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Timid will Miss Bull Market Finale

March 4, 1998

When a bull market takes leave of its senses as this one surely has, what's an investor to do?

If you're planning to cash out near the top, there's just one answer: toss prudence overboard.

Put it in a burlap bag with a cinder block, lash the end securely, then heave it into the brine. Try to visualize the bag as it sinks into the quiet darkness of a thousand fathoms, all but irretrievable.

There. You've jettisoned reason and responsibility -- dead weight for investors in such a rip-roaring, rule-defying, take-no-prisoners bull market as this one.

And now you're ready to buy stocks with both fists each and every time they pull back for a two-day breather. Just like the pros do on Wall Street!

As to taking profits on shares you may have held for years, don't even think about it, at least until you have reviewed the specific forecasts I have given below.

The powerful ascent of stock averages in recent months suggests the booster phase of a blowoff. If so, no one can predict how high stocks are going in the finale, or exactly when they will crest.

But you can bet that the summit will be well above what any prudent investor might have expected, based on rosy earnings forecasts alone.

Earnings have had arguably little to do anyway with the market's steady, powerful ascent into record territory since mid-January. In fact, the early-February breakout of blue chip stocks above a seven-month trading range came as U.S. companies were grow increasingly cautious in their forecasts.

Despite this, investors pushed the Dow Industrial Average up nearly 15% since January 12, compressing what would ordinarily be a solid year's gains into the space of just six weeks.

Some might say share buyers have not merely been hoping for the best, but confidently expecting it.

I doubt the herd has been so calculating, however. More likely, the impressive wave of mortgage refinancings in the last several months has created a tidal swelling of U.S. household liquidity.

This means, in effect, that millions of American have become richer on paper, or at least less burdened by debt. Is it any surprise, then, that they would have put a big chunk of their spare cash into the stock market?

Just how much cannot be calculated. Nor can one know for certain at what price all that buying power will meet determined resistance from sellers.

But for a while, at least, the market will continue to waft higher, with seemingly little on the immediate horizon to fret about. Saddam has been muted, if temporarily, and President Clinton's legal troubles are still regarded on Wall Street as little more than a circus sideshow.

As for Asia, although there is a strong chance the region's economic flu will soon spread to Latin America, then elsewhere, the catastrophic threat it poses to the U.S. economy will likely remain submerged and only dimly perceived, like a tsunami, until it crashes on our shores.

Wall Street's apparent complacency of late about all of these things brings to mind a cartoon that appeared some years ago in Playboy magazine. It showed (as I recall) two guys on a putting green, shadowed by a huge mushroom cloud in the background. "Oh just putt out, Harry," said one. "It'll be at least another minute or two before the shock wave reaches us."

That's about where I reckon we are today. But as the shock wave rumbles toward us, there's probably no point in arguing with those seeming legions of investors who would deign to get in one last putt, or perhaps even a few more holes.

Here, then, are some specific numbers to guide those who would throw caution to the wind, almost. They are derived from a forecasting system that has been very useful to me in predicting short- and intermediate-term rally tops, though benignly worthless in instructing me as to when this great bull market will end.

The first number is a projection for Microsoft, a bellwether stock that I view as the single best proxy for the bull market as a whole. As long as the company's shares are headed higher, the bear market must wait.

I wrote here more than a month ago, when the stock was trading around $75 (adjusted to reflect last week's two-for-one split), that it would have at least 16 points of additional potential if it could clear $76.50.

It breached $76.50 a week later and has since traded as high as 85. This implies that Microsoft is still at least 7% below an important top.

When it gets there (to 90 7/8, precisely), I would suggest lightening up on equities, if only to give yourself some buying power as the averages then follow Microsoft lower.

More aggressively, and subject to the essential advice of your stock broker, you could consider the short sale of Microsoft, or of the purchase of put options on it or the indexes, once the 90 7/8 target has been reached. This would allow you to profit from a price decline.

The corresponding objective for the Dow Industrial Average is 8620 about 2% above the current 8457 You should note that if the Industrials close more than six points above the higher number, they should be presumed headed to a substantially higher target, 8920.65. Microsoft's new target, in that case, would be 114 5/8.

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.
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