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THE ADAMS MARKET REPORT
 For the Week Ended 01-24-99
 BENCHMARK INDEXES

DJIA: closed at 9120.67, down 219.88 for the week (-2.4%); YTD return is -0.7%
S+P 500: closed at 1225.19, down 18.05 for the week (-1.5%); YTD return is -0.3%
NASDAQ: closed at 2338.88, down 9.32 for the week (-0.4%); YTD return is 6.6%
Russell 2000: closed at 422.44, down 4.61 for the week (-1.1%); YTD return is 0.1%
30 Year Treasury Bond Yield: 5.087%
Gold: $286.30 per ounce

 MARKET SUMMARY

The holiday-shortened week started off nicely on Tuesday, with a gain of 0.6% for the S+P 500. Stocks continued the uptrend on Wednesday with a daily gain of 0.5%. Unfortunately, that's when things took a turn for the worse. The market lost 1.7% on Thursday, due primarily to continued woes in the ongoing Brazilian currency crisis and speculation over similar problems in China. Friday saw the market drop even further, losing another 0.8% on the day. For the week as a whole, the S+P 500 was down 1.5% and is now in negative territory for the year-to-date.

 COMMENTARY

I'm somewhat worried that we may be looking at the start of a correction. The S+P 500 is now down 4.2% from its high while the tech-heavy NASDAQ is off 5.5%. Although downturns of less than 5% are fairly routine for the S+P 500, they worry me nonetheless. Remember: every major correction in stock market history started out as only a 5% correction. Is the snow just shifting slightly or are we poised for an avalanche?

Of the last 39 times that the market dropped 5%, 12 occasions resulted in losses of 10% or more. Of those twelve, 8 resulted in losses of more than 15%. Of those 8, 5 resulted in losses of at least 20%. And of those 5, 4 produced losses of more than 25%. In historical terms, this means that if the market drops 5%, then there's a 31% chance that the market will drop a total of 10%, a 21% chance that stocks will drop 15%, a 13% chance that there will be a correction of at least 20%, and a 10% chance of a correction of at least 25%.

With those probabilities in mind, we should start to be concerned about any downturn of 5% and should seriously consider some risk management steps at the -10% level and below. Although the odds are good that the market will recover from a loss of 5%, a drop of 10% will probably get worse before it gets better. Given the current overvaluation of stocks, particularly the Internets, things could move very fast in the wrong direction. I'll watch the markets carefully and let you know by flash e-mail if my timing model changes. We're still OK for now.

 MOMENTUM

Short term momentum for the S+P 500 is currently negative, and has been for 4 out of the last five trading days. The S+P remains above both its 50- and 200-day moving averages, with short term support at the 1190 level and long term support at 1100. The NASDAQ still has positive short term momentum, for the 25th. trading day in the row, but the momentum is dwindling rapidly and could soon turn negative. The NASDAQ has short term support at 2100 and long term support at the 1900 level.

 TIMING SIGNALS

Stocks: Bullish (for both the S+P 500 and the NASDAQ)

Bonds: Neutral

Gold: Bearish

 MODEL PORTFOLIO

There are no changes this week, although we are very close to switching to a more conservative but still fully invested posture. Stay tuned for a mid-week flash update if the market goes much further south.

Our current allocation:

50% in the ProFunds UltraOTC Fund

50% in the ProFunds UltraBull Fund

 For the past week, the model portfolio lost 2.9% vs. a decline of 1.5% for the S+P. For the year-to-date, the model portfolio has a gain of 5.8% vs. a loss of 0.3% for the S+P 500.

 FOOTBALL PICKS

Just for Fun: Well, my hometown Atlanta Falcons proved me wrong for the second week straight. At least I picked the Denver-NY game correctly and broke even for the week. As penance for my local heresy of not picking the Falcons against either San Fran or Minnesota, I've been forced to learn the "Dirty Bird" end zone celebration dance. I'm rooting for the birds, but don't yet know who I'll pick in the Super Bowl...

 MISCELLANEOUS

Although the subscriber list is growing rapidly, I'd still be happy to read any e-mail suggestions, gripes, questions, etc. that you might have. Next week, I'll be starting a new "E-Mails to the Editor" section. let me know what you think. Your comment might even get distributed to thousands of your fellow investors!

 Additionally, I've made some scheduling changes and now hope to be able to mail the report out by Friday evenings starting next week (as opposed to Sunday afternoons). In the not too distant future, the "The Adams Market Report" web site will be up and running with the help of the great folks at Stockscape.com. The site will feature daily market updates and mid-week commentary along with the text of the weekend e-mail reports.

As always, this newsletter is free to all e-mail subscribers and your privacy is guaranteed. If you find the newsletter interesting or useful, please have your friends or associates contact me via e-mail for their own free subscription.

Happy Trails,

-John Adams

johnjadams@mindspring.com


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