Overweight Discipline?

Overweight "discipline" and recognizing building risk . . . has dominated our thinking for the last few sessions, since identifying what was perceived as a reversal day (to the minute, as it did turn out; though we couldn't know that quite so precisely when we identified it thusly, Friday at 11 a.m.). It was not a simple up-and-down reversal that so often accommodates analysts by making the transition evident to all within a day or so; but was rather an upside capitulation of any and all bears, followed by an interesting erosion, which has not ended overall, up to this very moment in time. (At the time last week, we reversed a long-to-short, indicating that the "upside vacuum" was parabolic, characterizing what can occur at a top, not in a continuation pattern for the big caps. In this regard, investors should not mistake our generally correct S&P trading for broad bearishness in new millennium stocks, which in many cases are not the same we played in the roaring '90's.)

We have stuck by our guns on this and are glad for it. We hope it has been helpful for most all of you; and in some cases maybe doubly so because most of our "new media" telecommunications and other stocks are actually advancing smartly, while the old-line Averages are declining with a grudging reluctance, that characterizes action at this late time of year. What does that mean? If a money manager is doing well, he's not going to show sales of his best and hottest stocks now, or he'll (if necessary) go for the "advertising" benefit of trying to help promulgate another new high in any major Averages, particularly the NASDAQ and (long home for stocks) Nasdaq 100 (NDX).

That they aren't getting new highs is interesting, and in harmony with our view that a minimum in this scenario would be a filling of the gap left from last week's upside; that was accomplished as noted yesterday in the DB, which is why we forewarned that we'd start playing upside rebounds, about as frequently as the downside again, with respect to intraday S&P scalps. However, while we did have a couple intraday profitable longs, and also shorts, the primary trading effort is still that dating from last week. What we said on the hotline (900.933.GENE) this morning was that if we came down to 1408 in the first hour it would be a scalping buy, but that if we couldn't get over the 1418-19 resistance area in the later morning or early afternoon (and we didn't) that the stock market would likely make a lower low; so intraday scalpers had that opportunity provided as well.

"Headliners and Mainliners"

No; not United Airline's big jets; but the adrenalin rush some mutual fund money managers seem to be getting from trying to make sure they have basically nothing in their portfolios that does not command a technology or Internet label on it as they move to the Quarter's last holding summary of stocks held. We think that's not only dangerous, but a potential prescription for yet another (in the fact the 4th within 12 months) market accident shaping up. It may happen as late as the (part) of the 1st Quarter we have in mind, or if sooner, would definitely catch the Street by total surprise, even though here and there a renewed cautionary word may be occasionally heard.

In any event; we think most of the managers are looking for some sort of "marquee" headline for the market at yearend, in a way that would compel (or coerce) investors to put their hard-earned money to work (retirement seasonal contributions) before they'll let go of the ball. That means for sure they know the psychological benefits of say for instance, a new Dow Jones Industrial high, as opposed to simply another NASDAQ high. Does that mean it will happen? Not necessarily. It's the subject of our technical outlook and present condition, which will explore this in greater detail.

Meanwhile it's just terrific to see most of the Letter's stocks advancing, holding, or even soaring, while the S&P (the only meaningful shorting effort that's presently live) languishes and declines.

Technically . . . we'll talk more about subtleties of this in tomorrow's DB a bit more, emphasizing we're willing to see rallying once we get either through the Friday's PPI number, or even once again next week into a Triple Witching Expiration. (Reserved; this Expiration's importance.)

They may of course get it anyway, but that may well depend on several things, including a Dollar Index that has been generally on the defensive of late. Right after the Expiration the Fed meets, and while they may not make a rate move ahead of Y2k, how about a tightening directive sort of remark, that the markets wouldn't take kindly to. Well, between the PPI, the FOMC and the 3 witches, the market has it's dance card quite full for the next couple of weeks, and is doing so at a slightly defensive stance, while some financial media generally act like everyone's partying on.

(Section reserved.) We're not saying the market will do that; but we are denoting how quickly you could rebound the market, without making new highs, and without resuming upward trend action.

General Nuts

If "the boys" are able to punch this stock market out to new highs, it won't be with the help of true professionals; and we doubt the maniacal proclivities of some towards the market could achieve it either. Scenes like some of the 'net stocks (including some of our own, which we own happily from much, much lower levels) getting buyers and upgrades at these stages are generally nuts.

There should be no misconception of how the world works these days, and where things will go in the fullness of time; higher for the survivors, lower for the also-rans. That's one reason why, at the same time we enjoy the fruits of earlier stock selections, we realize that one reason for such a diversification was the recognition that when you're dealing with something as finicky as a 'net world, more so than primarily with computer hardware of the former years, the best plans can be taken awry simply by some other technology that changes the focus of everyone's attention. This is increasingly likely to be seen in the New Year, as the old favorites of the Street are eclipsed by new ones; which we think will increasingly gravitate to New Media focuses, away from excessive browser-based business emphasis, and not yet solely to a new wireless craze, since much of the expectation for defining the "standard" of the future is well ahead . That in fact is one problem for managers to contend with; few of these areas border on standardization as yet; which is a risk. It is this year, as in last, our view that sprinkling stocks in various (not precisely duplicative) areas is a better approach than requiring one technology (whether in wireless or digital TV) to succeed.

That's exactly how we find ourselves with a now-doubled Anadigics (ANAD), and recently held Analog Devices (ADI); which in a sense could become competitive adversaries next year. It is a way we approached buying Lucent (LU) at the outset of it's spin-off from AT&T (T)while holding Texas Instruments (TXN); and those two are direct competitors, as was our Conexant (CNXT); this year's long-side favorite. It is however, less rigid in ways we bought Liberty Digital (LDIG), and then liked ACTV (IATV), as the two are integrated in ways not generally known; while LDIG is in essence a tracking stock for various internet play actions, plus holds numerous digital TV channels that are presumed to become unlocked by AT&T cable, per their Agreement's terms, although much of that won't happen until later next year or as late as 2001.

A Space Odyssey

Sure, why not. As the general nuts get cracked in the first half of '00 (and in our view that is just a question of when, not "if"), and investors occasionally bemoan erosion in some currently held hot issues that are not fully sold (because of the way one approaches the market over a lifetime), we will intend putting available cash again into a selection of such stocks. We've done this during '99 simply by adding stocks to the list, and by making our points. Responsibility for buying, or not, for holding, or not, for risking more or not; those are personal decisions. Ours has been reluctant to chase; reluctance to commit fresh cash (in size) recently, an avoidance of shorts and bearish Put efforts, totally, but not a reluctance to hold stocks that are generally an effort to move them into a new millennium, and because some of them hold the promise of being more than an outer space odyssey that never finds a destination.

The destination remains 15,000 on the Dow, in theory by 2006 (as we've said for several years, before others chimed-in with equal or higher very long-term goals), with all the talk about 40,000 and 100,000 seen as utter nonsense for those not still in high school. If you are; the future sure is great! (It is ironic, but after my remarks about most of our readers being more concerned about protecting wealth built over the years, we indeed heard from teenage readers we didn't know we had, who definitely are braver or more willing to bet on uninterrupted continuations than some of us are able to. Heavily in techs myself, we understand this; but some of us are not in, or willing to be in, the position of even potentially having to start our investment lives over again.) Incidentally that's one reason we don't short equities much; because doing so is also a dangerous approach.

What's the correct approach? Hold investment longs; add to them when the market hits a "Black Hole", which often can appear in outer space without much warning (just ask JPL about that). At the '98 Fall low point, which we admittedly nailed better than this Fall's (though we nailed the top in the Spring and Summer, and once it broke lost any interest in new selling or shorting as others started getting worried; so it was simply a question of what to buy and when), risk nevertheless was a good bit lower (in '98). Why? Because you had the Fed and the technology cycle on your side, as well as comparative valuations. That's not the late '99 case, regardless of upside flings.

If the market flies-on, into deeper space on the shorter-term than what we have in mind, there is not going to be a complaint here; as we've got a ton of the better (sustainable quality, not "stock of the day" nut club holdings) holdings on board, which we're confident will be survivors. If this is a "Mars Lander" mission, then these bigger (sometimes called "core") holdings will come back, although they too will be subject to (measure potential and distinction comments are reserved).

Daily action; Technical (short-term); Bits & Bytes & Economic News: (are reserved sections)

During this week since we reversed an intraday "official" long-to-a-short at the December S&P 1452 level, we have maintained that guideline effort with a determination that the market would fill the gap left from the Thursday close last week to the Friday (Employment stimulated) opening while concurrently trying our best to finesse intraday scalping moves for those so inclined to play it that much closer to the vest. Both approaches have worked consistently this week. As of Wed. closing action, the slightly bigger-picture effort is ahead by 4700 points, or as closely as feasible (given that we nailed the high, but realistically any executions would have been slightly shy, as it was the top tick of the move), while intraday scalping action may have seen comparable results.

Bits & Bytes. . . provides comments about Anadigics (ANAD), which more than doubled for us; Apple Computer (AAPL), with a cost on the remaining majority only 13; Liberty Digital (LDIG) held since around 3, ACTV (IATV), long-term winners EarthLink (ELNK), PSINet (PSIX)and for Texas Instruments (TXN) and Rambus (RMBS).

Finally, Corel (CORL), which everyone is now focused on; added an impressive 5 5/8 to 28 or so and that was off it's high of 31. Wild action in the post-Comdex weeks since we expressed newly favorable views on this stock, which has sprinted forward nicely, to say the least. As written here in the DB from Comdex last month, this area of Linux plays was the single one that impressed us the most; and we're pleased the market took somewhat of a delayed reaction response to it.