We are sending you, with our compliments, our 1999 stock market recommendations, which kick off our new stock market advisory service to be delivered by email. I know many people have email overload, so please forgive the intrusion if this email is not welcome.

In addition to ongoing recommendations, there will be a regular review of all Dow stocks (available free now if you want).

Feedback appreciated. Charter subscription rate for existing 5* subscribers $49 for the first year to get the ball rolling.

With best wishes for 1999,

Colin Alexander

Fivestar Futures/Stockscom
812 Proctor Avenue, Ogdensburg, NY 13669
Telephone: (613) 745-5593
Fax: (613) 745-1156
E-mail: fivestar@fivestarfutures.com

Stockscom Report for January 4th, 1999 12:53

12 Stocks to Buy Now - January 1, 1999

Market action in each of the stocks listed below is favorable on the monthly, weekly and daily charts. Every one of them shows market action powerful enough to suggest the possibility of a double within the next year or two. They are all at a stage of development that favors buying immediately. There are many other stocks worth owning but many of those do not have a favorable balance of potential reward versus risk for buying now.

The list includes four in the general area of health care and drugs and eight in the general area of computer technology and communications. Nine of these stocks are US-based. Two, BCE and Cognos, are based in Canada with significant presence in the US market, BCE mainly through its holding in Northern Telecom. Reuters is the worldwide information company based in the UK.

In view of the generally high level of stock valuations, the risk is likely to be lower if these buy recommendations are offset with the accompanying list of recommended short sales. The case for selling each of these stocks short is justified on its own merits. They are likely to continue going down even if the general market rises. In the event that the general market tops out, the buy recommendations should resist the decline but are unlikely to go it alone to higher levels.

Recommended Capital Allocation:

1. For Accounts Trading Long and Short:

Long Stocks 40%, Short Stocks 40%, Cash 20%

2. For Accounts Trading Long Only:

Long Stocks 40%, Cash 60%.

Although there are some exceptionally strong stocks, the overall market could be vulnerable to a sudden and violent decline at any time. The Dow Industrial may be forming a quadruple top around current levels. It is unlikely that Dow 9,500 will be exceeded in view of high valuations, poor market breadth and the action of many weak Dow stocks. In the event that interest rates start rising or that there is some exogenous event such as an international financial crisis, there could be a stampede for the exit. In due course, we expect a bear market to become entrenched, with a downside target below Dow 5,000. Many, many stocks could follow Boeing Aircraft to a decline of more than 50%, possibly much more.

Prices are for the previous close and are in US dollars.

American Home Products (AHP) $54.55

Amgen Inc (AMGN) $107.38

American Power Conversion (APCC) $50.50

BCE Inc. (BCE) $36.70

Cognos (COGNF) $26.06

Compaq (CPQ) $42.22

Glaxo Wellcome (GLX0) $69.80

Genentech (GNE) $79.63

NCR (NCR) $41.69

Reuters (RTRSY) $63.67

Solectron Corp. (SLR) $92.00

Sun Microsystems (SUNW) $90.06

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Seven Stocks to Sell Short Now - January 1, 1999

The case for buying stocks is generally obvious. Many people may not be familiar with the case for selling short. Therefore, there is more explanation of the case for each of these recommendations. We assume that each of these stocks is already in the early stages of their own proprietary bear markets. We do not recommend trying to sell short the likes of Yahoo! Or amazon.com. The absurdly overpriced stock at $200 can all too readily become the even more absurdly overpriced stock at $400, with much of the further gain coming from squeezed short-sellers.

Disney (DIS) $29.30
This is one of the most overpriced Dow stocks. Its accounting practices seem questionable ands profits may not in fact be growing at all, never mind at a rate to justify the current stock price. Like Coca-Cola (also a possible short sale candidate), it has a powerful worldwide franchise. This, however, is likely to be a weakness rather than a strength when demand declines.

Du Pont (DD) $53.50
Technical action in this Dow stock suggests the possibility of an early and substantial breakdown. This company is typical of many that are subject to intense competition and lack of pricing power. Therefore profits are likely to decline. In the event of an economic slowdown, this stock could fall hard.

Goodyear (GT) $51.05
This Dow stock is in an established downtrend. There is immense over-capacity in tire production and no pricing power. Profits are likely to go down regardless of whether the economy remains buoyant.

Merrill Lynch (MER) $67.17
This premier brokerage and financial stock could also come under pressure from electronic trading. Merrill has tended to make money as a result of its clout rather than its quality, service or price. This stock is vulnerable to all the worst that could happen in the financial services industry even if there is no bear market in stocks generously. In a bear market MER could decline to a fraction of its current price.

Minnesota Mining & Manufacturing-3M (MMM) $72.38
Same as for GT, only more diversified into other areas. Great company but the stock is too high.

JC Penney (JCP) $43.86
The stock of this premier department store is now in an established bear market. It is conspicuously weak in a sector that is actually quite strong except certain stocks such as JCP, Sears and Toys 'r Us. If Internet sales come through at all, then there must be corresponding losers among conventional retailers. The market seems to suggest that this stock is in trouble.

Phelps Dodge (PD) $48.75
US relatively high-cost copper producer. Copper is in a severe bear market after a long period of high prices. High prices led to major expansion of capacity, which has now run into collapsed demand from Asia. Copper is still in the 65 cent range, after a high of $1.50 plus. Long-term chart support is at 50 cents. However, immense improvements in mining techniques make it possible for producers in Chile to mine copper at 40 cents. Freeport Moran mines it in Indonesia for less than 20 cents. This stock is in an established downtrend. It could fall by 50 percent or more, possibly much more.

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