Market Conditions

Watch out for an important market low coming soon. This is not the time to sell great stocks. It is time to look for stocks doing well while others fall for they are the ones most likely to move up fast when the market stabilizes.

Stocks had a dreadful week and for once few of our recommended stocks came through without taking at least a perceptible hit although in most cases the damage was minimal. However, last week could be important. Many of our indicators are at extremely oversold levels within the context of a bull market designation that remains intact, especially for the NASDAQ indexes. For example, weekly stochastics are at their second lowest level since 1990. The only time when there was a lower reading was at the bottom in October last year. At that time there were really serious problems on the international scene, in Asia and Russia, that seemed to threaten the entire financial system. There is no similar threat to world order today. In addition, there are so many stocks trading below their 200 day moving average that markets generally are thoroughly washed out. There are many, many stocks that are now down by 30, 40, 50 percent or more including many major corporations that keep on increasing profits and dividends. We agree with Alan Greenspan that there are some stocks that are very expensive but generally they represent companies with very much above-average prospects. Among them are many of our recommended stocks such as Sun Microsystems and Nortel. But look at what they are doing. You always have to pay up to buy quality. On the other hand, there are also many stocks we regard as extremely overpriced that we do not want to own but by and large the market has been making an appropriate adjustment. Among those stocks are the likes of Disney, Coca-Cola, Gillette and some of the Warren Buffett darlings of a fashion that is now going out of favor. One stock we regard as overpriced that is not yet succumbing to adjustment by the market is General Electric but that is likely to happen, we think.

It is well known that October tends to be a bad month for stocks, and this October has seen stocks fall below where we expected them. The flip side of the October decline has generally been the year-end advance that comes out of the October low. Given the depressed condition of so many stocks, we see no reason to doubt that there will also be a major advance in stock prices that starts soon and carries through into the New Year.

So, in sum, we see a maximum likely downside from here of the order of 3 to 5 percent. On the other hand, we see the potential for the NASDAQ 100 index to put on about 20 percent from here, with the corresponding potential for our recommended stocks to advance by perhaps 30 percent from here. However, we do not think there is any urgency to rush out to buy stocks, even ones showing the greatest ability to resist the decline. It will likely take several days if not several weeks to sort sheep from goats, to sort out stocks having the greatest potential from those that may do no better than keep up with the overall market. A few stocks stand out as potential buys on any encouragement in the market generally. They include PMC Sierra, QLT and Sun Microsystems. We still have trouble with our petroleum and oil service stocks despite the fact that some of them were up on the week. Our long-term view is that patience will be rewarded bountifully. It continues to be our view that the primary area of investment likely to pay best in the long run is the general area of high tech, whether electronic or medical, while old-economy stocks are likely to under-perform. We include among the new economy stocks those of companies like Wal-Mart that can benefit from deflationary forces bearing down on their cost of goods.
Stocks to Sell

None

New Recommendations

None

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.

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 56.00 ADI Analog Devices
H 99/08/07 76.88 79.88 AMAT Applied Material
B+ 99/04/06 49.00 63.75 AMCC Applied Micro Circ (split on 99/09/10 2:1)
H 99/08/06 78.50 80.75 AMGN Amgen Co
H 99/06/14 30.63 27.88 AOG Alberta Energy Corp #
H 99/06/14 38.28 40.23 APA Apache
H 99/08/07 84.94 74.50 BGEN Biogen
H 99/06/14 109.78 54.66 BPA BP Amoco Plc
H 99/08/07 57.69 51.00 BVF Biovail Corp #
H 99/08/06 26.38 27.31 CHIR Chiron Co
B 99/05/14 40.69 49.31 CLS Celestica #
H 99/05/12 117.50 67.19 CSCO Cisco (split on 99/06/21 2:1)
H 99/06/14 14.59 17.67 CXY Canadian Occidental Petroleum #
B 99/10/05 22.94 22.31 DGEN Data General
(acquired by EMC on 99/10/07 .3125 to 1)
B 99/04/06 132.13 71.38 EMC EMC (split on 99/05/28 2:1)
H 99/08/09 86.31 38.13 ENE Enron Corp (split on 99/08/13 2:1)
H 99/06/14 31.13 32.38 ERICY Erickson
B+ 99/04/06 51.50 66.38 FLEX Flextronics
H 99/08/07 60/19 39.38 GENZ Genzyme
H 99/06/14 60.14 65.44 GLW Corning
H 99/08/09 48.75 34.50 HAL Halliburton Co
B 99/08/07 113.75 128.62 JDSU JDS Uniphase Cp #
H 99/04/06 60.83 59.80 LLTC Linear Tech Corp
H 99/04/06 32.75 48.63 LSI LSI Logic
H 99/05/12 25.06 18.13 NOVL Novell
H 99/04/06 163.19 92.88 NOK Nokia (split on 99/04/09 2:1)+
B 99/04/06 65.66 52.64 NT Nortel Networks # (split on 99/08/19 2:1)
H 99/10/05 46.69 45.00 ORCL Oracle System
H 99/06/14 93.56 96.81 PHG Phillips Electronics
B+ 99/05/12 106.06 85.63 PMCS PMC Sierra (split on 99/05/14 2:1)
B+ 99/05/12 49.88 38.50 QLTI QTLI Phototherapeutics #
(split on 99/10/12 2:1)
H 99/06/14 21.39 21.34 SDC Santa Fe International
H 99/06/14 35.97 49.61 SFA Scientific Atlanta
B 99/04/06 53.75 73.81 SLR Solectron
H 99/08/19 129.02 151.44 SNE Sony
B+ 99/04/06 130.94 92.56 SUNW Sun Microsystems (split on 99/04/08 2:1)
H 99/08/06 31.00 28.13 TLM Talisman Energy Inc #
H 99/04/06 109.48 82.41 TXN Texas Instruments (split on 99/08/16 2:1)
B 99/10/05 50.27 50.77 WMT Wal-Mart Stores
H 99/09/27 186.00 169.56 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 13.00 IFN India Fund
H 99/04/06 8.05 12.17 JOF Japan OTC Equity Fund

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