I still don't trust this market.

Some people are starting to feel pretty good, as this week the Dow Industrials went up 259 points, and the Nasdaq went up 87 points. Friday's results were great for the favorite issues. Up over 1 point were Bristol-Myers Squibb, Citigroup, 3Com, and Cisco. Up over 2 points were Biogen, GTE, IBM, Lucent, Medtronic, Microsoft, PE Biosystems Group, Sun Microsystems, MCI WorldCom, and Warner Lambert. Up 3 points or more were Amgen, Chase Manhattan, Intel, Motorola, Qualcomm, and SanDisk.

This manic-depressive market should worry you. I know it worries me. One day all the "reporters" on the business news channels are sure we are going broke, when the market is going down a lot. The next day when the market is up significantly, why these same "reporters" are chirping that big money is being made again! Now ain't that sweet.

Please pay attention. This market is very dangerous. Too much is being paid for the same issues, and there is little fear among the vast armies of newcomers that are now actively investing. The erroneous lesson they have been learning, is that if you buy the favorites, you're going to make money. The worst part is that they have been right. Certainly growth is to be prized, but we cannot continue to pay more and more for that growth. At some point growth stocks become severely overpriced. Unfortunately, only hindsight will tell you when you have seen the top.

The dangerous part is that newer investors have confused being lucky with being good. That's partly what has lured neophytes into day-trading facilities, only to lose their pants in short order. And it's not a very pretty sight. Sure, they can talk to investors who are greener than they are, and who have made nothing but money by buying the favorites. No one investment style can be successful forever, and that goes double for the current excesses.

I don't see tomorrow's action adding to Friday's gains, with the backdrop of possible interest rate hikes. When in doubt, accumulate cash and wait for better buying opportunities, and I think that time will come within the next three weeks. The market looks overbought to me, considering all the uncertainties. Remember, Cash is King! Stay Tuned.

The Market Pro - August 15, 1999