Sell out long positions in Motorola (MOT) and Quest (QWST). Quest has been going down day after day. We are not complaining about one loser in 40 stocks but it must be sold given general weakness and the risk of this stock not resuming its up-trend any time soon. Motorola does not look too bad technically but the corporate news smells bad. So we don't see the point of holding the stock when the line of least resistance might be down if the market generally sells off at all.

Sell at the market 1 Dow Jones futures September contract for every $100,000 worth of stock owned. This index sale hedges your portfolio against a potential sell-off in the general market while allowing you to stay in great stocks likely to continue moving higher. Most of our stocks have been doing extremely well, with some like Advanced Micro Devices going out to new highs almost every day despite weakness elsewhere. In hindsight, we were wrong to be so confident about the general market holding up. The last day of July saw several of the major stock indexes, including the Dow 30, complete a downside monthly reversal. The Dow Transports completed a second one with a significantly lower close than the one in May, virtually mandating the sale of all or most stocks in this area.

We are entering a period of great uncertainty, which is, after all, now showing up in market action despite an appearance of not doing so in mid-July. There is not a single Dow stock that we could see buying here. Among them we own IBM and Hewlett-Packard, bought at lower levels and still rated a hold. Sure as we try and bank a profit, they will turn around and make us pay more than we sold them for. On the other hand, there are many other Dow stocks that look as if they could decline significantly, say 10 percent or more. That amount of decline is seldom enough to make a profit in between when trading individual stocks but the liquidity of indexes can provide the best of both worlds. In a best case, we can see making money as our stocks go up, and also making money as Dow futures decline, though what we are really trading futures for is the protection.

Among the stocks looking most vulnerable are the bellwethers General Electric and Microsoft. Monthly and weekly On Balance Volume suggest the upside potential for MSFT is very limited while there is a downside risk of perhaps 20 or 25 percent. The stock in this great company has often gone sideways for over a year and that is what now appears to be in store for it. Although we are recommending outright short positions in Dow futures for futures traders, we do not recommend a net short position in conservative and responsibly managed stock accounts. It is enough to put on the protection until the picture becomes clearer.
To put the hedge in perspective, we foresee risking about 3 percent of the value of our portfolio in order to get protection against a decline of 10 percent or more.

Many investors try to protect their portfolios against a decline by buying put options. They are invariable very expensive when it comes to balancing the potential reward versus risk and you still have to judge which options to buy, which is very difficult to do.

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

Current Recommendations:
(Entry Date, Entry Price, Last Close, Code, Name)

* 99/05/12 39.75 43.13 ADI Analog Devices
* 99/04/06 49.00 94.00 AMCC Applied Micro Circuits
99/06/14 30.63 30.69 AOG Alberta Energy Corp #
99/06/14 38.28 42.30 APA Apache
99/04/06 92.13 108.31 ASCND Ascend Communications
(acquired by Lucent 1.65 shares to 1)
99/06/14 109.78 114.88 BPA BP Amoco Plc
* 99/05/12 94.38 120.50 BRCM Broadcom
* 99/05/14 40.69 45.25 CLS Celestica #
99/05/12 117.50 62.13 CSCO Cisco (split on 99/06/21 2:1)
99/06/14 14.59 18.78 CXY Canadian Occidental Petroleum #
* 99/05/12 46.91 40.16 DEO Diageo Plc
* 99/05/12 54.61 59.86 EDS Electronic Data System
99/04/06 132.13 61.69 EMC EMC (split 99/05/28 2:1)
99/06/14 31.13 32.06 ERICY Erickson
99/04/06 51.50 44.88 FLEX Flextronics
99/06/14 60.14 69.64 GLW Corning
99/05/14 84.52 104.36 HWP Hewlett-Packard
99/05/12 220.77 125.33 IBM IBM (split on 99/05/26 2:1)
99/05/14 58.13 99.13 IDPH Idec Pharma
99/04/06 60.83 61.30 LLTC Linear Tech Corp
** 99/04/06 32.75 50.38 LSI LSI Logic
SELL 99/05/12 85.39 91.00 MOT Motorola
99/05/12 25.06 25.75 NOVL Novell
* 99/04/06 163.19 85.06 NOK Nokia (split on 99/04/09 2:1)
99/04/06 65.66 88.55 NT Nortel Networks #
99/06/14 93.56 101.13 PHG Phillips Electronics
* 99/05/12 106.06 78.25 PMC PMC Sierra (split on 99/05/24 2:1)
* 99/05/12 49.88 64.00 QLTI QTLI Phototherapeutics #
SELL 99/04/06 41.09 29.50 QWST Quest Communications #
99/06/14 21.39 20.80 SDC Santa Fe International
99/06/14 35.97 36.47 SFA Scientific Atlanta
* 99/04/06 53.75 64.44 SLR Solectron
* 99/04/06 130.94 67.88 SUNW Sun Microsystems (split on 99/04/08 2:1)
* 99/04/06 109.48 143.91 TXN Texas Instruments
** 99/05/12 87.19 97.64 TYC Tyco

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

99/05/12 9.89 10.83 CHN China Fund
99/04/06 6.63 9.69 FAK Fidelity Adv Korea
99/04/06 8.88 10.56 IFN India Fund
99/04/06 8.05 10.86 JOF Japan OTC Equity Fund
99/04/06 11.00 14.13 KF Korea Fund

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