Prime Stock Advisory Letter for December 4th, 1998

Position Statement: In our Prime Recommendation Letter we attempt to identify the recommendation with the highest probability of moving higher.  We recommend that stop orders be placed at the time of purchase,  and once the position has moved profitable we recommend a stop be placed a minimum of 3/8th above the purchase price and moved higher as the position moves higher.

Today's Comments:  The overall market moved sharply lower in what was a broad based sell off that affected the majority of the indices I track.  The only indices to finish positive where the semiconductor, and telecommunications indices, and even their chart patterns look week..  From a fundamental standpoint the market is overvalued and needs to correct.  While a correction may be painful in the short term it is very beneficial in the long term.  The chart patterns are clearly indicating a move lower.  The heavy volume is once again being seen in the stocks that are moving lower.  The high tech issues have benefited the last 2 days mainly from an institutional investors conference in Scottsdale, Az.  But once that conference is over it is highly likely the buying in those issues will slow down and they will probably move lower also.  I would like to take a minute and discuss the need to place stops in on our trades,  particularly once they become profitable.  It has been my policy to place stops to protect a position once it has become profitable.  I failed to do this 2 days ago when I entered my short position.  It was an error on my part with no one else to blame.  As a result Teradyne moved higher off its lows and what was a profitable trade moved against me.  Once it had I maintained my original stop price and got stopped out Wednesday.  In addition to taking a loss on that trade,  it made me nervous about entering Thursday's trades,  which I passed on and by doing so I missed a very profitable trade in Suiza Foods.  In regards to this my failure to enter the stop as I should cost me in 2 ways,  the first was the actual loss I took,  and the second was the profit I failed to make because my confidence suffered and I did not enter the short trade I should have.  I always try to set a stop a minimum 3/8th from my entry point once it has gone profitable.   In regards to the Market,  The Bottom Line:  The market should move lower.

Company:   America Online, Inc.      Symbol: 'AOL'       Closing Price: $83.625/share.
YH: $96.25    YL: $18.94   EPS: $0.30    P/E: 278.7    Forecasted EPS: N/A
Dividend: N/A      Yield:  N/A     Ex Dividend: N/A
Price Targets:  $75.375 & then $70.00       Upside Stop:  $87.875
Options Recommendation: December 90 Puts,  Symbol 'AOLXR' @ $9.00/contract.

Company Description: This company is the leading provider of Internet Access in the country.

Recent News:  12/01  Some brokerage firms raise margin requirements on Internet Stocks.

Our Analysis: 'AOL' is a component of the Amex Inter@ctive Index 'IIX' and the CBOE Internet Index 'INX'.  I have rated both of these indices as moving lower from their current levels.  The shares of 'AOL' closed below a key support level on heavier than trading volume.  They should continue to move lower and test $75.375/share,  the point from which they gapped higher in mid November of this year.  If they close below that level then they should continue to move lower and test $70.00/share,  the point from which they gapped higher in early November of this year.  This stock is simply going through a standard correction after a very impressive run to new highs.

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