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January 26, 1998 Early Edition WALL STREET, NEXT WEEK
1. ITS COMING.....
2. LETTERS
At the last SIRE meeting, almost all of the speakers believed that while the US markets would approach/challenge their 97 highs, they would also retrace 15-20% THIS YEAR. There was disagreement about the timing, i.e. would the market do 8000-8500 and then collapse, or sink and then rebound on bargain hunting?
Our view is that one retracement is coming first AND soon. We believe it is the first of 5 BIG market moves in 1998. Intermediate term we will begin nibbling on March/April Puts.
C1. Most portfolios are well prepared for DJIA 8500, but NOT for DJIA 6500.
C2. Summer 97 highs probable top (+/- 3%) for next 18 months to 2 years.
"Interesting" DAY: January 28 CHINESE NEW YEAR of the Tiger 1:01am ET
Sun is conjunct Uranus 3:07pm ET, Neptune enters Aquarius 9:45pmET.
Remember the classic Chinese curse: "May you live in interesting times!"
Our DJIA targets: P1 7230, P2 6950 and P3 6390.
We are creating our Short list of stocks with more than one of the following characteristics:
1. Near or Above 52 week high
2. < 1% dividend yield
3. P/E >50
4. Company is "profits challenged"
5. Company Horoscope "has the right stuff"
A company like AOL meets all 5 of the above criteria, MSFT 2,3 and 5, while HWP, our least favorite DJIA stock, only 2 and 5. The above criteria is of course not a complete list, one could add 6., poor management ,and 7., a member of a soon to be out-of favor industry group.
KNOW WHEN TO HOLD THEM, KNOW WHEN TO FOLD THEM
1. Use good Money management, analyze risk/reward and probability carefully.
2. Remember while you CAN buy and hold for 25 years you CANNOT short and hold for 25! Use reasonable stops.
3. Be careful with the most popular shorts as they may be subject to the dreaded "short squeeze" caused by the big MM's (Market Meanies).
4. Short with the winds behind your sails - the trend is often your friend.
5. Sell on the right kind of news, but Cover on the wrong kind.
ATTENTION ALL INVESTORS: This is NOT to be an academic exercise.
1. Reduce margin in your securities account to 0.
2. Review your portfolio with your licensed financial advisor or broker. Decide what you personally would not dream of buying at current pricing and consider selling it or place a close stop to protect profits.
3. Explore whether writing covered calls or buying some put protection makes sense for you.
4. Make a wish list of what you want to buy with the cash you have/will raise. Buy in stages: when they're 10% cheaper, more at 20% and the rest at 30% discount.
5. Take a vacation!
2. I'm Chinese and based on previous historical data and experience, the days before the New Moon, this year, Jan 28, the market usually goes higher (what we call "Red Market" - because red is a lucky colour for Chinese). Do you show any readings this year considering the Asian Crisis in the backdrop? Also, FYI if you do not know, it is Public Holidays in Hong Kong for Jan 28, 29, 30 so no trading.
HW: Mixed bag for Asia. Some Countries like Korea are buys, others like Indonesia are avoids. Most are in-between. Fundamental problems take time to sort out. Of course there will be MANY Short Term Trading Opportunities.
How do we play Hong Kong in North America? Any index option? >>
HW: The AMEX HKO Options have have wide spreads as they are not very liquid. Use ONLY for VERY big moves.
I bought ORCL at 23 3/8 based on your January effect stocks forecast. The month is coming to an end. Shall I hold or shall I take loss. Also I hold some Precision Drilling. What do you think about the Oil Service Sector?
HW: It depends on whether a trade or investment, and what your personal targets and risk/reward parameters are. While disappointed that ORCL is not higher, I recommended it as an intermediate term investment. As to the Oil Service Sector, in general, this will under perform in 1998 due to the Saturn/Neptune aspects. Oil also seems to have a $18 barrell ceiling. However, Oil may benefit from counter trend appreciation in the next 30-45 days due to the MidEast aspects.
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