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W a l k e r M a r k e t L e t t e r
January 9th, 2001
lowrisk.com
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It has been a bit longer than usual between editions, and I
received a number of questions about our publishing schedule (and a few people who were worried that we stopped publishing!). Don't worry, we aren't going anywhere. We have been publishing continuously since summer 1996, and we have no plans to stop.
We publish twice a month...generally around the beginning
of the month and around mid month. This is the "beginning of the month" issue, and it is admittedly a bit later than usual. There are a variety of reasons it is a bit later, including the holiday's and a round of colds in our office. Looking at the calendar, I imagine that our mid month issue will also be a bit later than usual.
As always, if you find this newsletter to be of value, please it to your friends and associates...subscription
instructions are included at the end of the newsletter.
// -- MODEL UPDATE -- //
Lowrisk Market Allocation Model signal strength = 12 (on a scaleof 0-20, with 20 being the most bullish)
***
Disaster Avoidance Strategy - 100% stocks as of 12/06/00
Graduated Strategy - 75% stocks, 25% money markets as of 01/05/2001
Timing Strategy - 100% money markets, 0% stocks as of 11/2/99
SuperBear Strategy - 100% money markets as of 12/14/98
***
Well so far the new year for the stock market has looked a lot like the old year...and it has featured lots of breathtaking volatility. Tuesday was the quietest trading day of the year and we still had a range from high to low of almost 3% on the Nasdaq Composite. Of course, that pales in comparison to the 14% range we had last week when the Fed cut rates unexpectedly. Of course, most of us have become a little numbed by all this volatility.
What is really amazing, is that for all this furious market
action, the market has not moved very much from where it closed out 2000. After Tuesday's close, the SP500 is up a bit less than 5 points for the year, the Dow is down 214 points, and the Nasdaq Composite is 33 points higher. That tells us the market is not only volatile, but it is also very choppy.
In a lot of ways, this choppiness should not be too
surprising...this is a very polarized market. We can see this polarization on a few fronts. The one that has just been hitting us in the face for a while is investor sentiment. On one hand, the sentiment numbers have stayed surprisingly bullish in the face of a market that has just kept going down since early September, while on the other hand there also appears to be a large number of investors who are very bearish.
The sentiment is polarized between two camps...the bears that sold out of the market quite a while ago and expect the market to keep going down, and the bulls that are still in the market and are convinced that the current levels are a screaming bargain and the market is about to rally. This leaves us with a bunch of bears who are not about to buy, and a bunch of bulls who are already invested and have no funds to buy with. Of course, this is a gross simplification, but I think it is accurate to a large
degree.
Another place where the market is polarized is in the market
internals. As I write this, about half of our internal indicators are obscenely oversold...they are at levels that *usually* lead to a powerful rally. But the rest of our indicators are overbought, and at the type of levels that suggest we are closer to a sell off! The way these indicators split up is that the ones that are based on the up and down volume are very oversold, and the breadth based indicators are overbought. In any case, these mixed up internals suggest it is going to be hard for the market to make a sustained move in either direction until the internals sort themselves out...which means we expect the recent choppiness in the market to continue.
On the bigger picture, the trend is still down. And this trend has been pretty impressive in its persistence...especially on the Nasdaq. In fact, the Nasdaq Composite has not had three consecutive days of higher closes since 8/30/00, 8/31/00, and 9/1/00. That is a remarkable string of more than four months without a three day rally. Even in the most severe bear markets, there are always strong counter-trend rallies...but we are still
waiting for one this time around. The Nasdaq has had a few brief spurts higher...however they haven't lasted very long or been very consistent.
In the last three weeks or so, I have written about some bullish internals divergences both in this newsletter and in the Walker MarketEdge. These are primarily on the breadth based indicators that I mentioned above. They are still in place, and they have the type of setup we look for in market bottoms. But as I mentioned last week, we need some buying enthusiasm to start driving the stock indexes higher. Last week's Fed rally fizzled just like all the other "sure thing" rallies over the last four months (take your pick: end of summer rally, October bottom, election rally, election mess conclusion rally, Christmas rally,
January rally, Fed rally, etc.). The bottom line is there are still some constructive things going on underneath the surface of the market, and we would love to get really bullish here. But until the bulls take charge and the market starts to move higher, it is hard to get very excited about this market.
These are the times when it is really nice to have a model tofollow, and that is what we are going to do. Right now, with a Signal Strength of 12 we are sort of in limbo. The Graduated Strategy just moved from 50% stocks to 75% stocks, while the Timing Strategy is completely out of stocks. It would take an increase to 14 for the Timing Strategy to move into stocks. Given the choppy nature of the market (and especially those polarized market internals), the Signal Strength could really jump around
in the next couple of weeks.
Now is a good time to think about an upgrade to the Walker
MarketEdge. It will bring you all our additional issues (we
have published to our MarketEdge subscribers three times since our last issue of the Walker Market Letter), as well as Flash Updates when our models change (and our mutual fund picks). Upgrading your subscription is fast, simple, and secure at: secure10.infoboard.net
We have updated the charts comparing the Nikkei bear market
with the current Nasdaq bear market. This comparison continues to be very striking. In addition, it compares this Nasdaq bear market to all of the past Nasdaq bear markets. You can see them at:
lowrisk.com
Good luck,
Jeff Walker
Copyright (c) 2001 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. |
