Sell all stocks!

Some of our stocks have had an almost unbelievable performance in just a few days. Applied Micro Circuits is up from $152.00 to 222.13 and PMC Sierra from $191.25 to 288.63. It's hard to believe that we thought PMCS expensive, although technically great, at $53.48 on May 11, 1999!

Despite the euphoria, we have been nervous for some time about the incredible manic buying of stocks, but only certain ones. Previously we suspected that lagging stocks could join the party rather than that the market leaders might stall out and bring down the whole house. Now we are inclined to believe the technical indicators suggesting a high probability of the latter scenario coming through.

On the technical front there are many bearish indicators, as follows:

1. There is a monthly Rule 1 sell signal probably coming through for the Dow Jones, in conjunction with a bearish MACD crossover. In addition, The Dow Jones closed today just under the January 31 low.

2. There is probably a weekly Lindahl sell signal coming through for the SP 500 index.

3. The manic buying of selected high tech stocks shows many of the signs of a buying climax such as occurs when any major bull market is approaching the blow-off stage.

4. The NASDAQ composite index opened today on a new high with a gap up and then completed an outside down reversal day (sometimes called a downside key reversal).

5. SP 500 futures appear to have failed decisively right at the declining 25 and 40 day moving averages and at an assumed downtrend line on the daily chart.

6. There are fewer and ever fewer market leaders. Mostly it is now only real specialty stocks that are soaring, including a fair number of our recommended issues. It is hard to believe that several of our stocks have multiplied many times over in less than a year. But look at the charts for so-called market leaders like Microsoft and Dell and the picture is by no means so pretty. It is notable that many of the most prominent Internet stocks are well off their highs and have not been participating in the latest splurge.

As far as sentiment goes, there is no fear and incredible numbers are being thrown out for possible targets. During the past year margin debt has just about doubled and mutual fund cash is near record lows. What happens if someone whispers: "The emperor has no clothes!" The answer is that selling will start. Then the price of stocks will go down. Then there will be margin calls. The calls will be met by selling stocks so that the price is depressed further still. That, essentially, is what a bear market is. A virtuous circle of rising stock prices and expanding margin debt leads to a vicious circle of declining prices and contracting margin debt.

It is notable that during the weeks and months leading up to Y2K, the US

Federal Reserve was intentionally expanding the money supply in order to avert potential liquidity problems over the New Year. Now they have begun taking it back. The small interest rate increase seemed at the time like a non-event. However, the contraction of credit under way is real even as the economy is booming, and apparently doing so with low inflation.

We hesitate to guess where interest rates are going, but we rate it as potentially bad for stocks whatever happens. If the economy continues booming, then interest rates will rise and that will clobber stocks.

Alternatively, the economy will start slowing and then sales and profits will contract. Even a stock like Cisco is vulnerable to a very substantial decline if it stumbles. Its latest quarterly results came in at 25 cents, up from 17 cents last year. That's a wonderful 47 percent gain. But the stock trading at $128 now has a price/earnings ratio of 128, assuming the next three quarters will each make two bits a share.

We have heard the story that this time things are different and, indeed, they are. Look at the results we have achieved with the stocks we are now selling! But as seasoned commodity futures traders we think we know a bubble when we see one. We also know from bitter experience how painful it can be to overstay one's welcome when a market is in a parabolic climb. Was it Gerald Loeb or one of the Rothschilds who was asked how he made his money and the reply was: "By always selling too early!"

You may well ask why we are selling all stocks, including PMC Sierra that never stops charging, or the oils which, by going down, appear to be a better buy the cheaper they become. First, the reason for selling the high flyers: they are the ones most vulnerable to the biggest and most severe decline. Yes, they could again double. But they could just as easily halve, and do so in minutes. That does not make for a good balance between reward and risk. As for the oils, it is clear the stock buying public has simply not been buying into the story of what higher oil prices can do for oil stocks. Maybe the public simply doesn't believe the price can stay up. In that case, they may be wrong and we think they are. WE think the public has been buying the high flyers and selling everything else regardless in order to find the money with which to buy the high flyers. The flip side of that coin is what happens if the market starts to unravel. People do not just sell the stocks in which they have profits. They sell everything they can sell. In a real bear market or when everyone is rushing for the exit, some stocks may be unsellable at any price.

In delivering our general sell recommendation, we want to say that we could be wrong. Soon after Stockscom started at the beginning of 1999, we delivered a general sell signal in March. It remained in force only for a few weeks and we delivered a new list of buy recommendations on April 4. Some of those stocks we still own, and look at them! The good thing about this turnaround was that we left behind some stocks that were just as well left behind and we found some stupendous new ones.

As and when conditions warrant buying stocks again, you can be sure we shall deliver a new list.

Market conditions.

A subscriber pointed out an error in the last list we published. Our entry price for Oracle (ORCL) was adjusted by a split to $23.34 and we recommended selling it at $36.88.

New and renewed recommendations

Sell March SP 500 Stock Index Futures 1418.90. This recommendation is for more aggressive accounts and is designed to make money out of a potentially declining market. A single contract is suitable in an account of perhaps $100,000. We carry the trade officially without a stop, prepared to tolerate an adverse swing of say $10,000 and looking for a potential gain of $10,000 to 20,000. We like this index better than the others for several reasons. Although the Dow Jones is technically weaker, we like the idea of having a bigger mix of high tech stocks in the index we sell short. However, we do not want to sell the NASDAQ 100 index, which is by no means showing signs of having its back broken. Please, please be extremely careful if you have not traded futures before. If in any doubt at all, stand aside and watch. Then all you lose is an opportunity cost. The main thing is to conserve your capital for when it is again timely to buy stocks.

List of Current Stock Recommendations:

Action Ratings

The following is the legend for designating immediate action for our stock recommendations. The first code is B, meaning that the stock is timely to buy but the case for doing so right here is not overwhelming. Either the stock may have got ahead of itself and may be vulnerable to a retracement or else the stock has been performing disappointingly but may simply be regrouping. B+ and B++ indicate stocks for which there is a technical case to buy now, with plusses adding weight according to how many there are, up to a maximum of five. Stocks rated H are ones to hold, awaiting confirmation to buy more or to sell. SELL, of course, means what it says. It seldom pays to override this designation. There are several stocks at conspicuous buy points that warrant noting now.

Yahoo! looks ready to explode upward. This is the one pure Internet play that we think will hang in for the long term. Four Seasons has a conspicuously low-risk entry point here.

Current Recommendations:

(Entry Date, Entry Price, Last Close, Code, Name)

Stocks marked # are eligible for Canadian RSP funds. Otherwise there is a 20pc restriction on foreign stocks held in these accounts.

SELL 99/05/12 39.75 115.69 ADI Analog Devices

SELL 99/09/07 76.88 163.73 AMAT Applied Material

SELL 99/04/06 45.25 221.00 AMCC Applied Micro Circ (split on 99/09/10 2:1)

SELL 99/06/14 30.63 27.19 AOG Alberta Energy Corp #

SELL 99/09/07 84.94 96.44 BGEN Biogen

SELL 99/06/14 110.13 45.53 BPA BP Amoco Plc

SELL 99/09/07 57.69 86.50 BVF Biovail Corp # (split on 00/01/07 2:1)

SELL 99/11/16 34.94 59.50 COMS 3Com Corp

SELL 99/06/14 14.59 18.75 CXY Canadian Occidental Petroleum #

SELL 99/11/01 45.40 89.63 DT Deutsche Telekom

SELL 99/06/14 60.14 165.00 GLW Corning

SELL 00/01/10 115.00 123.00 IDPH Idec Pharmaceuticals

SELL 99/04/06 56.52 105.50 LLTC Linear Tech Corp

SELL 99/04/06 32.75 97.00 LSI LSI Logic

SELL 99/12/27 84.94 119.25 LVLT Level 3 Com

SELL 99/05/12 25.06 36.88 NOVL Novell

SELL 99/05/12 106.06 288.63 PMCS PMC Sierra (split on 99/05/14 2:1)

SELL 99/05/12 49.88 74.00 QLTI QTLI Phototherapeutics #

(split on 99/10/12 2:1)

SELL 99/12/27 44.25 112.00 RIMM Research in Motion

SELL 99/12/27 24.78 25.00 SDC Santa Fe International

SELL 99/12/13 38.81 45.50 SEG Seagate Tech

SELL 99/08/19 129.02 267.63 SNE Sony

SELL 99/12/27 41.50 41.44 SU Suncor Intl

SELL 99/08/06 31.00 23.88 TLM Talisman Energy Inc #

In addition we recommend the following Closed End Funds, based on the assumption that Third World economic downturns are not going to last forever and that their stocks are now showing superb technical strength:

SELL 99/11/09 15.14 18.94 BZF Brazil Fund

SELL 99/11/16 10.50 11.56 FAK Fidelity Adv Korea

SELL 99/04/06 9.25 19.50 IFN India Fund

Stockscom