesticconcerns retreat from absorbing us. Though few generally concur (interestingly the Feddoes), our view has been slow but persistent American growth isn't negative, as itallows protracted gradual growth without ancillary significant high interest ratepressures (slightly higher over time; but not high). There's not a truly-restrictivemonetary policy; nor is there likely to be one employed over time, irrespective ofenergy-induced inflationary pressures that can't be addressed simply; but (as suspected)may again be tempered by price drops later.
McClellan Oscillator finds NY 'Mac' stabilizing here, amidstdecent flow of economic conditions (in our view); now at -111; NASDAQ easing modestly;presently at -27.
As to flies in the bullish alternativecontinuing; in our view, it's realization terror matrix issue continues, withchallenges ahead, and as attacks and various difficulties show. Ongoing earthquake temblorscontinue several times daily across much of the West; not to mention the Caribbeanand Central America most recently. Most are dispersed along the San Andreasfault; some randomly noted in Washington or Alaska. Littlenotice: a high 'alert' stage continues at the Mt. St. Helen's volcano since increasesin activity a couple months back, and there have been small California swarmsrecently; and yesterday quite a heavy shaker in the Gulf of California(Mexico).
January eliminated the market'spreviously overbought condition, instilled fear in lots of investors by the persistency ofthe downside, and that's likely not only kept money on the sidelines, while actuallyenhancing the markets upside resolution prospects in an overall manner. It's was a littleearly to expect markets to blow-through resistance, beyond what was seen; so we findactions entirely acceptable within outlined norms.
Ideally this week was thought to drop,horse around; then try the upside once more; but then fade anew on a daily-basis. We seeno reason to modify the general outlook even though Tuesday was more dramatic, due to thescuttlebutt about international investments and oil prices, while the ideal Wednesdaypartial revival was delivered. The S&P this evening is flat. We suspect that Thursdaymay be dip-up-dip-up-fade, or something nearly along those lines.
Enjoy the evening,
Gene
Gene Inger,
Publisher
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