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[TTHQ Staff]

Gene Inger's Daily Briefing. . . . for Wednesday, May 24, 2006: Good evening; 'Crash Alert'? Is one foolish to immunize oneself against market risk? That's what as you know we asked weeks ago, when forecasting (before the Dow Industrials peak) an unconfirmed breakout to new bull market highs; that was quite a ludicrous insult to anyone with a modicum of experience separating the wheat from the chaff in market analysis. After all there was no leadership to that move, with negative divergences all over the place. Most recently you had a meltdown in India (including metals), with the projected but only intervening rebound that in-advance (irrespective of duration called temporary before it began overseas) was suspected to carry-over into the U.S. today. Both the June S&P and Nasdaq 100 (NDX) had 'outside-down-days'; that's higher highs, lower lows and lower closes. Those are bearish by definition. However, there's a story related to this, that will likely limit the extent(s) of follow-through experienced. MarketCast (intraday audio-email) comments persistently warned through April, plus early May, that temporary new highs (unconfirmed by the broader Indexes), rebounds and oscillations (after initial breaks) would occur, but that all such revivals would be 'false and abortive', with the year's most visible (because 'big tech; has been soft all year, as forecast; and did not rebound meaningfully with the S&P or DJIA last month, also called likely) decline occurring from the month's earliest peaks; likely continuing in sort of rotational order, through the forecast 'Summer of Discontent' that began a tad early, but thought to commence ideally from early May false upside breakouts. (Those may also, over time, create entry opportunities, also on a rotating basis rather than via one single swoon related to what is historically sometimes a 'selling climax'.) You bet, we all make mistakes or overstay stocks; that's a part of market life too. But we didn't overstay, with respect to the key Dow or the June S&P tops, having called the move above the 'twin peaks' in the S&P 1320's a (more or less) 'sucker rally'. We had to, because we thought the earlier drop was (at the time) a 'sucker decline' which would fail to get far, emboldening all the permabulls (such as those declaring 'bird flu' dead) to wax enthusiastic into toppy action, preceding a 'real McCoy' decline (more). No we would not buy 'chicken parts' (that's about what's left of chicken stocks; before a semi-pandemic or worse). We might look at these later, if for no other reason than most sold in the U.S. isn't free-range chicken, such as Whole Foods sells; that we'd continue to avoid like the plague (free-range chicken, not Whole Foods; I shop there too). Other chicken is of course grown 'indoors' in hot-houses. But that's not going to stop the avoidance of all these for now. They'll get temporary rallies, as upgrades try to rally the stocks, and in our thinking, we suspect smart folks in those will use such rallies to liquidate, not short them. We also wouldn't touch housing stocks; wouldn't touch multinationals, would avoid international stocks (game played and riskier) and won't take the bait regularly offered by those pressing ideas of 'big technology' buys. If we're wrong about 'chicken parts', sorry; but it's the safer approach for now, and the psychology of a brewing pandemic (hopefully the news reports are wrong, but maybe they're not, perish the thought), suggests the chicken business isn't exactly rushing to boom, so what's the rush, considering the prospect of mediocre earnings continuing. I don't understand why some aren't willing to feather their housing expectations more or less concurrently, as while there may well be a landing softer than disaster, what's the rush, since the answer to that won't be known for some time, and not this year for all practical purposes (which means the next cycle there would likely not start just yet, even if you allow for the market's discounting mechanism). Take (name reserved); it's questionable why analysts are so optimistic (nothing against the company) to call this 'cheap', when it's dived from over 50 to the 28 level so far. Sure; a concession; but to us just a mere one-half retracement of the move from the interest rate low point might suggest it's capable of dropping to the upper-middle 'teens, or something (reserved). And then there's the Nasdaq 100 (NDX) or Semiconductor (SOX) stocks we watch regularly, like Intel and Texas Instruments. Well; now this gets interesting. We know all the presumed advantages of the AMD chips for 'servers', but think this changes. In a similar vein, Intel's uptrend from 2002's low broke early this year, and little-noticed, came from a retracement of the drop from the 2000 high to the 2002 low. Ah. (More.) Or TXN, a great company, but historically a very volatile one when it starts to move. It had even dawned on us to short it as it move to 36 earlier this month; but we sufficed to stick with the idea of calling for it to fail on that move, and eventually break 30. O.k. now I feel pressed to say what it really might do with this 'bearish alternative' market. How about (sorry; reserved), because there's at least been real growth there, unlike some that were just massaged by currency shifts (like certain big multinationals). Now; let's be candid. I could be entirely wrong about all of this. It could be wonderful; we could see housing soar, and oil plummet, while Iran surrenders, and GW buys a baseball team again. And maybe for the first time, Microsoft will come out with their new products early. And therein lies a goodly part of why we think tech will be heavy; thought it would be heavy; and may be heavy longer than meets the fund manager's expectations. (Balance of discussion about technology reserved for ingerletter.com) Vista 'Beta 2' was shipped just today; Microsoft says it will be in business customers hands in October, and volume production immediately thereafter. I'm not sure I'll buy that. (Yes, I'll buy the software, as OEM, meaning original equipment manufacturer-installed in future machines; but I'm not taking a Press Release at face value on this.) We don't know (reserved timing we suspect on the rollout); but suspect it. And lots of business folks don't like first variations of any new Operating System. So do we get a consumer cycle starting in mid-2007 (meaning/strategy reserved for our members). Fine; then please tell us why markets haven't been capable of holding or broadening any rallies; it wasn't just presence of new 'bird flu' news, it wasn't capable of rallying very much even when or as Oil and Gold got a bit dusted, and the best case now is post-break rebounds. Oh, and yes, we can see Microsoft itself hitting (reserved). Of course we may be wrong; maybe pundit cheerleaders are right; all is peachy-keen. Daily action . . . seeks to frighten nobody, though there is palpable fright out there in the shadows of the so-called rallies (and was as the Dow made its ludicrous bull high as opined at the time). We've simply called this the springboard into a long forecast 'summer of discontent', so we candidly see no reason to become suddenly optimistic, though we'd love to be if there was a visible justification, and likely will be eventually. Soothing words from 'experts' will come along to smooth the feathers (pun intended) of investors; and probably by morning. So you'll get a seeming-washout and interim rebound action (we won't buy those parts, and might turn-tail chicken on the rally, as relates to our intraday guidelines). 'Experts' will tell you there's nothing on the 'bird flu' stories that's meaningful, and that it's the same old Indonesian neglect. Is it? Are you sure? Do you always believe the media? This time let's hope they're right; but many would probably begin either false alarms or the 'real deal' with soothing palliatives. Miss what happened? We saw internal deterioration throughout anyway, but while it's obvious the Dow's rally wasn't being supported, and stocks were melting away mostly concurrently, there was another story, 'hushed' by the financial mainstream media 'till well after the close (interesting as it was quoted by Bloomberg News wires at 2:45 EDT, but could it be so innocuous with all the 'soothing' experts, to not be picked-up at all; who knows). So, how irrelevant is the story, as some are suggesting (part of an attempt to calm investors, citizens, or both..probably both). (Report quoted it here.) That is the entire story as reported. I emboldened the world 'efficient' to denote how it already suggests they're trying to soften the nature of human-to-human transmission. Anyway, got to cut-short tonight's report so that I can run to the supermarket (on that I'm just teasing); though if this already-known lax approach in Indonesia after the very good response in some Asian countries, produces such communicable disease, all of the other issues will pale by comparison, as the Dow Industrials and S&P will be hit more than domestic-centric issues, because of restrictive multinational trade aspects. Of course this will be minimized, and that may or may not be warranted. And we're of course not being alarmist. The story is what the story is, and the degree of infection is what it is, or isn't. What I don't concur with is the politicization aspects suggesting that closing the borders or disrupting trade wouldn't help. It could buy time; may negate at least some penetration of our Country from outside (not from birds directly, but those that are infected and carry that mutated variant, which most birds in the wild won't be harboring incidentally); and allow a little more (that may be all it takes) preparation. It isn't popular with politicians and business, because it would wreck globalist trading. It may anyway incidentally, if a pandemic really commences. Why press the issue by in a sense accelerating it? There should be no flights in-or-out of Summatra effective as of this moment (politically incorrect, but think about it), other than military or medical supplies, until the source of the infection and the details surrounding it are clarified. We probably shouldn't say that it is folly to allow one single aircraft to depart Sumatra with passengers for the U.S. or any major industrial country, not because of a lack of compassion or any quarantine desire, but to protect their own nation's other islands, and the bulk of civilization. As a matter of fact, instead of debating all this, the WHO ought to be happy it's an island that's first reporting likely human-to-human multiple transmissions, not a whole continent. On a lighter note (just for our members). By the way NBC News had the story mid-program and said it only involved one family while ABC News did not have the story included at all. Evening newscasts at 6:30 are either live or recorded in sufficient time to handily include a story that hits by 3 p.m. It might also be of note neither network mentioned a launch by Iran, earlier near 1 p.m., of a longer-range intermediate ballistic missile; said to be just 'partially' successful. World Markets Diving will likely be a sub-caption for Wednesday, not only as techs tumble; failing the rebound, but setting-up the next phase outlined via our 'universal turmoil' weekend discussion. Following warnings of a potential economic evolution to a sort of 'stagflation' described here the other day, economists and investors alike are increasingly debating what happens should we get slow growth in an era of relatively high-cost fuel and basic materials pricing levels that have high 'floors'. Now let's add to that serious travel (business & pleasure would seem reasonable) slumps effective immediately. We may be overreacting; but maybe not. Summer near home anyone? While we don't want to emphasize 'playing' this, we'd be cautious about hotel stocks; Las Vegas casino stocks, or cruise ship companies, which are already fairly heavy. We have postulated something like this for months, and as long as over a year ago in relationship to the housing concerns. We've also argued there was risk the Fed might 'overshoot' the inflation fight with any further rate hikes based on 'data dependencies' as contrasted with common sense understandings of what provoked the price levels. It is also reasonable to suggest that if this 'human-to-human' transmission's affirmed, the FOMC is (reserved commentary). Part of a forecast for T-Bonds and the Dollar? Key takeaway: is essentially the same, irrespective of the daily melodramas. Clearly premature financial media intended 'celebrations of new all time highs' for the DJIA was a decent indication highs weren't to be the case. Anyway, we saw it all for what it was in advance; 'nuances' of completing a topping pattern. Because this usually is 'a process', we thought; washout, deal with a round or two of 'margin calls' and the nervous follow-through, then have intervening rebound efforts, that essentially test the mettle of preceding declines, or rebounds for that matter, and then migrate lower. Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of major technology issues (as needed for assessment of general factors in techs overall, or as compelling developments may call for) that are key movers in the NDX or S&P, plus ideas ingerletter.com thinks merit reflection. No new remarks tonight on stocks, except via our audio comments. Broadwing (BWNG), Intel (INTC); Texas Instruments (TXN) and Motorola (MOT) as well as Microsoft (MSFT) discussed. Several explored in main-text discussions. Advanced Photonix (API), InkSure (INKS), Essex Corporation (KEYW), Ionatron (IOTN), Raytheon (RTN), and PURE Bioscience (PURE) are assessed or included. Members please note: we have no association with IOTN or any other publicly traded firm (never have had; never will), other than as shareholders from time-to-time. Yours truly is an Ionatron shareholder, as noted. All comments are interpretative speculative postulations, provided 'as is with all faults' and all risks, with no assurance ever about future performance of anything, in any way, whatsoever; including the overall market. 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 adjust to the hurricane recoveries and other emerging issues. McClellan Oscillator finds NY 'Mac' fluctuating; NY near -197; NASDAQ at -61. Projecting a negative start Wednesday, then another rebound try. Actually suspect it may run-in shorts fairly dramatically by mid-morning, even if it falters sharply later-on. To wit; the threat (bird flu) is no laughing matter, but most breaks on emotional panic are an invitation to run-in shorts, irrespective of what comes around thereafter. As of mid-evening, the S&P is down about 160 or so, and that's a rally from negative 450. Enjoy the evening, Gene Gene Inger, Publisher ~Gene Inger’s Daily Briefing™ (The Inger Letter daily analysis on www.ingerletter.com) ~Gene Inger’s MarketCast™ (Intraday audio updates emphasizing S&P futures and market action) Updates about 10 minutes after: the opening bell, 10 a.m. ET, noon, 3 p.m., with a nightly final issued at approximately 8 p.m. In times of volatility, an additional interim report update is frequently provided. Range of Inger & Co. service details (current as of January, 2006): Gene Inger's Daily Briefing™. .posted nightly by 9 pm on www.ingerletter.com. Analysis and a forecast of short-term market conditions. Posted 9 p.m. ET each evening. Focuses on events of significance, plus potential monetary or psychological impacts and a focus on likely next day action. Gene's Daily Briefing™. . available at $159 quarterly, at our site or via the California office. 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