Hey! What's happening? This market is supposed to go straight up! You mean we're actually going to have a bout of tax selling/profit taking? You bet we are.

If the market teaches us anything, it's that year-end portfolio adjustment always takes place. At least it SHOULD always take place. And it sure looks like it's doing it now. You hear all kinds of reasons why the market has started to have some bad days recently, culminating in today's big-time spanking. Yes, the market doesn't like impeachment uncertainty and problems in key South American countries, and it sure doesn't like profit warnings from major companies like Merck and Johnson & Johnson.

But you can't overlook the fact that portfolio managers have made big gains since early October, and they want to lock them in. And they will do that very quickly if they sense that the market is changing directions, even if only for short time.

For those of you who have been following our advice, you will be O.K. There is no substitute for a diversified portfolio, and a substantial cash position, especially when the market is pricey and you're coming into the year-end. Aren't all you troopers glad you accumulated cash? You bet you are. It's hard to say how long this down market will last, of course, but I would expect a year-end rally to kick in after mid-month. Perhaps after the 18th, when options expire.

Right now, all you can do is sit tight and hold your positions. It is important to be patient, and not jump in and buy your depressed favorites just yet; chances are they'll get cheaper before this selling wave is over. So relax, and gloat over your cash reserves. Because CASH IS KING!!! Stay tuned.

The Market Pro - December 10, 1998