If you liked the Little Big Horn, you would have loved the last two days' stock market action. If you own any stocks other than electric utilities or baby bells, you don't need me to tell you that you got scalped. So what? It takes guts to succeed in the stock market, and if you can handle getting the financial hell beat out of you, it will make you a better person. Anyone can cluck about how great the market is when it's going up. But when the market is taking gas, you need nerve and faith.

Clearly the market is overdoing it on the downside just as it did on the upside. I must say that I am somewhat surprised to see fine issues butchered, such as Chase Manhattan and Travelers Group. Chase's 12 month low was 49 1/4, it had a high of 77 9/16, and now it's 56 ½ down 21 1/16 points. Traveler's 12 month low was 42, it had a high of 73 ½, and now it's 48 5/16 down 25 3/16. Wow!

This kind of debacle has been repeated for many issues, since the July 17 high in the Dow Industrials. History is interesting, and there are plenty of market historians who can explain why everything happened as it did. But I would give a big buck to anyone who can tell me what's going to happen in 5 minutes. Surprise - no one can, of course. That said, let's make our best guess (sounds terrible, doesn't it? At least you have to admit that the truth is refreshing!) about what is likely to happen and what you should do about it.

I think the Dow is close to a near-term bottom as it has come down too far, too fast. From its Friday, July 17 high of 9337, to its close today of 8051, it has seen a drop of 1,286 points, or 13.7%. The Nasdaq is worse yet. It reached its high on Monday July 20, at 2014, and closed today at 1639. That's a drop of 374 points or 18.5%. Don't ask about the Russell 2000, because it's performance has to improve, just to be classified as horrible. Ask any holder of small cap's, and you will really hear what a disaster is like.

All this says that in my judgement, the market is severely oversold. Which isn't to say it won't get any worse. Regardless, as investors get accustomed to the Asian recession, the Russian bankers' dollar grab (by dumping rubles loaned to them by their government to shore up their finances - what great guys!) to White House hi-jinks, they will take a closer look at our own market fundamentals.

There are plenty of pundits who will tell you that positive economic data are not to be taken seriously. I disagree. Underlying all your thinking is the knowledge that inflation and interest rates are low, and business is still good. Gross Domestic Product is still growing, and corporate earnings show more increases than decreases. Sure, some earnings increases are less than analysts' estimates, but that doesn't mean the economy is not going forward. Yes, P.E.'s will contract, which is what we're seeing now.

If you grant that the underlying economy is sound, and you make that leap of faith that it will stay sound (I have made that leap), then it follows that you will stay in the market. I expect the market to stage some type of rally over the next three days, perhaps as soon as Monday. From there I don't see rally prices holding up, as institutions continue to sell into strength, trying to nail down some part of the year's gains. I suggest you also do some selling into strength as you accumulate cash. You want to be in a good buying position when year-end tax selling is under way. I'll probably be doing my buying around the third week in December. In the meantime, be conservative in your market dealings, and don't be disheartened with your losses - everyone's got them. And remember - CASH IS KING! Stay tuned.

The Market Pro - August 28, 1998