This is a very tough market to figure. Last week, even with a strong up day Friday, the major market indices were down anywhere from 1 to 3%. Today, the market continued that up move, fueled by the high tech's and a move to quality again. Investors have been somewhat spooked by Brazil's unwillingness to hike taxes and Venezuela's election of a populist President. On top of that, both Venezuela and Mexico are reeling from falling crude prices. Completing the pattern, 30 year Treasury Bond rates inched lower to 5.03%, with electric utilities being generally stronger.

Interestingly, we have the dichotomy of investors simultaneously pulling in their horns, and yet aggressively bidding up the top-tier technology stocks. There is wisdom in this, as it is an overall hedging maneuver. If on one hand you sell weaker stocks or secondary stocks that have had a good run, and on the other hand you buy big cap' technology stocks, you are going for the best of both worlds.

I am still waiting for tax-selling season, and I thought we were looking at it getting under way last week. No one knows if the strength Friday and today was just bargain hunters stepping in, in the midst of a downward move. I'm inclined to think that is so, although this market is particularly hard to figure because of so many cross currents, along with the Fed pumping money into the system.

Barring your having special situation knowledge, it's hard to step into this pricey market. And still, getting out now is foolish, as this bull run could go on longer than anyone might imagine. As long as there is plenty of money around, anything is possible. So, you have to hedge. You need cash and electric utilities, and you need some big-cap stocks, and small emerging growth stocks. In short your portfolio MUST be diversified. Don't worry if you have idle cash, for as I believe you will see, holding cash is no stock market sin. Because cash is king! Stay tuned.

The Market Pro - December 7, 1998