Gene Ingers (www.ingerleter.com) briefing für Montag...
Good evening;
Fast and loose market behavior . . . might easily describe the first week of the new millennium; though we see the up-down-up drama as in harmony with the original gameplan (albeit volatile to the max), and precisely intended to give impressions of strength as this first week is closed-out.
It has been an incredible week, which has not only included history's most poignant single day NASDAQ drop, but managed to finish with history's greatest single day NASDAQ rally. All of this has occurred minus any change whatsoever in the longer-term market internals, which is and of itself astonishing. It's for this reason that we'll conclude several things: a) the ultimate low of 2000's correction hasn't, by any stretch of the imagination, been concluded; b) that the idea of a market that barely rallied in the New Year before those sheparding gains into a new tax year took them, occurred within a forecast pattern that included a subsequent rebound that, at least for the Dow Industrial Average if not anything else, might have a chance to eek-out a nominal historic new high, before new and even potentially more dramatic selling appeared later in the month (or next for that matter), and c) that the mutual funds would commit every dime to turn the tired old cyclicals, hoping against hope (in some cases) that this would revive the technology rally in the stocks they mostly own.
Starting on Wednesday we pointed towards not only rebound action, but mentioned the chance of an "up" Friday, which often catches shorts in a bearish trend, and particularly after some big players (certainly not us) moved to the short side into weakness, which is why we warned that a Friday comeback extension might be in the cards. Thursday night, in the brief reflections on the market that time permitted, we speculated whether the Lucent (LU) story would be sufficient to dissuade the idea of new highs in the Dow, which had been suggested on my final hotline of the day. That's where we made the remark about certain technicians and strategists who would be likely to applaud the move solely in the Dow to new highs, and conclude that somehow it would mean "the market" had made new highs. It didn't, but it was stronger than most anticipated, with the initiation of NASDAQ strength that became evident only on Friday, whereas Dow Industrials were strong for the preceding two sessions also, but couldn't trigger dip buying.
Just the opposite actually, with NASDAQ and techs down, while cyclicals were up, until Friday. It was our view that if the Nasdaq 100 (NDX) started picking up, we'd have to anticipate broader participation on the upside, and then everyone would panic in, in a conventional manner they've become so accustomed to over recent years. That's why we began Friday (via a 900.933.GENE hotline opening comment) with a warning that if the S&P 500 moved above Thursday's highs, to consider that the move would accelerate and turn into the kind of new high thrust in the Dow that we speculated about for a couple days, and not become a fundamental reaction to the earnings worries that probably have some legitimacy in this market, though few care about analytical facts these days (which in itself is a dire warning of the consequences over time).
What we mean by that is an assumption that "buy the dips forever" cannot work, unless you are able to assume that profits will never broadly contract, that tech is all that matters (it does, but to an extent that denies the business cycle, or other sensitivities that have impacted all bubbles in the history of mankind, though that logic in itself won't indicate what a blow-off is in this new age) for investment. While we noted on the hotline that no short-term bearish positions are retained at least by us now (because at this point even where we are interested in new hedges, we'll move to February not January expirations, and because good profits were still available this morning to close any January-related positions), we understand that this kind of action can be overwhelming for many traders, not just investors, and the entire week has been to a limited extent for us more from personal reasons, even though we nailed the market highs in the S&P and NDX, thus have had a terrific week overall, at least for trading in the stock market. When the dust settled, we had an excellent four-day and an hour nearly 6000 point single March S&P gain, on the short-sale at 1494 on Monday, closed "officially" (even better by individuals) at the 1435 level Friday morning.
Even the huge comeback in the NDX did no better than retrace what was lost Thursday, thus the profit there (for those of us who had NDX or QQQ Puts) was sizeable for just a one week effort. Of course it's not our intention to initiate anything here in the DB, but to reflect on what has or will possibly occur, against an overall framework. So, in tonight's (still abbreviated time until Tuesday to prepare these remarks) context, let's note there is a structural reason we speculated for a few days that the market might come back, and why we suggested back in December that the year's first break wouldn't stay down, and might see "a test or nominal new high" before new pressures.
Life on the Edge
The fundamental reason is the 401-K cash flow (and similar) that tends to be committed late this past week, and also the following week. While that is often not an endless stream of liquidity for the market, it can make a notable "bump" in any decline, and if it's able to trigger short-covering can run the market. Many firms distribute large checks to their personnel this coming week, and that includes a couple major brokerage firms by the way. Some of that money will find its way to equities, while others will temporarily even help buoy the T-Bond market, which is firming along the way anyway, on the presumption (really) that the Fed will be hiking short-term interest rates; hence getting a grip on inflationary risks down the road.
And those risks are increasingly real, to an extent that they could eventually even sober the most euphoric analysts and economists that are around. Further more, and this cannot be understated by us, given the purge & surge this past week, you've increasingly tilted the boat towards harsh actions on the part of the Fed, which only a day or two ago might have been seen as reticent due to the market slide to take affirmative action against the ballooning liquidity and debt expansion (a factor that also continues, contrary to some conventional wisdom in these prosperous times). It might be noted that some Americans, leveraging equity gains, are simply ramping-up monthly expenditures, and hence living closer to the financial precipice, just in case anything goes wrong.
Of course this market has a chance not to implode further immediately, for reasons that include the approach of January's Expiration around the 21st, hence an absolute scramble out of short or bearish positions (again; after a profitable week, we have absolutely none on board just now). What cannot occur is a continued firming of Oil prices, a continued firming of housing prices and contraction of luxury inventory available, a series of multiple interest rate hikes, and a slowing of the rate of growth of profits, which still allows a multiple expansion of this market for the overall year. Hence, while we have only longs and no shorts right now, and would love to see this fly to the moon right now, we not only see building risk, but suspect this is little more than the modern (more volatile than almost imaginable) variation of the "double pump" alternating January waves originally anticipated. Our experience (yours' too) dates from antiquity of course; the old 1900's.
Suddenly my house feels older, my car (a '99) seems older (still a waiting list, a bit reassuring), and probably I feel just a little older. My conservative view towards this market action has and is going to focus on risk aversion in the old techs from the old roaring '90's (most of which simply rebounded to recover a day or so of prior loss this week), with reasonable risk continuing in the new techs and new media plays presumed to be of interest in these new aughties, which risk a naughty spell for investors who compress their exposure in this market rally, such as so many probably were just starting to realize based on the Monday-Thursday action recently seen. Put another way, there is nothing inherently bullish about a market that is essentially suffering from bulimia (hate to use that term, but think of the action that's gone by the wayside so recently). It's now gorging again, and we know where that potentially leads...
Technically . . . the market remains overbought on a weekly and monthly basis, and is rushing to be there again on a daily basis, but isn't quite back to that distinction yet, where it was barely at when the week began, and then suddenly was smashed briefly to smithereens. Therefore, we do not have a three day bear market correction that fulfills normal adjustments, we do not have a backdrop which should discourage the Fed from leaning on draining reserves and hiking rates, and we do not have hence a low risk investment environment for the already expensive stocks....
What we do see is building and frenetic risk, enormous volatility which is not healthy, and rising risk of a Fed that will feel compelled to embrace draconian measures to temper this market zeal, for the Nation's sake. Temporarily this can (and we hope so, since we bought smaller stocks to a greater extent than normal) unify the market in a broader thrust into the skies above, even if they are doomed to repeat the folly of buying strength in an overbought market environment. It should be noted that we haven't added shorts (and can't consider doing the Letter until later in the new week's calming moments, presumably), and have stepped aside those Puts and shorts which did represent our effort at identifying the market top this past Monday (essentially nailing it and while not nailing the low in the guideline effort, actually came very close by suggesting in advance that the first drive down wouldn't do much more than the 1390's before a rebound, and then after that a lower low, such as the little gap area around 1345-50 we'd consider traders anticipate later on). In the interim, we'd certainly expect to see a push on 1480, and even 1500 if we don't close very much below the 1450 area at any time in the next several trading sessions. Try being nimble with this as manic/depressive is a conservative description of this roiling stock market volatility...
In summary . . . incredible volatility and events characterized the first week of the millennium. It has been more volatile in absolute points than any initial week of a new year we can recall. Begs the question; as goes January goes the year, but not the idea of as goes the first week goes the month. This could thus be a month that rushes right up to the brink then blinks ahead of the Fed meeting in February, but not a lot because most don't think even higher rates and tight monetary policies can break this psychology. Just remember, when it rallies they like it, when it drops they say the Fed won't have to act; by that logic all moves are bullish always, which is ridiculous. So, we'll continue trying to catch swings, as we did very well this past week once again, although we did better at initiating the moves for the downside, than existing, even though the S&P low for the week was as expected, and speculation about an all-time high close Friday was a bit prescient.
We're flat in S&P guidelines going into Monday morning. I won't be at my desk until Tuesday, but will do the normal intraday comments on the Monday hotline, with Tuesday's DB not posted until early Tuesday, rather than Monday night as the best probability, based on the necessary travel scheduling. Thereafter, God willing, everything should more or less be back to the norm, other than the stock market, which will remain astoundingly volatile.
Good evening;
Fast and loose market behavior . . . might easily describe the first week of the new millennium; though we see the up-down-up drama as in harmony with the original gameplan (albeit volatile to the max), and precisely intended to give impressions of strength as this first week is closed-out.
It has been an incredible week, which has not only included history's most poignant single day NASDAQ drop, but managed to finish with history's greatest single day NASDAQ rally. All of this has occurred minus any change whatsoever in the longer-term market internals, which is and of itself astonishing. It's for this reason that we'll conclude several things: a) the ultimate low of 2000's correction hasn't, by any stretch of the imagination, been concluded; b) that the idea of a market that barely rallied in the New Year before those sheparding gains into a new tax year took them, occurred within a forecast pattern that included a subsequent rebound that, at least for the Dow Industrial Average if not anything else, might have a chance to eek-out a nominal historic new high, before new and even potentially more dramatic selling appeared later in the month (or next for that matter), and c) that the mutual funds would commit every dime to turn the tired old cyclicals, hoping against hope (in some cases) that this would revive the technology rally in the stocks they mostly own.
Starting on Wednesday we pointed towards not only rebound action, but mentioned the chance of an "up" Friday, which often catches shorts in a bearish trend, and particularly after some big players (certainly not us) moved to the short side into weakness, which is why we warned that a Friday comeback extension might be in the cards. Thursday night, in the brief reflections on the market that time permitted, we speculated whether the Lucent (LU) story would be sufficient to dissuade the idea of new highs in the Dow, which had been suggested on my final hotline of the day. That's where we made the remark about certain technicians and strategists who would be likely to applaud the move solely in the Dow to new highs, and conclude that somehow it would mean "the market" had made new highs. It didn't, but it was stronger than most anticipated, with the initiation of NASDAQ strength that became evident only on Friday, whereas Dow Industrials were strong for the preceding two sessions also, but couldn't trigger dip buying.
Just the opposite actually, with NASDAQ and techs down, while cyclicals were up, until Friday. It was our view that if the Nasdaq 100 (NDX) started picking up, we'd have to anticipate broader participation on the upside, and then everyone would panic in, in a conventional manner they've become so accustomed to over recent years. That's why we began Friday (via a 900.933.GENE hotline opening comment) with a warning that if the S&P 500 moved above Thursday's highs, to consider that the move would accelerate and turn into the kind of new high thrust in the Dow that we speculated about for a couple days, and not become a fundamental reaction to the earnings worries that probably have some legitimacy in this market, though few care about analytical facts these days (which in itself is a dire warning of the consequences over time).
What we mean by that is an assumption that "buy the dips forever" cannot work, unless you are able to assume that profits will never broadly contract, that tech is all that matters (it does, but to an extent that denies the business cycle, or other sensitivities that have impacted all bubbles in the history of mankind, though that logic in itself won't indicate what a blow-off is in this new age) for investment. While we noted on the hotline that no short-term bearish positions are retained at least by us now (because at this point even where we are interested in new hedges, we'll move to February not January expirations, and because good profits were still available this morning to close any January-related positions), we understand that this kind of action can be overwhelming for many traders, not just investors, and the entire week has been to a limited extent for us more from personal reasons, even though we nailed the market highs in the S&P and NDX, thus have had a terrific week overall, at least for trading in the stock market. When the dust settled, we had an excellent four-day and an hour nearly 6000 point single March S&P gain, on the short-sale at 1494 on Monday, closed "officially" (even better by individuals) at the 1435 level Friday morning.
Even the huge comeback in the NDX did no better than retrace what was lost Thursday, thus the profit there (for those of us who had NDX or QQQ Puts) was sizeable for just a one week effort. Of course it's not our intention to initiate anything here in the DB, but to reflect on what has or will possibly occur, against an overall framework. So, in tonight's (still abbreviated time until Tuesday to prepare these remarks) context, let's note there is a structural reason we speculated for a few days that the market might come back, and why we suggested back in December that the year's first break wouldn't stay down, and might see "a test or nominal new high" before new pressures.
Life on the Edge
The fundamental reason is the 401-K cash flow (and similar) that tends to be committed late this past week, and also the following week. While that is often not an endless stream of liquidity for the market, it can make a notable "bump" in any decline, and if it's able to trigger short-covering can run the market. Many firms distribute large checks to their personnel this coming week, and that includes a couple major brokerage firms by the way. Some of that money will find its way to equities, while others will temporarily even help buoy the T-Bond market, which is firming along the way anyway, on the presumption (really) that the Fed will be hiking short-term interest rates; hence getting a grip on inflationary risks down the road.
And those risks are increasingly real, to an extent that they could eventually even sober the most euphoric analysts and economists that are around. Further more, and this cannot be understated by us, given the purge & surge this past week, you've increasingly tilted the boat towards harsh actions on the part of the Fed, which only a day or two ago might have been seen as reticent due to the market slide to take affirmative action against the ballooning liquidity and debt expansion (a factor that also continues, contrary to some conventional wisdom in these prosperous times). It might be noted that some Americans, leveraging equity gains, are simply ramping-up monthly expenditures, and hence living closer to the financial precipice, just in case anything goes wrong.
Of course this market has a chance not to implode further immediately, for reasons that include the approach of January's Expiration around the 21st, hence an absolute scramble out of short or bearish positions (again; after a profitable week, we have absolutely none on board just now). What cannot occur is a continued firming of Oil prices, a continued firming of housing prices and contraction of luxury inventory available, a series of multiple interest rate hikes, and a slowing of the rate of growth of profits, which still allows a multiple expansion of this market for the overall year. Hence, while we have only longs and no shorts right now, and would love to see this fly to the moon right now, we not only see building risk, but suspect this is little more than the modern (more volatile than almost imaginable) variation of the "double pump" alternating January waves originally anticipated. Our experience (yours' too) dates from antiquity of course; the old 1900's.
Suddenly my house feels older, my car (a '99) seems older (still a waiting list, a bit reassuring), and probably I feel just a little older. My conservative view towards this market action has and is going to focus on risk aversion in the old techs from the old roaring '90's (most of which simply rebounded to recover a day or so of prior loss this week), with reasonable risk continuing in the new techs and new media plays presumed to be of interest in these new aughties, which risk a naughty spell for investors who compress their exposure in this market rally, such as so many probably were just starting to realize based on the Monday-Thursday action recently seen. Put another way, there is nothing inherently bullish about a market that is essentially suffering from bulimia (hate to use that term, but think of the action that's gone by the wayside so recently). It's now gorging again, and we know where that potentially leads...
Technically . . . the market remains overbought on a weekly and monthly basis, and is rushing to be there again on a daily basis, but isn't quite back to that distinction yet, where it was barely at when the week began, and then suddenly was smashed briefly to smithereens. Therefore, we do not have a three day bear market correction that fulfills normal adjustments, we do not have a backdrop which should discourage the Fed from leaning on draining reserves and hiking rates, and we do not have hence a low risk investment environment for the already expensive stocks....
What we do see is building and frenetic risk, enormous volatility which is not healthy, and rising risk of a Fed that will feel compelled to embrace draconian measures to temper this market zeal, for the Nation's sake. Temporarily this can (and we hope so, since we bought smaller stocks to a greater extent than normal) unify the market in a broader thrust into the skies above, even if they are doomed to repeat the folly of buying strength in an overbought market environment. It should be noted that we haven't added shorts (and can't consider doing the Letter until later in the new week's calming moments, presumably), and have stepped aside those Puts and shorts which did represent our effort at identifying the market top this past Monday (essentially nailing it and while not nailing the low in the guideline effort, actually came very close by suggesting in advance that the first drive down wouldn't do much more than the 1390's before a rebound, and then after that a lower low, such as the little gap area around 1345-50 we'd consider traders anticipate later on). In the interim, we'd certainly expect to see a push on 1480, and even 1500 if we don't close very much below the 1450 area at any time in the next several trading sessions. Try being nimble with this as manic/depressive is a conservative description of this roiling stock market volatility...
In summary . . . incredible volatility and events characterized the first week of the millennium. It has been more volatile in absolute points than any initial week of a new year we can recall. Begs the question; as goes January goes the year, but not the idea of as goes the first week goes the month. This could thus be a month that rushes right up to the brink then blinks ahead of the Fed meeting in February, but not a lot because most don't think even higher rates and tight monetary policies can break this psychology. Just remember, when it rallies they like it, when it drops they say the Fed won't have to act; by that logic all moves are bullish always, which is ridiculous. So, we'll continue trying to catch swings, as we did very well this past week once again, although we did better at initiating the moves for the downside, than existing, even though the S&P low for the week was as expected, and speculation about an all-time high close Friday was a bit prescient.
We're flat in S&P guidelines going into Monday morning. I won't be at my desk until Tuesday, but will do the normal intraday comments on the Monday hotline, with Tuesday's DB not posted until early Tuesday, rather than Monday night as the best probability, based on the necessary travel scheduling. Thereafter, God willing, everything should more or less be back to the norm, other than the stock market, which will remain astoundingly volatile.
