Hey! What's going on?

An old-fashioned butt kicking, that's what's going on. In order to survive in any environment, you have to recognize when things are changing, especially when they're getting worse. When I have occasionally partaken in games of chance in Las Vegas, particularly Black Jack, I have had periods when my cards were good, and even more importantly, the dealer had bad cards - also known as stiffs. You don't need good cards, as long as the dealer is "breaking". Then suddenly her cards get good, either pat 20's or drawing to make 20 or 21. Maybe this happens 3 hands in a row, or 3 out of 4 hands. At that point I get up to leave, announcing to any rookie with the brains to listen, "danger - the cards have changed." More often than not, the dealer will say "that"s right", but the goon-balls sitting around the table don't budge. They have a nice cozy seat, and they're getting free beers. Wow! Free beers! They're free alright as the player loses $50-$60 before they know what hit them.

In our article of January 29, I told you I didn't trust this market. Again, the February 5 article reiterated the point, and also noted that there are enormous profits in the High Tech's, and as their holders begin to fret that their profits are beginning to erode, the selling pace will gather speed. Further, if buying starts to dry up, there would be no good reason for momentum players to jump in (unless they're going short) as momentum would be in the wrong direction. These stocks could really come tumbling down. Well, let's see what's been happening:

Sure, some stocks have done O.K., and all stocks won't march along in the same direction. And I realize that these aren't all High-Tech's, but the point is clear. There is a definite overall downward movement, and if you take the big three - Cisco, Intel, and Microsoft, why it's actually getting a little ugly.

These stocks certainly have their boosters for good reason; you can't argue with success. I also know that when you criticize a man's wife, girlfriend, dog, or stock, you're asking for trouble. But all that said, I think these stocks still have a considerable downward move left in them, and if any of them are on your shopping list, don't buy on the first rebound. Although cats hate the term, that's what they call a dead cat bounce.

One final word of caution. In the last two weeks, I overheard a conversation between two market neophytes, wherein the young lady exclaimed "I don't know if I should buy Intel or Microsoft." Several days later someone of quite modest investment history told me that he thought Cisco and Microsoft were still great investments. Both of them could be right. It's just that newer investors are going all out for the nifty fifty, and are oblivious to P.E.'s. It's hard to argue, because they have been so right until this month. But you know, experience says that we're seeing something troublesome. In the words of that famous Black Jack player - me, "danger - the cards have changed." Stay tuned.

The Market Pro - February 26, 1999