The market didn't look too good today. Declining issues slightly trailed advancing ones, and they beat up on the Utilities as the 30 year bond went lower to yield 5.59%. Transports also sank on higher oil prices, while the Amex index loaded with oils did very well.

On an individual issue basis, oils and oil drillers did very well, as did certain special situations like Qualcomm and Motorola on Ericsson's acceptance of Code Division Multiple Access as a world standard. I have bought and sold Qualcomm profitably several times and was looking for a lower entry point when their good news hit. Those are the perils of market timing. If Qualcomm comes under a bout of profit taking (it was 111 9/16 today, up 13 1/8!), consider taking a position. Their future is brighter than ever.

Markets have generally been tough in the Spring, but there is always room for a special situation. The best place to look for stocks with the greatest near-term upside potential are the oils, oil drillers, pharmaceuticals, financials, and second tier technology issues. Earnings are key, and we are only two weeks from first quarter earnings reporting season. If you have a favorite stock and you want to get in soon, phone the company and determine what day and time earnings will be released. Then buy beforehand, after watching the stock price action closely, trying for an interday low if you can, or just buying outright if the stock is strong and shows little inclination to back off.

I have tried to correlate stock price movement with pending earnings announcements, but I haven't been particularly successful. Big declines prior to announcements are probably the most predictive, but don't happen too often. In the short term, stocks often do behave randomly and drive shareholders crazy. When they move against you, it's easy to say you should stick to your convictions. Technicians would say all news is in the stock, and weak price action is grounds for a sale.

When to hold or sell under such conditions is a very personal matter and there are no hard and fast rules. The only sure rule is don't play how low is low. There is almost no limit to how low a stock can go, so forget loading up when a stock falls. You have enough of a decision deciding whether you should hold or sell.

Getting back to how stock behavior can drive you crazy, look at Protein Design Labs. I have traded it successfully several times, but happen to be out at the moment, fortunately. They have a lot of good things going for them as I wrote about on March 5, but look at the price action the last eight trading days. During this period, the only news of note was on 3/18, when they received a patent on monoclonal antibodies:

What on earth is going on here?!!! Their 12 month trading range is 13 3/8 - 40 3/8, with today making the low for the period. Their 30 day average trading volume is 187K, so trading has not been excessive except for today, which is understandable with this rapid decline. I still like this stock. In fact, it is a bigger value than ever. But who can touch it now? It could go to 12, or 9, or what is your favorite number? This is the stock with $8 in cash per share, and an almost 7 year cash burn rate on hand. Now maybe the stock is going to hell for unknown reasons. The technicians will tell you that. But the fundamentalists will point to the underlying value. That is the differing viewpoint that makes markets, but drives investors mad all the same. Stay Tuned

The Market Pro - March 26, 1999