Wow! Yesterday and today saw more "shorts" getting crushed. And yet the little farmers keep jumping in front of this bull market freight train commanding it to stop. It's like that coyote/road runner cartoon, with the coyote getting flattened like a giant pancake. Well, this is no cartoon folks, and those are "professional" getting cleaned up. That's because they're so brilliant and have a great grasp of the market. Maybe they can join up with the coyote and gang up on the road runner.

This whole week has been powerful, with the Dow Utilities and Dow Transports up 2%, the Dow Industrials, S&P 500, Nasdaq, and American up 4%, and the Russell 2000 up 5%. The Russell 2000 being the big gainer, has been long overdue, and still has a long way to go to even remotely approach the gains of the other indices. Biotechs, particularly the large cap's, have been acting very well lately.

This market is very dangerous. I know I've been saying it a lot lately, but so what. It sure is true. The problem is that this market is going up because investors are chasing winners again. Gee, isn't that momentum "investing"? No, pal. That's momentum gambling, and that's how so many guys got killed not so long ago. But memories fade when greed runs rampant, and that's what you have now.

I can't imagine that there wouldn't be any significant tax-loss selling season this year, especially since so many stocks are down big-time from their year's highs. I still expect a correction starting anytime, and patience should be rewarded. I do NOT advocate selling short, selling naked calls, or buying puts, because it is impossible to gauge the strength of this bull. There is no sense in betting when the sell-off will come, because you should avoid risk when possible, and not go out of your way to find it.

The best information I have is that the law of gravity has not been repealed. All you can do is hold your positions, or selectively sell a PORTION of your stocks into strength. When in doubt what to do with any particular stock, regardless of whether it is a winner or a loser, I have always advocated selling one-half and keeping one-half. Aside from the benefits of raising cash, taking tax-losses along with profits, and reducing overall market exposure, this approach is psychologically comforting. If the stock keeps going up, you tell yourself "at least I still have one-half". And should the stock go down, you say "at least I sold one-half". Sure it's a mind game, but so what? If anything will keep you sane in these wild markets, I'm all for it.

Years ago in the old Los Angeles Herald Express, there was an article entitled "Bums, to heroes, to bums". That was around 30 years ago, but you can be sure I have seen a zillion stocks go through that cycle. There are hero stocks out there that I would love to own, but I'm not paying heroic prices. But should they become bums again soon in any big market decline, I am going shopping. But in the meantime, be sure to do what we have been telling you and build up cash reserves. Why? Because Cash is King - that's why! Stay tuned.

The Market Pro - November 6, 1998