We had expected to get this bulletin out on Tuesday but didn't make it. In the meantime the picture seems to have cleared considerably, with the ambiguities resolving toward a likely upside breakout.

Market Conditions

The bull market looks as if it could get going again right away. It looks to us as if the market could be in gear for a huge upward surge. In recent months relatively few stocks have really made the running. It has been particularly noticeable too how even within high tech the leadership went out of the five leaders that comprise almost 40 percent of the NASDAQ 100 index, Cisco, Dell, Intel, Microsoft and MCI Worldcom. Just in the past couple of days they have gotten their technical act together and look as if they could run a good 10 percent minimum, and possibly a lot more. In the meantime, the S&P stalled at its previous high but has now regrouped very fast indeed. In all likelihood the very brief turbulence just experienced in the S&P 500 index will be the precursor of a powerful blast out to new highs. It is always worth repeating the point that it almost always pays to buy the leaders. In our view we are just coming out of a stealth bear market in which the majority of stocks have been going down for the past 18 months. It is remarkable that the number of stocks trading above their 200 day moving average seems at last to be turning up from a level depressed enough to suggest a bear market bottom. But it's still a two-tier market, and likely to remain one. Those stocks representing companies that have a really strong place in the IT economy will almost certainly succeed in maintaining their place. Having said that, there may be one or two conspicuous exceptions and we do not want at this point to own IBM or Newbridge. (The latter is a takeover candidate precisely because it may not make it on its own.)

There is a law of many businesses that business goes where business is. While there is always a place for new developments by small companies, and probably a better one than at any time before, the likes of Cisco and Yahoo! are the new Microsofts. Many people always want to find the next Microsoft. For many years, the next Microsoft was still Microsoft itself. In sum, there are two popular sayings for the stock market that are outright wrong, and which certainly do not fit current market conditions. They are: Buy low and sell high; and What goes up must come down. In the current market, you have to steel yourself to buy what is going up most strongly, and to sell what is going sideways or, worse, down. That means living by the saying: Run your profits and cut your losses short. Sometimes it can be hard to tell the difference between a stock that is just resting prior to a new upward surge and one for which it's game over or never gonna be. But it is not hard in current market conditions to identify some of our big winners like Applied Micro Circuits, JDS Uniphase, Sony and Yahoo!, to name just a few. They are in motion, in some cases rapid motion, and there is relatively little likelihood of a dramatic trend reversal in these stocks.

It has been wonderful how some of our new recommendations have taken off right away, but don't ignore stocks that have Buy ratings in force, even if the stocks have already come a long way. We are particularly pleased with our entry prices into Four Seasons and 3Com. The latter still looks like a really strong buy, in fact particularly because of the strength it has been showing. Four Seasons was a bit of a departure from the general areas where we have been finding strength so we are not keen to chase it aggressively. Novell continues to be hard work but we expect it to pay off. In fact, we just put a small amount of new money into it in our own accounts. That was before the profit news, which came in a tad disappointing so the stock stays on Hold for us.

It is interesting to note that there has been a resurgence in strength in the general area of health care. Among them, we love our holdings in Amgen, Chiron and QLT, the latter a bit more speculative but still great.

Stocks to Sell

Apache(APA)
Although we are staying with the rest of our petroleum stocks despite lackluster market action, we are dumping APA. The problem is that this is largely a natural gas play, and NG is in a severe bear market even as crude oil prices soar. So there is no case for being patient with this one in case NG prices decline by a further third or more, which seems possible. (We hold a short position in NG).

Citigroup(C)
We are dumping our single bank stock for two reasons. First, market action is lackluster. Second, it looks just as likely that interest rates could go up as well as down. Rising interest rates reflect a busy economy, which is good for companies best able to capitalize on market opportunities. However, rising interest rates may hurt financial companies. On the other hand, should there in fact be the makings of a slowdown after all, then loan loss rates could increase.

Enron(ENE).
This company is an energy consumer, our only stock among the Dow Utilities. Even if it stops going sideways to down, we don't think it's worth staying in this stock. At best, it looks like dead money, especially when considering the wonderful opportunities in stocks that are clearly doing well.

New and renewed recommendations

BCE Inc.(BCE) $73.28
This is the old Bell Canada, the northern neighbor's leading telephone company. Its stock price represents no more than its huge holding in Nortel and its cash in the bank. So you get all the rest for nothing. There is a case for switching from NT into BCE, but we still like the pure play it represents, and we are not convinced that the switch warrants the transaction costs and slippage.

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.

B+ 99/05/12 39.75 56.88 ADI Analog Devices
B+ 99/09/07 76.88 102.44 AMAT Applied Material
B++ 99/04/06 49.00 92.94 AMCC Applied Micro Circ (split on 99/09/10 2:1)
B+ 99/08/06 78.50 49.44 AMGN Amgen Co (split on 99/11/19 2:1)
H 99/06/14 30.63 30.06 AOG Alberta Energy Corp #
SELL 99/06/14 38.28 37.67 APA Apache
B+ 99/09/07 84.94 76.88 BGEN Biogen
H 99/06/14 109.78 60.00 BPA BP Amoco Plc
H 99/09/07 57.69 69.69 BVF Biovail Corp #
SELL 99/11/01 53.58 53.77 C Citigroup
B+ 99/08/06 26.38 33.38 CHIR Chiron Co
B+ 99/05/14 40.69 68.38 CLS Celestica #
B++ 99/11/16 34.94 44.06 COMS 3Com Corp
B 99/05/12 117.50 92.44 CSCO Cisco (split on 99/06/21 2:1)
H 99/06/14 14.59 20.67 CXY Canadian Occidental Petroleum #
B+ 99/10/05 22.94 27.91 DGN Data General
(acquired by EMC on 99/10/07 .3125 to 1)
B+ 99/11/01 45.50 55.13 DT Deutsche Telekom
B+ 99/04/06 132.13 89.31 EMC EMC (split on 99/05/28 2:1)
SELL 99/08/09 86.31 38.56 ENE Enron Corp (split on 99/08/13 2:1)
B 99/06/14 31.13 47.75 ERICY Erickson
B+ 99/04/06 51.50 84.81 FLEX Flextronics
B+ 99/11/01 41.63 49.75 FS Four Seasons
B++ 99/06/14 60.14 99.00 GLW Corning
B 99/09/07 113.75 256.56 JDSU JDS Uniphase Cp #
B+ 99/04/06 60.83 75.70 LLTC Linear Tech Corp
B 99/04/06 32.75 61.88 LSI LSI Logic
H 99/05/12 25.06 21.06 NOVL Novell
B+ 99/04/06 163.19 139.25 NOK Nokia (split on 99/04/09 2:1)
H 99/04/06 65.66 78.27 NT Nortel Networks # (Buy BCE)
(split on 99/08/19 2:1)
B++ 99/10/05 46.69 71.81 ORCL Oracle System
B+ 99/06/14 93.56 115.63 PHG Phillips Electronics
B++ 99/05/12 106.06 104.19 PMCS PMC Sierra (split on 99/05/14 2:1)
B++ 99/05/12 49.88 44.88 QLTI QTLI Phototherapeutics #
(split on 99/10/12 2:1)
B+ 99/06/14 35.97 56.98 SFA Scientific Atlanta
B+ 99/04/06 53.75 83.80 SLR Solectron
B+ 99/08/19 129.02 182.19 SNE Sony
B+ 99/04/06 130.94 134.50 SUNW Sun Microsystems (split on 99/04/08 2:1)
H 99/08/06 31.00 26.94 TLM Talisman Energy Inc #
B 99/04/06 109.48 100.98 TXN Texas Instruments (split on 99/08/16 2:1)
B++ 99/10/05 50.27 57.89 WMT Wal-Mart Stores
B++ 99/09/27 186.00 231.00 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++ 99/11/09 15.14 14.95 BZF Brazil Fund
B++ 99/11/16 10.50 10.50 FAK Fidelity Adv Korea
B++ 99/04/06 8.88 13.63 IFN India Fund
B+ 99/11/09 97.06 95.94 TMX Telefonos de Mexico

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