Tough Road Ahead

After the aggressive end-of-1998 markup and the
“welcome 1999” rally, with high closes of 9643 in the Dow and 1280 in the S&P 500 on January 8,
the market has been stuck in a 5 to 5.5 percent trading range for the past six weeks. Make sure
you have a strategy in place to play the move out of this range.

As I have said before, narrow gets narrower, but now there is more fuel on the fire. The
30-year T-bond, Dow Utilities, Dow Transports, Russell 2000, the UTY, and the BKX have all
closed, and are trading below, their 200-day moving averages.

Checking the year-to-date mutual fund performance in Investors Business Daily over
the weekend, you can see that many of the funds that
were out-performing the market by 2 to 5 percent before the techs started to sell-off are now in
negative territory vs. the S&P 500. You don’t have to see these funds’ portfolios to know which
stocks they’ve
bet on and must now defend to get the S&P moving north again. I hope they can do it, because
it will give us many trading opportunities in these stocks.

With the S&P futures up early (but we know they can change at 9:29 a.m.) the market might
stage an
bounce today. Maybe Abby Joseph Cohen and Robert Rubin will team up again to tell us how good
are and how it’s okay to pay 50 to 100 times earnings for stocks in the “new paradigm.”

Target Stocks Of The Day  Good continuation patterns have developed in
Analog Devices [ADI>ADI], General Dynamics [GD>GD], Compaq [CPQ>CPQ], Autodesk [ADSK>ADSK],
Applied Materials [AMAT>AMAT], Baxter [BAX>BAX], Scientific Atlanta [SFA>SFA], LSI Logic
[LSI>LSI], Colgate Palmolive [CL>CL], and Airtouch Communications [ATI>ATI].

These stocks have either pulled back five to eight days, or have consolidated near highs.
Remember, enter these stocks only if they’re moving in your direction–up. They are intraday or
short-term trades with tight stops.

Watch the big tech stocks. If they rally early, it could set up some nice pullback
trades as well as some moves to new intraday highs.