...............................................

       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 (c) 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.


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