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............................................... W a l k e r M a r k e t L e t t e r January 31st, 2002 http://www.LowRisk.com ............................................... There are no changes in the position of any of our models or positions. We are still primarily out of the stock market. My good friend Don Cassidy has just published a new stock market book called "Trading On Volume". It is an excellent book that covers using volume analysis, which I think is an under explored area of trading and investing. The book has been named "Investment Book of the Year" by Stocktraders Almanac. And almost as importantly...Don lists *me* in the credits. I just love seeing my name in print. :) In any case, this book is well worth checking out...you can get it at Amazon.com. Or better yet, you can get an autographed copy directly from Don (at a special discounted price). You can get the details by sending him an email at donald_cassidy@hotmail.com. // -- MODEL UPDATE -- // Lowrisk Market Allocation Model signal strength = 9 (on a scale of 0-20, with 20 being the most bullish) *** Disaster Avoidance Strategy - 100% stocks as of 12/06/00 Graduated Strategy - 25% stocks, 75% money markets as of 10/19/2001 Timing Strategy - 100% money markets as of 06/11/2001 SuperBear Strategy - 100% money markets as of 12/14/98 *** I have a friend who recently subscribed to my newsletter. He was teasing me the other day, saying that I always think that the market is going to go down. That isn't the case, as my long time readers know. But the fact is that in the last two years, I have been bearish...because the market has primarily gone down. Of course, in those two years the market hasn't gone straight down. It has had some very powerful rallies, including the explosive rally since the September 21st low. The Nasdaq led the charge in that rally by gaining an incredible 44.5% by early January. And that wasn't the first strong rally since the bear market started back in 2000. Let's take a look at the previous rallies in this bear market... From May 2000 to July 2000 the Nasdaq rallied 35.1%. And in January 2001 the Nasdaq jumped 24.8%. Then in April and May of 2001 many investors thought the bear market was over when the Nasdaq rallied 41.3%. On each of those three occasions the rally failed and the market dropped down through the previous lows. These bear market rallies that we have seen since the market top back in March/April 2000 have pretty much followed the course of bear market rallies throughout history. For a little perspective, I went back and looked at the 1929 Crash and the bear market that followed. That bear market didn't find a bottom until three years later, in 1932. In that time, there were six separate bear market rallies. The gains in those rallies were 48.0%, 15.7%, 23.4%, 27.6%, 35.0%, and 22.5%. Once again, take a look at rallies we have seen since the top in early 2000... 35.1%, 24.8%, 41.3%, and 44.5%. Pretty much the same ball park, don't you think? ----- Sidebar ----- Just about a year ago I put together a study comparing the current Nasdaq bear market to the 1929 Crash. Back then a lot of people scoffed at the comparison, but the last 12 months have proven the comparison valid. I just updated all of the charts...they are pretty amazing. Make sure you check them out at: http://www.lowrisk.com/nasdaq-1929.htm ----- Sidebar ----- So what is all this leading up to? A few conclusions...first, it is always good to be aware of prior market history. It can really give you a perspective on current conditions. Market history doesn't repeat, but it often rhymes. Second, just because we have had a dramatic rally since September doesn't mean the bear market is over. You wouldn't believe it from watching the financial stations, but there actually *IS* a possibility that the market will go back to the September lows. I think the market is currently in a "retest" phase of those September lows. However, that doesn't necessarily mean that we are in for a trip all the way back down to those lows. In our January 16th issue of the Walker MarketEdge, I said I expected a pullback of at least 30% to 60% of the gains from the September 21st lows to the December/January highs. Well so far the various indexes have pulled back between 35% and 41%. The most surprising thing so far in this pullback is how quickly the sentiment turns bullish every time the market rallies. You can see this anecdotally on the financial TV shows, where every rally is seized as proof of a market bottom or a new bull market. And you can also see it in the technical indicators (such as VIX and the Put/Call ratio), where every bounce generates more bullish complacency. It is almost as if the bear market in 2000 and 2001 never happened. Investors and traders just don't seem to have any fear of rushing in to catch a bottom. This is not the type of investor sentiment that market bottoms are made of. And from looking back at market history, you and I know that we shouldn't be so quick to think this bear market is over. Which leads to my current two word opinion: Be careful. (I mentioned the Walker MarketEdge up above...that is the upgraded version of this newsletter. With it you get an immediate FLASH UPDATE whenever there are any changes in our models. In addition, you will get all of our extra issues, *plus* our mutual fund picks. Upgrading your subscription only takes a few minutes at our secure web site: https://www.lowrisk.com/wme-secure.htm ) Good luck, Jeff Walker Copyright © 2002 by Jeff Walker, Bayfield, CO. This newsletter may be forwarded, as long as you do so in its entirety. Disclaimer: The financial markets are risky. Investing is risky. Past performance does not guarantee future performance. The foregoing has been prepared solely for informational purposes and is not a solicitation, or an offer to buy or sell any security. Opinions are based on historical research and data believed reliable, but there is no guarantee that future results will be profitable. =========================== To SUBSCRIBE: send mailto:wml-sub@lists.lowrisk.com. Or stop by http://www.lowrisk.com/wml-sub.htm -------- --- You are currently subscribed to wml as: Andrew.H.Lewis@ENRON.com To unsubscribe send a blank email to leave-wml-2158347I@lists.lowrisk.com
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