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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: D VanSwol who wrote (5790)	10/8/1998 3:35:00 PM
From: OldAIMGuy	Read Replies (1) \| Respond to of 18928

Hi Dennis, A worthy question! I appreciate you taking the time to ask about it as I'm sure others are thinking the same thing. Relative risk (the Idiot Wave) has to do with how high up the mountain you are and how far you have to fall. Back in mid-summer with the average Value Line P/E at 18.4, an all time high, we had much further to fall than we do with this week's 15.3 P/E. The Idiot Wave back then was asking for 50+% Cash Reserve for starting new accounts. Now it's content, if you were to start a new AIM account, with just 35%. This isn't low risk, but lower risk than before. If you had used the IW as your target to AIM selling and raised that 50+% Cash Reserve, you would have been taking money off the table at just the proper time. AIM's now probably asking you to dig deep into your pockets and buy more equities almost daily. Well, it's better to be buying now than back in June or July. The Idiot Wave gave us 15 weeks of high risk readings, starting in early April and continuing through August 3rd. That was certainly plenty of warning. We're still 5 points above the historical low risk area of the IW. Even when it gets there it won't mean "no risk." Our stocks only reach that point when they're worthless. Maybe the next time around I'll trust the IW even more. For instance, if I'd not bought any stock that AIM was telling me to buy until the IW had stabilized, maybe I'd have been more efficient in my buying. That would have saved me buying for the last 9 weeks! In that time the NASDAQ composite has dropped from 1846 to its current 1386 reading or a drop of 25%. Remember, I created the IW to confirm what AIM was doing, not to lead it. Recently it's been confirming AIM's buying and reduction of our Cash Reserves. I've not been confident enough of it in the past to let it lead my AIM activity. After all, the assembly of 4 or 5 statistical curiosities is just a curiosity all by itself. That it's mirrored my AIM activity for many years is what I'd hoped for and got. However, it is a leap of faith to think of it replacing or 'timing' my AIM buys and sells. Risk is lower now than in the period from April through the beginning of August. How much more can the market drop? We'll just have to wait and see. In regard to market volatility, the 5% drops in the NASDAQ are upsetting to me as well. Since it, the Dow Industrials and the S&P 500 are so widely watched, the fact that they're down adds to market fear. That fear creates a selling frenzy that just shows up as greater fear inducing drops. I thought we'd reached a selling climax a few weeks ago when the NASDAQ hit 1499, but as we've seen, it just triggered the fear mechanism. A week or two of incompetence by some of our world leaders and now the Fear thing is taking hold. We've all speculated as to what it will take to get the 401K group to shift their asset allocations and what would happen when they did. That actually started in August, but reversed in Sept. Now it would appear that October might just be yet another reversal. I'll have to call a few people and see what's up with the mutual funds. My "retail" broker says that the last two days have seen an even split between buyers and sellers at their decidedly conservative office. That sure doesn't describe the imbalance we're seeing in the averages. It's my guess that this is an institutionally driven sell-off so far and not individuals. According to Norman Fosback, mutual funds have raised cash by selling stock just when the markets are reaching a new bottom. They are light in cash at peaks and heavy at the bottom. Just the opposite of what the Idiot Wave suggests and what AIM practices. To reconcile the daily drops of 5% with the lower risk profile that the Idiot Wave is currently indicating, remember that a 5% drop today is still small compared to the 31% drop we've already seen from the previous NASDAQ high point. The chances of the market falling an additional 31% from here is quite a bit less than it was when the NASDAQ closed at 2014 in July. I hope this helps to explain the IW's advice. Further comments anyone? I'm done buying for the week, so I've time to ponder these things!!! Best regards, Tom