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Market Conditions

Stocks rallied strongly during the past week, with the NASDAQ 100 index closing decisively at a new high today. The advance has generally been very good for our stocks but that definitely does not mean that all is clear ahead. Today there was serious negative divergence between the cash S&P and the Dow on the one hand, which were actually down on the day, and the ND on the other. The senior indexes have many of the characteristics of the early stages of a bear market. While our view is that the probabilities favor the senior indexes holding above their recent lows, it is possible that they might have to go down a further 5 or 10 percent below those lows. If that were to happen, then the NASDAQ along with most of our stocks, would almost certainly at least go back toward their recent lows.

The case is quite strong that the annual cycle low is now in place. The senior indexes reached significantly washed out readings and turned up again just below their rising 25 and 40 week moving averages. This is the time of year when money starts to come available for investment by people who receive annual bonus checks and suchlike, and there seems to be no reason why investors should shy away from their usual behavior of buying stocks at this time of year.

We regard it as highly significant that the two sentiment indicators we follow have shown very negative readings. The theory of contrary opinion holds that when an overwhelming majority of investors are pessimistic, then these pessimists will mostly have sold already, leaving stock in stronger hands. So the line of least resistance is likely to be higher. The Bullish Consensus survey of advisors came in this week with a reading almost as low as at last October's low. In addition, the Commitments of Traders numbers showing who has been doing what in stock index futures has shown the large speculators inordinately short. So here too this contrary indicator suggests that the line of least resistance is likely to be upward.

Bullish as we are for the intermediate term, it is quite likely there would be a significant setback in the next couple of weeks, say one of 5 percent or about 100 points on the ND. That would not be enough to cause any concern for investors in our recommended stocks, but we believe that it may pay not to put too much new money into stocks right here. Looking farther ahead, we suspect that the ND 100 index could reach 2850 to 3000 by early next year. Then we fear a more serious correction, though we shall want to see how market unfolds between now and then. Our target represents about a 10 percent advance across the board in high tech stocks. We would hope to do somewhat better than that overall with our recommended stocks.

You may notice that there are now very few stocks rated B++, and relatively few even rated B. We still hang in with our petroleum stocks and ones in the oil service sector. We expect patience to pay off eventually. Most likely they are a buy here. Last week they held up well in the face of a significant decline in the price of oil. We had a bit of an accident last week in Genzyme but the stock came back almost as remarkably as it plunged. We credit the stock with a potential exhaustion bottom for now, though we might want to sell it unless its chart pattern improves significantly. We were pleased to see Novell come back reasonably well from a level where we were just about ready to can it.

Stocks to Sell

None

New Recommendations

None
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.

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.

B 99/05/12 39.75 58.50 ADI Analog Devices
H 99/09/07 76.88 82.75 AMAT Applied Material
H 99/04/06 49.00 69.81 AMCC Applied Micro Circ (split on 99/09/10 2:1)
B+ 99/08/06 78.50 89.94 AMGN Amgen Co
B 99/06/14 30.63 29.38 AOG Alberta Energy Corp #
H 99/06/14 38.28 39.98 APA Apache
H 99/09/07 84.94 82.13 BGEN Biogen
H 99/06/14 109.78 53.22 BPA BP Amoco Plc
H 99/09/07 57.69 53.69 BVF Biovail Corp #
H 99/08/06 26.38 30.94 CHIR Chiron Co
B+ 99/05/14 40.69 50.88 CLS Celestica #
H 99/05/12 117.50 72.44 CSCO Cisco (split on 99/06/21 2:1)
H 99/06/14 14.59 17.98 CXY Canadian Occidental Petroleum #
B+ 99/10/05 22.94 23.25 DGN Data General
B 99/04/06 132.13 74.75 EMC EMC (split on 99/05/28 2:1)
H 99/08/09 86.31 38.75 ENE Enron Corp (split on 99/06/21 2:1)
B+ 99/06/14 31.13 34.25 ERICY Erickson
B+ 99/04/06 51.50 65.38 FLEX Flextronics
H 99/09/07 60.19 42.59 GENZ Genzyme
B 99/06/14 60.14 70.50 GLW Corning
H 99/08/09 48.75 36.06 HAL Halliburton Co
B 99/09/07 113.75 131.56 JDSU JDS Uniphase Cp #
H 99/04/06 60.83 60.20 LLTC Linear Tech Corp
H 99/04/06 32.75 52.13 LSI LSI Logic
H 99/05/12 25.06 20.06 NOVL Novell
B 99/04/06 163.19 99.31 NOK Nokia (split on 99/04/09 2:1)
H 99/04/06 65.66 56.70 NT Nortel Networks # (split on 99/08/19 2:1)
B 99/10/05 46.69 46.06 ORCL Oracle System
B+ 99/06/14 93.56 105.00 PHG Phillips Electronics
B+ 99/05/12 106.06 92.00 PMCS PMC Sierra (split on 99/05/14 2:1)
B+ 99/05/12 49.88 90.88 QLTI QTLI Phototherapeutics #
H 99/06/14 21.39 21.34 SDC Santa Fe International
B+ 99/06/14 35.97 53.86 SFA Scientific Atlanta
B+ 99/04/06 53.75 78.88 SLR Solectron
B 99/08/19 129.02 157.13 SNE Sony
H 99/04/06 130.94 91.88 SUNW Sun Microsystems (split on 99/04/08 2:1)
H 99/08/06 31.00 28.50 TLM Talisman Energy Inc #
B 99/04/06 109.48 90.09 TXN Texas Instruments (split on 99/08/16 2:1)
B+ 99/10/05 50.27 53.89 WMT Wal-Mart Stores
H 99/09/27 186.00 181.38 YHOO Yahoo!

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

B++ 99/04/06 8.88 13.94 IFN India Fund
B++ 99/04/06 8.05 13.67 JOF Japan OTC Equity Fund

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