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Strategies & Market Trends : From the Trading Desk -- Ignore unavailable to you. Want to Upgrade?

To: steve goldman who wrote (2662)	3/7/1998 1:47:00 AM
From: Robert Graham	Respond to of 4969

Thank you Steven for your feedback and market assessment. My major concern has been identifying where the money has been moving to out of the tech leadership, and determining if the tech sector will continue to provide leadership in the market. According to what you have been saying, money will continue to move out of the tech leaders that lately have been the high-flyer variety of stocks and into medium and smaller cap stocks...in the tech sector, right? So in this sense, you still see the tech sector providing the leadership role in the market. I wonder if IBM will participate in the next leg of this rally? Also you made note of a move into more defensive issues. So you must harbour a certain amount of doubt about the continued strength of the current market rally. Defensive issues would be a good play if for instance you were expecting Asian concerns to resurface during the earnings releases. Is this what you are thinking? I also see that you mention it may be a good idea to move out of the tech sector itself and into other sectors that have not appreciated as much and still can be considered as having value in relationship to their current market price. It will be interesting to see if P/E multiple expansion starts to happen given that in some areas the market did not take long to become overvalued once again. However, I think as long as there is market liquidity, like you have implied, money will be looking for value in this market which will be better found in the mid and low cap stocks in sectors other than the tech sector. When value becomes more difficult to find, then perhaps there will be a return to some of the "overvalued" stocks that can be played again which in some sense has already started. The public money appears to be willing to be the first to jump on stocks that they are familliar with for another go around. With the large amounts of monies still ready to buy into this market, it needs to look for value, otherwise the institutions will work against themselves in helping stocks to become overvalue even before they are to reap the benefits from their longer term position plays. I wonder now that institutions are free to explore options how this will effect their behavior in the market. I think this is due to the elimination of the "short" rule. Can you tell us more about this area that I am not familliar with? I suspect we will be seeing the institutional monies as a group become more speculative and shorter term oriented in this market. I think this has been a trend over the years due to increased competition for that public dollar and the way the market has become more volitile in the later stages of its bull cycle. This also means there can be more frequent retraces and periods of consolidation before the longer term bear cycle begins. I think this bull market still has a period of time to unwind before there will be any solid evidence of a bear market on the horizon. I think this can make for a good trading environment, but I am skeptical of this being a good investment oriented environment. It is interesting to see how the market adjusts its own perspective when they want to motivate themselves into a continued purchase of the high-flyers of the past. Originally they may have invested in high earnings growth (PEG) and stocks demonstrating earnings momentum. Earnings growth has slowed down. So in order to support a higher (over) valuation which can support higher prices, they look not any more to the next quarter's earnings, but they start discounting the earnings projection of next year. Sentiment is able to provide its own story to fuel its own actions. Even though the speculative oriented part of the market has demonstrated very positive sentiment, the larger players are taking this market more cautously. Have you notices this too? That is why for instance the last part of this rally was lead buy a handful of high-flying stocks as larger cap NASDAQ issues before its predictable downturn. The DJIA continued up and then eventually retreated too. As soon as the economically oriented news was out, the large money resumed their massive purchases. I have not been following the market as closely as I usually do, so please correct me in any errors. Bob Graham

To: steve goldman who wrote (2662)	3/7/1998 7:02:00 PM
From: Bonnie Bear	Respond to of 4969

steve: regarding smallcap value plays: I hold a few microcap value funds: closed-end funds FUND and OTCM, and HRSMX. Nearly all of my longs are either brokerage stocks or microcaps/microcap funds. Their top holdings hit new highs (and my brokerage stocks hit new highs too :-) ). If you don't do this now, you should look at the top holdings of the microcap value funds - this sector is just incredibly undervalued and you can find some great trades this way.