As you may know, this month has been one of the strongest October's in history. Ignited by the Fed's unscheduled action to cut rates by 1/4 point, and encouraged by the likelihood of Brazil's currency being defended as well as Japan's efforts to improve their economy, the market roared upward.

Amid all this euphoria, we must keep several things in mind. Price-earnings ratios are still very high by historical standards. Earnings for many companies are down this quarter, and stock salesmen are trying hard to sell next year's unknown earnings. Many stocks are still far below their year's highs, and plenty of investors are sitting with big losses on their hands. More hedge funds may disintegrate. Russia could shake the markets if something unfortunate should happen to Yeltsin, whose health appears to be on its last legs. Tuesday's elections are good for the market only if their is no material change in Congress. If the Republicans gain seats, an unsettling impeachment is much more likely. If the Democrats gain seats, they will resume promoting their social goodie-bag, which markets do not like. With recent better than expected economic data, the widely expected Fed rate cut on November 17 MAY NOT OCCUR. This would be a nasty surprise indeed. Finally, this month-end may have witnessed exceptional Mutual Fund window dressing. As you probably know, they buy stocks that have been going up so they can show that they're smart and hold winners, and they dump down stocks to show they're smart and don't have losers. I expect Monday's trading to show lower demand for recent favorites, which should pull the market down. Also, with an almost straight-up October, you can't expect the same for November.

A fearless reader asked if this is still Stock Lent, and the answer is yes. After reviewing what could go wrong with the market. Ask yourself what could go right? More interest rate drops? Maybe. Good earnings? No more for this quarter - as noted, salesmen will have to be selling more hope. Bigger p.e.'s? See your doctor immediately - your mind is fading fast. In general, I don't see much helping the market other than the prospect of continued Fed easing, which is not assured.

The biggest market negative that I anticipate, is tax-loss selling, which could start anytime, and which could be very nasty. I still look for more attractive prices toward year-end. In the interim, you can buy those special small-cap issues that have bright earnings prospects, but only buy a portion of what you plan to be your ultimate position. Remember - Stock Lent says no margin, no chasing high-flyers, and no chasing momentum stocks. Be patient and accumulate cash, because CASH IS KING! Stay tuned.

The Market Pro - October 30, 1998

Baywalk.com and its contributors do not recommend any securities or other investments. The articles and opinions in this publication are provided as general information only. Information provided is obtained from sources deemed reliable, but Baywalk.com and its contributors do not guarantee its accuracy or completeness or make any warranties with regard to the results to be obtained from its use. For more information, visit /about/legal.htm online.