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Samples of Archived Commentaries:

September 1, 2001

Market Internals Deteriorating

We remain on the same Sell Signal that we have been on now since June 13 of this year. As such, we continue to recommend a low exposure to this market and, definitely, only in top rated funds. Actually, since our August Letter, we have seen a deterioration in the market internals especially toward the last of August.

The rate reductions by the Federal Reserve have not kicked in as of yet as a stimulus for either the economy or the equity markets. That is a concern. Additionally, it is a concern that everyone seems to think that it is a foregone conclusion that those reductions plus the tax rebate will get things going in the near future.

Almost everyone appearing in the financial media has been in a useless guessing game of trying to pick the quarter when things turn up. We are afraid that that will not happen until the subject changes to how bad the problems are, rather than when they are going to end. You should note that a consensus opinion of economists is almost always wrong.

The small and midcap stocks, especially those described as "value" continue to be the strongest segment of the equity markets. Although, the real estate themed stocks and mutual funds are doing even better as a sector. However, it must be pointed out that even the small and midcap value areas of the market are losing steam.

We continue to be convinced that the wild speculative blow off of 1999 and early 2000 marked the end of a major bull market - one of the strongest ever. In our opinion, the investment climate now will be different for some years to come. Fund selection will be of even greater importance than ever, for example. Also, the market probably will trade in a wide range rather than trending upward as it has since 1982. The damage has been great and once concluded, a period of repair is the phase that will follow.

As has been the case for some time, we recommend very low exposure to this market. Our rankings of funds as of the end of August indicate which funds (and which types of funds) have been exhibiting the most strength in this market environment. As you may note, the list looks quite similar to that of last month. This underscores the rationale for our proprietary Fund Selection Model based on a relative strength approach to selecting what mutual fund to recommend. Trends in the market seem to last longer than we think.





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