another low risk take on us mkt

  1. 13,671 Posts.
    lightbulb Created with Sketch. 14

    > Walker Market Letter
    > August 4th, 2003
    > ...............................................
    > It has been quite some time between issues of the Walker
    > Market Letter. I apologize for the delay, but sometimes this
    > free publication slips down the priority list. If you want
    > to be sure to get ALL of our updates then you should
    > upgrade to our Walker MarketEdge. You can get all the
    > details here:
    > ---
    > Our Signal Strength is still at 3. Our models are
    > completely out of the stock market.
    > I have included a market commentary below.
    > // -- MODEL UPDATE -- //
    > LowRisk Market Allocation Model signal strength = 3 (on a
    > scale of 0-20, with 20 being the most bullish)
    > ***
    > Graduated Strategy - 100% money markets as of 02/06/2003
    > Timing Strategy - 100% money markets as of 06/11/2001
    > SuperBear Strategy - 100% money markets as of 12/14/98
    > SuperBull - 100% money markets as of 02/14/03
    > **********
    > In late June, with almost everyone "frothing at the mouth"
    > with bullish enthusiasm, I put out a very bearish market
    > letter.
    > As it turned out, neither the raging bulls or myself had it
    > quite right. The market has basically gone sideways for more
    > than a month. In fact, depending on which chart you are
    > looking at, this sideways market has lasted as long as 9
    > weeks.
    > This trading range has left a pattern on the charts that we
    > often see when we are watching the really short term charts.
    > We refer to this as a "cigar" pattern. We get this when the
    > market trades sideways in a narrow range - drawing out a
    > long, thin cigar on the charts. This is basically a lengthy
    > consolidation in a narrow range.
    > These patterns always break, and generally when they do the
    > volatility really increases. And we usually get an extended
    > move in one direction or another. The key point here is that
    > the pattern doesn't tell us WHICH direction the market is
    > going to move, it just tells us there is a big move coming.
    > Right now, the top of the cigar on the SP500 is at 1015. The
    > bottom of the cigar isn't as clearly defined... the first
    > level we are watching is in the 975-973 area. On Monday the
    > market flirted with that level... breaking below it for a
    > couple of hours before moving back over it.
    > The interesting thing here, with the market just over the
    > bottom of the recent trading range, is that the factors that
    > had me feeling bearish in June are still in place. Here is
    > the short version: investor sentiment is way too close to
    > euphoric for my taste, the market is struggling to get above
    > key resistance zones, and we have all kinds of bearish
    > divergences on our internal indicators.
    > In addition to those factors, there are indications that
    > this churning trading range (and even the entire rally this
    > year) has been an exercise in distribution by the smart
    > money. One example is insider selling, which is at an
    > extremely high level.
    > Basically, according to our work, the weight of the evidence
    > is on the bears side. Is this just a wall of worry for the
    > bulls to climb? Perhaps it is, but I think the danger in the
    > market is very high right now, especially as we move in the
    > most treacherous three months of the year for the market.
    > August through October is not a time that has been
    > historically friendly to the bulls.
    > Back in June I wrote this about a potential sell off:
    > "Of course, this will not happen all at once. The
    > rally has been quite powerful, and the bulls will
    > not give up without a fight. Expect to see some
    > powerful countertrend bounces."
    > The same logic still applies. After a very powerful rally,
    > the market just doesn't turn on a dime. However, a two month
    > long consolidation takes the wind out of everyone's sail...
    > including the bulls. This has basically been a case of the
    > market storing up energy for a big move. We will get one,
    > eventually. And right now I think that the move will be down.
    > In any case, no matter which direction the market breaks,
    > you can be sure to ALWAYS be take maximum advantage of our
    > strategies by upgrading to the Walker MarketEdge - you will
    > get all our extra issues, PLUS our Mutual Fund picks, PLUS
    > immediate Flash Updates whenever there are changes in our
    > models. You can get more details at this web page:
    > > > > < < <
    > ---
    > I have gotten a few questions lately about why the model has
    > been stuck at a 3 throughout the rally this year.
    > Fair question... but the answer is not a particularly easy
    > one, and I don't know how satisfying it will be.
    > Back in the mid-late 90's the bull market was roaring ahead.
    > And at the time, the one thing that was absolutely crystal
    > clear to me was that the market was setting itself up for a
    > huge crash. The model I built was designed to get us out of
    > the market when that crash came.
    > And that is exactly what it did. If you joined us before
    > 2000, then you know that we simply stepped aside and missed
    > all the excitement as the market crashed.
    > And as the market crashed there were factors in the model
    > that basically slowed down its response so it wouldn't get
    > caught in the huge bear market rallies. Again, the model
    > basically succeeded. The market had some huge powerful
    > rallies that ended in utter collapse and lots of early bulls
    > getting burned. And, for the most part, we missed the fun
    > and games.
    > But now we have a case where we have had an extended rally.
    > This rally really hasn't gone much further than the previous
    > bear market rallies, but it has certainly lasted longer. And
    > our model has remained out of the market, and our Signal
    > Strength hasn't even budged. Part of this in the last month
    > or two is due to the market internals deteriorating, but a
    > bigger part is just the design of the model - after a change
    > to a secular bear market, it takes a lot to get the model
    > excited about jumping back in.
    > Now with all that said, I am looking at a very strong
    > possibility of making some changes to the model. The
    > conditions are very different than they were 10 years ago
    > when I started working on the model. I think some changes to
    > make the model a bit more momentum based could make the
    > model more agile and quicker responding. The question is
    > whether I can achieve this while maintaining the basic "low
    > risk" aspects of the model. I will keep you informed of the
    > progress.
    > ---
    > Finally, over the years we have frequently mentioned various
    > support and resistance levels in this newsletter. Support
    > and resistance is NOT built into our model, but they are a
    > VERY important tool we use to analyze the market.
    > We have lots of techniques that we use to come up with these
    > levels, but one of our "secrets" are Fibonacci levels... and
    > a good friend of mine has recently completed a full course
    > on using Fibonacci levels. The course is mostly aimed at
    > short term traders, but the techniques also carry over to
    > longer term investors. You can get more details here:
    > ---
    > Good Luck,
    > Jeff
    > Copyright (c) 2003 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.
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.