Speculation data for the Small caps shows a marked decline to its Neutral range. This has taken quite a bit of pressure off the Small Cap iWave for this week as you can see on the graph above. Relative Valuation remains bearish in the small caps, but all the other components are now neutral.

Recent trade activity being mainly selling leads me to think we're doing okay. The S&P 500 and the Dow seem to want to advance while the NASDAQ Composite has stalled. This could be partly due to the small caps being at higher risk than the large caps. It could also be part of a shift of assets from the smaller cap end of the market to the larger end. Time will tell.

A first this week was the visit by a couple of wild turkeys around our bird feeders. I've seen them in the area, at the edges of fields and in the distance. My friends tell me they're extremely difficult to hunt as almost anything spooks them into running off. Well, these birds seem pretty tame getting this close to the house and being inside the city limits. This photo is taken from our kitchen window. These birds' heads are just about hip height to give you an idea of scale. Their foot prints in the snow are nearly 4" long by about 3" wide. One is slightly larger than the other and I'm not knowledgable enough to be able to guess gender.

REPORT - WEEK OF 12/05/2005: There's both good news and bad news on Small Cap Speculation this week. First the good news: There's only three stocks in the Best Performing list that are up over 100% this week. That's down from 6 last week. Now the bad news: One of them is up over 700% in the last 13 weeks! Oplink Comm. (OPLK) gets that honor. Wow, their sales, earnings, book value, profits, cash flow and dividends must have really perked up in the last quarter to justify such a rise! Or is this just blatant speculation?

By comparison, the best performer in Value Line's larger cap 1700 stocks is only up 72% this week. Shaw Group (SGR) gets that honor. It takes a 37% rise in the last quarter to get listed as a "best performing stock" while a 27% loss puts your company on the "worst" list. Over on the Best list there are a number of energy related stocks, some tech and software companies and even one airline. The Worst list is made up of one of the oddest assortments of stocks I've seen in over 20 years of monitoring this group. Calpine, General Motors, Dana Corp. American Italian Pasta, Tempur-pedic and Human Genome give a cloned person a bad, low energy ride in a car with worn out parts to go out to dinner and then to bed!

If it were my money, I'd be thinking of profit taking in the small caps and shifting to the larger cap stocks. While I wouldn't liquidate energy stocks, I wouldn't be adding to positions in that sector at the current prices. On the larger cap end, there's been very successful runs in Apple, Google and the like. I'm certain that if these had been AIMed, you would have already taken very nice profits with AAPL up 45% in 13 weeks and GOOG up 47%. Many of the smaller retail chains like JoAnn Stores (JAS), Bebe Stores (BEBE), Nautilus (NLS), Sharper Image (SHRP) and even Saks (SKS) have been taken down with serious sell-offs. It might prove to be a good time to look over that sector for good AIM candidates as they are discounted between 30 and 50% from just 13 weeks ago.

While discussing a broadly based ETF model I was stating that AIM's goal is to keep value at risk relatively steady during both rising and falling markets. It does so by selling off premium value above that risk amount and storing the proceeds in the form of cash. Conversely it back-fills our inventory value when market prices decline to keep us near our stated risk level. While I've usually presented AIM's activity in Stacked Bar Graph format and felt it did a pretty good job of showing this, it appeared there was possibly a better way of demonstrating this. So, I separated the Equity and Cash values into separate bar graphs for this new image:

REPORT - WEEK OF 11/21/2005 & 11/28/2005: We're being blessed with low speculation in the large caps again this week. That's not true for the small cap stocks, however. It continues to show an overbought condition not in evidence in the larger cap stocks. Valuations are not as healthy in the small caps either. It's quite possible that some of the speculative money that had chased Real Estate for several years is coming back to the stock market. While looking for a new investment in stocks, these dollars seem to be chasing what was last hot (small caps) rather than looking for value (better in large caps).

November turned out to be a good month for VIEW. We had a healthy 2.5% gain in our retirement account which brings the total for the year to date to 5.1% overall. The month's winner was Technology (IYW) with a 6.1% gain and Healthcare (IYH) came in with the lowest gain of 1.8%. For the year to date, Energy (IYE) still stands out with a 20% overall gain including AIM's cash reserve while Consumer Cyclicals (IYC) actually shows a YTD loss of 0.4%. Several of these funds are nearing their next respective selling prices. This graphic courtesy of Stockcharts.com does a nice job of showing the sector differentiation:

And this grapic shows the cumulative effects of AIMing these sectors since September of 2002:

REPORT - WEEK OF 11/14/2005: Well, we only got a couple of weeks of relief in the Small Cap Speculation component. This week it jumped up enough to reverse the direction and turn that segment of the market bearish again. Large Cap Speculation remains calm for this week. Even so, both the market segments show a rise in overall risk. The best thing I can say for the recent action of the iWave is that it shows an increase in volatility that had been missing for a couple of years. This will eventually pay AIM users some profitable dividends, even if it is a bit unsettling.

Steve "Grabber", on IHub asked if I could compose a graph that showed the two parts of the Relative Valuation so we could see the effect of the FED's interest rate increases. This Stacked Bar configuration does the job nicely.

Here you can see the interest rate climbing over the last year while P/E had come down a bit. However, it's been a balancing act all the way. I believe the market's upside potential is being limited by this very component's current reading. It indicates that the market is currently fully valued. Not quite Bearish, but with little room to the bearish ceiling. Also of note in the graph is how clearly Relative Valuation spelled out a very bullish period in late 2002 and 2003. For those of you new to this newsletter, back then the iWave was giving very firm Low Risk readings. (See the Archives for that time frame)

The small cap end is in worse shape having a higher P/E. I still don't have enough data to fully qualify Relative Valuation of this segment, but with a P/E of 19.2 and 13 Week Treasuries near 4% it sure looks like it's over priced.

Clearly the markets need to earn their way out of this condition since we can't expect a lowering of interest rates any time soon. The only other choice is a correction to bring valuations back more toward the mean. Prudent levels of cash should be held to give your Purchasing Department the leverage it needs should the markets not have their year end rally. There is still a lot of divergent thinking among investors as evidenced by the Bearish reading of the Divergence component. Last week there were 556 New Highs simultaneous with 477 New Lows over the last 52 weeks. We have to ask ourselves, "Which group is right?" Mr. Fosback considered this a short term bearish signal.

REPORT - WEEK OF 11/07/2005: A choppy week of action with the indexes rising a bit more. As we see in the iWave components, there's some hand wringing going on with Divergent Thinking. We have a lot of new highs and lows simultaneously right now which shows the market's confused about what its next direction will be. It's the number of new highs that is swelling right now while the new lows remain pretty large also. This may be part of the year end "tax planning" selling that goes on. Sell the losers to capture losses to offset gains. Pump cash into the best stocks of the year hoping that they continue into next year. Window Dressing - so to speak.

Speculation is just about at its "Bullish" mark as of last week. I always feel quite comfortable under such a signal.

Even the Small Cap Speculation has fallen off dramatically in recent weeks.

So, with these two components under a lot of relief right now, we can see why the market is attempting to rally. The NASDAQ Composite is up over 6% already from its recent lows. The S&P500 is up over 4% from its lows, too. All in all the markets seem healthier now than they did before the last High Risk event. Moderate speculation and "neutral" relative valuation for the large caps may spell the beginning of a large cap rally that could extend to the next ceiling. My guess is that ceiling for the S&P 500 is going to be up around 1300. The NASDAQ Composite might make 2250 again before it tops out. Much depends upon how the current earnings reports come in.

REPORT - WEEK OF 10/31/2005: More good news as the iWave Risk indicators for both Larger and Smaller Cap stocks continue to be below their respective moving averages. In the mean time my own portfolio which had been suffering during the High Risk period is coming back nicely. The reports coming in on Investors Hub indicate that other AIMers are also getting some benefit from rising prices and some sales.

It is almost like there's too much too soon here. We'll have to wait to see how the various components of the iWave settle out over the next few weeks. We don't want to just see it head straight back into High Risk again.

We did add some shares of Sun Microsystems to the Warehouse this week. It seemed to be a good one to set up for AIMing as we watch David battle the Giant. Along with that we've had some buys that have occurred in the last week or so. We added to our GNSS and CBK holdings in recent times.

There are quality stocks that can be purchased and AIMed with patience. We don't need next year's biggest gainer to build out our portfolios. Cyclical stocks which respond to market pressures like we've had in recent times do quite well with AIM and at a lower threshold of risk. Many mature industries have stocks that pay dividends while their share price floats up and down. Total return on these stocks can be quite good when combined with AIM's cyclical profit capture. Please keep these types of stocks in mind as well.

REPORT - WEEK OF 10/24/2005: For the first time since the week of July 22nd the Small Cap Speculation Index dropped to a neutral reading. It seemed as though it was stuck in the BEARISH range for good! While a 155% gain in just 13 weeks may not seem "mild" in speculation, it is way down from the 900+% gain that had been showing a week or so ago. We'll take improvement any way we can get it!

The P/E ratio of both the traditional Value Line and its small and mid cap edition dropped this week to also help bring about reduction in the overall risk reading. Of the six components (two shared by large and small cap) only one increased its risk level and only slightly. All the others were down nicely. This can be easily seen in the graphs above.

So, while we may not be through completely with this portion of the market's cycle, it appears that much of the down side risk has started to evaporate. And, it seems to have happened without too much total damage to the overall market. This cycle we saw two of the four components of the Large Cap I-Wave go to their respective Bearish levels at the same time. Three components were involved at various times. On the Small Cap end of the I-Wave, two were nearly continuously Bearish while there was a brief period with three components simultaneously Bearish.

So, what's next? Earnings are coming in on many companies right now, there's a change in the administration of the Federal Reserve Bank coming after the first of the year, energy costs are still way above last year and we're finally coming to the end of hurricane season. So, with that mix, I'm sure we'll see plenty of activity - whether good or bad it's hard to say. Still, we're now back to about the center of the Average Risk range for the larger cap stocks while the smaller cap stock risk is falling quickly. Risk should be easily managed by AIM going forward.

REPORT - WEEK OF 10/17/2005: Relief has started to arrive for the worrisome iWave Large Cap Risk Indicator. It dropped an impressive 11 points in just one week. Most of the improvement came from the Divergence component showing that everyone had decided the markets were awful. When they're all in agreement, no matter whether it's because they think things are great or awful, the results are bullish.

There was further reduction in the Speculation and Relative Valuation components as well. The cumulative effect is a relaxing from the high risk reading we'd had for 6 weeks.

Now, the Small Cap end of things has not responded to the Divergence improvement mainly because the Speculation in small caps continues at a scary pace. We'll have to wait and see if there's been some improvement with this week's data. In the mean time, it would appear that Large Cap is the better value right now.

There's been some discussion on the IHub Bulletin Board about variable SAFE and Min. Order settings. The idea was to examine what were the effects on Cash Burn Rate with different settings. I thought for the sake of learning, I'd start with some basics and then work through these various options. However, establishing a baseline seems to be necessary. To do this we calculated each buy price needed to satisfy AIM's minimum requirements with different settings. We also looked then at what was the lowest price/share for the last purchase and what the average cost/share was.

AIM Variation Studies

Settings	SAFE = 10% SV, Min. = 5% SV	SAFE = 10% SV, Min. = 5% PC	SAFE = 10% PC, Min. = 5% PC	SAFE = 10 PC, MIN. = 10% PC
Total Shares Purchased	2437 Shares	2491 Shares	2522 Shares	2579 Shares
Lowest Price/share	$5.43	$5.34	$5.19	$4.92
Next Sell Price	$7.16 (31.8% LIFO)	$7.05 (32.0% LIFO)	$6.80 (31.0% LIFO)	$6.90 (40.0% LIFO)
Portfolio Control Value	14813	14921	14910	14807
Portfolio Total Value At Last Buy Price	$13,727	$13,574	$13,398	13,160
Average Cost/Share After Last Buy	$8.004	$7.918	$7.808	$7.572

(PC = Portfolio Control, SV = Stock Value)

The first column is AIM "by the book" starting with $10,000 of stock and $10,000 of cash. All examples are started the same, only the settings have been modified. Second column gives us a few more shares by letting the minimum order size increase along with Portfolio Control's value. The third column links both SAFE and Min. Order to Portfolio Control. Finally, just for fun, we increased the Minimum Order to 10% of Portfolio Control to see what would happen.

Many more possibilities could arise but this test seems to indicate that linking either or both the SAFE and Minimum Order Size to Portfolio Control instead of the more variable Stock Value creates more efficient purchasing as indicated by the dropping Average Cost Per Share. The first three examples show LIFO gains from the last purchase that are essentially identical. It's only with the increase in the Minimum Order Size that we see an increase in the LIFO requirements to start recovering cash.

The discussion on the IHub Bulletin Board has also discussed increasing either the SAFE value or the Minimum Order Size on sequential Purchases. We can imagine that it will conserve cash and buy to deeper discounts, but we need to also learn what happens to average cost per share and also our Next Buy Price. I intend to study this further and report in future Newsletters.

REPORT - WEEK OF 10/10/2005: If last week's market action was a bit confusing to you, please don't feel as though you are alone! With 589 New Highs and 475 New Lows all in the same week it seems as though everyone's a bit confused about which direction the markets will go next. Looking at the Advance/Decline data for last week shows 909 advances on the Nasdaq and 858 on the NYSE. The Decliners numbered 2363 on the Nasdaq and 2639 on the NYSE. Here we see the breadth as turned quite sour.

The non-U.S. markets have done well in the last month or so but even they took a breather last week. While not off a lot, they have given back some of their peak values seen two weeks ago.

Where this will finally play out as far as index values are concerned is still just a guess. So far the indexes are off minor amounts from their peaks. However, the confusion in the market place has many investors worrying about 3rd quarter earnings reports. It seems the markets are looking for a reason to go down. The iWave has given us plenty of warning and Mr. Lichello's excellent model has again given us the luxury of substantial cash in reserve should we see a nasty snap back in the market place.

Personally I welcome an opportunity to put some cash back to work in the market place. Money market fund yields have improved so I don't mind waiting as much as I did a year ago. Now, if the prices will just fall enough to get AIM buying, I'll be smiling.

REPORT - WEEK OF 10/03/2005: Capstone Turbine is winding down. This has brought some relief to the Speculation component of our Large Cap iWave. While still near its own Bearish range, it is enough lower that we only have one component officially in the Bearish territory any more. Still, the iWave remains inside its own High Risk territory. Relative Valuation also dropped some this week which also helped reduce overall market risk.

The Small and Mid Cap markets are still under higher risk although there's been some internal component improvement this week. Relative Valuation and Speculation are both bearish along with the common component of Divergence remains bearish. We're watching this corner of the market very carefully.

This week showed some reversal of the recent selling trends we've seen in the non-U.S. Exchange Traded Funds. Latin America along with Asia and Japan have slipped back from their recent highs and our recent selling prices. So, again it would appear that Mr. Lichello's ghost was working in our favor to have us liquidating premium shares in the last month.

Last week there were again lots of new 52 week Highs and Lows simultaneously. This confused state won't last long. The market is attempting to sort out those who are bullish and bearish and will do so rather quickly. In the mean time we'll continue to see the market stalled. I'm being careful with my cash reserve and am sticking to a sequential buy pattern of only one buy in 30 days. So far this has kept the few stocks requesting purchases in good shape. I'm also still using 5% of Portfolio Control as my minimum order size. This makes each sequential buy a bit larger than the previous one. This also helps to improve the discounts needed on sequential purchases. I've been playing around with the idea of not doing any buying while the iWave is showing High Risk. However, I'm not yet convinced this is a constructive strategy. Some stocks appear more sensitive to market risk than others and may move to buying levels sooner than others.

Interest rates have come up enough that we're starting to see some improvement in yield from our Cash Reserves. It won't take much for the yield to exceed the average dividend of the market place. Value Line's Large Cap average yield for dividend paying stocks is 1.7% and for the Small Cap dividend payers, it's 1.8%. With money market rates now heading upward of 2.5%, this gives us some more reasonable return on this important component of our accounts. For a long time "cash was trash" with such low yields. Now we can smile a bit more when we look at our cash reserve levels.

REPORT - WEEK OF 09/26/2005: More expatriating of cash seems to be taking place as the nonU.S. Exchange traded funds rise again this week. All this while the U.S. indexes show only moderate support this week. The weekly data on Advances and Declines last week was very sad with decliners numbering twice advancers. Divergence soared, too, with new 52 week highs and lows both being substantial. We'll have to see how this week closes out.

I've had no newsworthy trades cross my desk and it appears both the Sales and Purchasing Departments are on vacation. Purchasing has been told to delay any buying until we see the iWave return to the Average Risk range or better. Discounts are expected to be better later on.

We now have two bearish components in the large cap area and one close enough to be essentially also there. In the small cap area we have three components warning us of needed consolidation. We remain cautious and thankful for the cash we've raised so far this year and the foreign diversification added over the last 12 months.

Please note the new AIM ETF page devoted to Non-U.S. based Exchange Traded Funds. While this group took a while to get rolling after we started our model, it is now moving ahead nicely. Japan is the latest contributor to Cash Reserve in this group.

REPORT - WEEK OF 09/19/2005: We continue to see Capstone affecting the iWave Speculation component this week. However, with three of the four components rising in the same week, we can't place the entire blame on it. Risk is high without CPST and is even looking higher in the Small Cap arena.

While all this risky business is going on here in the U.S. there appears to be quite a bit of activity going on outside the North American continent. We've had sales trigger with EWJ (Japan), EPP (Far East less Japan), EWU (England) and EWW (Mexico) in the last month. So maybe there's been a "continental drift" of money in recent times.

Also of interest to some investors is the rise in Precious Metals valuation. We model VGPMX, the Vanguard precious metals fund with AIM and occasionally post about it on our AIM BB at Investors Hub. After years of poor performance, precious metals have had an excellent run-up since when the market peaked in 2000. Take a look at this graphic and see how both Yellow Gold and Black Gold have done in that time frame. Also note the dismal performance of the S&P 500 Index Fund in the same period.

I noted this week that Australia has moved ahead of the Netherlands in readership and that Canada is closing in on 10% of our base of followers. The United Kingdom also continues to increase in total readership. Thank you all for your interest and your trust in both Mr. Lichello's model and my iWave risk indicator.

REPORT - WEEK OF 09/05/2005 & 09/12/2005: Only one of our stocks triggered a Buy recently. ADCT reacted badly to the news that it was again earning money instead of losing it! AIM knew what to do with this bad reaction and medicated it with CASH. In recent weeks we've seen sales in IJT and IYE in both our model accounts and in our real ones. IYH also tripped Sell trigger points. These sales represented approximately 5% of the positions while the ADCT buy was for an additional 10%. On the foreign front, we have had sales in EWJ and ILF, both for around 7% of the existing holdings.

As you can see, we've entered into Halloween a bit early this year. The I-Wave for both the larger and smaller Cap. markets is now firmly in the HIGH RISK territory. To understand just what ghosts lurk, maybe it is a good idea to look at the underlying components.

So, if we dropped Capstone from the database, where would we stand? Actually, it still wouldn't be a great picture. The I-Wave would be at 49% Cash indicated instead of 56%. That's an improvement, but only gets us one point below the High Risk territory. Based upon this, I'd say we should remain cautious about starting any new AIM investments at this time. I also, as a general rule, curtail any AIM designated Buys while the I-WAVE is showing High Risk. That is my suggestion at this time. Hold off on satisfying any of AIM's requests for buys and also hold off on starting any new AIM holdings until the market risk quiets a bit. With only one component currently showing BEARISH, we need to be on guard, but not exactly paniced at this time.

REPORT - WEEK OF 08/22/2005 & 08/29/2005: Not a lot of trading to report at the Warehouse. We did do some business overseas selling off 5% of our EWJ shares last week, but that's about it. Some activity has shone up in the AIM PIC list in recent weeks. Three sells and as many buys have tripped in the last three weeks. Money is leaving some areas of the market and searching for homes in new locations.

Market risk seems to have peaked right along with the markets themselves. It's nice to see a bit of moderation in both the indexes and our trusty I-Wave. While far from showing a return to "bargains" it is at least showing some moderation in risk. The P/E of both the larger and smaller cap sections of the market have come down in the last two weeks. Small cap speculation continues to be "high" but has also moderated. All four of our I-Wave components are now back to being "neutral" in their risk assessment.

REPORT - WEEK OF 08/15/2005: Well, the I-Wave graphs are getting a bit spooky even though it's months before Halloween. The Small Cap I-Wave is showing very high risk with speculation and relative valuation as the major reasons. The Large Cap I-Wave is rapidly approaching its own High Risk territory but is being driven by relative valuation only.

Rising interest rates along with P/E levels on both the smaller and larger cap stocks is presenting a ceiling that will be the limiting factor for the markets in the near term. Earnings reports will need to show significant improvements to bring the P/E levels back down. That would allow the markets to move out of this trading range.

We're keeping an eye on the IPO market as well. It can suck speculative cash out of the traditional markets and thereby leave them with no change for many months. So far we're not seeing enough IPO activity to concern us even if BARRONS this week says that market is BOOMING. Well, I think it is just barely keeping up, personally. If they want to call it a boom, that's their business.

This time last year the I-Wave was giving us a healthy report with a low risk signal. The S&P 500 Index is up about 9.5% since that signal was given. The NASDAQ Composite is up an impressive 16.9% over the same time frame. I hope your own portfolios are doing as well. The I-Wave again proved to be a good guide through this rather torturous market. Now that it is nearing a high risk signal, I hope everyone is paying close attention again.

REPORT - WEEK OF 08/08/2005: Again this week we had selective selling going on at the Warehouse. The action was in Energy as we sold shares in each of 7 different accounts we manage. This made our warehouse manager happy as the room on the shelves was needed for the expanding Greenback inventory. I also took note that a precious metals mutual fund that I track triggered an AIM Sell this week for 5% of the equity. This is the second sale this year and the third one since adding to inventory in 2004.

As you may have noticed, we saw a bit of a "topping out" in both the NASDAQ and the S&P 500 last week. Whether this is the where we see a consolidation start or whether it pushes the extremes a bit further is as of yet unknown. There's some upside to the Large Cap that hasn't been yet exploited, but it appears the Smaller Cap stocks are starting to show the strain. I put the "raw" data back into the Small Cap I-Wave this week. I'd hesitated to do so because of its erratic nature, but now that I've added it, feel that it adds some strength to the conviction that this part of the market has gone as far as it can for now. Consolidation at this point would be health. If it runs up higher before consolidating, then the risk of a bigger correction looms larger.

While I have been keeping the data for less than a year in several foreign Exchange Traded Funds, recently there's been some activity. So rather that wait for more data to accumulate, I'm going to be building a separate page for these non-US ETFs. Here's an example:

REPORT - WEEK OF 08/01/2005: Although Veale International Equity Warehouse continues to enjoy a healthy selling spree we've not lost track of where the I-Wave is headed. Both the Large and Small Cap markets are showing increasing signs of stress. So, all sales are welcome! This week we've seen sales in ILF, IYH, EWW, EWG, ADCT and in our PIC List virtual account sales in CGNX and APCC.

If you're starting new AIM accounts look at the risk trend on the above graphs. If you're maintaining AIM accounts, think about your overall liquidity compared to the I-Wave's suggested levels. While the Large Cap market might yet have some gains ahead, it appears that the Mid and Small Cap end is playing itself out more quickly.

REPORT - WEEK OF 07/25/2005: While we have been enjoying a lot of Sales activity at the Warehouse, we've also been keeping a close eye on our I-Wave Market Indicators for signs of stress. Of note is that both the Large Cap and Small Cap markets are showing increasing Bearishness in their respective Relative Valuation components.

Both of these indicators give me the impression that we're nearing a short term market top with little or no room for significant upside expansion of the major indexes. As in the musical "Oklahoma", ....they've gone about as fer as they can go..... It will require an interest rate reduction (highly unlikely), for corporate earnings to advance to lower P/E, or a market set-back to lower average P/E to get back into balance.

The large and small cap markets are being treated differently by investors and speculators. Currently there's very low Speculation showing up in the larger, more established end of the stock market while the smaller cap stocks are showing considerable Speculation.

From these two measures it would appear that the Small Cap end of the market is currently showing a higher overall risk profile than the large cap end. This is summarized in the I-Wave graphs above for each market cap group. It may turn out that the small cap market can stand a bit more speculation and higher Relative Valuation, but it also appears that the opportunities presented to investors in August and September of 2004 are long since gone. Please exercise caution if you are starting new positions and let AIM help you raise your cash positions in existing portfolios.

The other two components, Divergence and Zeal, are shared by both the large and small cap I-Wave summaries. These are telling us that, for now in these measures, there's no concern.

In the past I've mentioned that the best signals from the I-Wave have come when all four components are in harmony. This time they're not. However, they are showing us signs of internal stress - sort of like a "Magnaflux" test in metallurgy. We'll watch these closely in following weeks.

REPORT - WEEK OF 07/18/2005: The Warehouse continues its Summer Sales Event with new orders arriving quite frequently. Two of our inventory items were hot sellers this week each with double sales.

Cognex's stock was added as an inventory item back May of 1996 and has remained a popular item with our customers ever since.

Genesis Semiconductor's stock was added more recently in October of 1999, was wildly popular through the end of 2001. We ended our activity with this stock from December of 2001 through January of 2003. At that time we fired up the AIM engine and got the machinery rolling again.

As you can see in both cases Mr. Buynhold's decision to "let it ride" was not necessarily the most solid he's made. In both "real time" AIM portfolios from my account AIM has turned moderate performance into very good performance during the ownership and management. It is this exact sort of stocks that Mr. Lichello first designed AIM back in 1977. The method continues to turn in better results with moderated risk when owning cyclical company stocks such as these.

REPORT - WEEK OF 07/04/2005 & 07/11/2005: Another useless attack on innocent people was perpetrated by fools. When will they ever understand that with the same amount of effort and planning put toward something of productive nature would bring about much more beneficial change for all?

For investors this time the surprise was the resilience of the markets and the increased determination of those attacked to do what is necessary to end this waste.

Gain in the various market segments was enough to trigger a "real" sell in my GNSS holding and "virtual" sells in the PIC List stocks (ELX and MTW sold, IVC bought) and in the 13 Sectors portfolio a large sale in IJS. Let's hope Osama was Short the market the day before the attack and lost his ass.

This seems like a rather short report for a two week condensed version, but that's about all I have to say this week.

REPORT - WEEK OF 06/27/2005: The PIC List and the 13 Sector virtual portfolios have both been updated recently. You should find some of the results interesting, I'm sure. While neither is setting the world on fire both have been holding their own in a tough market.

This has been a quieter week around VIEW. The warehouse manager says that the CHY inventory has all been counted and put on the shelves. We hear there's interest growing already. With a pause in both the NASDAQ and S&P 500 indexes seeming to be prelude to the long holiday weekend in the U.S. not much occured. We'll have to see how the rest of the summer goes as Vacation Time kicks into high gear.

REPORT - WEEK OF 06/20/2005: Well, just a week ago I was talking about the Large Cap risk level rising while the Small Cap was falling. This week Small Cap played Catch-up rising 4 points in just a week. So, now risk appears to be spread out more evenly across the entire market. Both Large and Small Cap areas' P/E remained steady this week but we are seeing a surge in Speculation in the Small Cap arena. This accounts for the big jump this week. Personally I welcome a bit more speculation in the market place. At this point it would seem "healthy" to have a bit more.

As the risk has been rising our Warehouse has been busy reducing inventory. This week we had sales in EWW (Mexico ETF), EPP (Far East ETF) and JBL. All sales were executed, as usual, at a profit determined by AIM's internal formula. Much more of our inventory is nearing a point where we'll be selling portions. Even if this proves to be nothing more than a bit of Summer Rally, it is still fun.

I mentioned on the Investors Hub AIM Bulletin Board that after nearly 20 years of using ACG as my main source of living expense income I've sold out of it and moved the dollars to a corporate convertible bond fund (CHY). It is my current thinking that CHY has less downside risk and greater dividend stability than does ACG. I will continue to use AIM to manage this bond fund just as I did with ACG. In my early days of ownership of ACG I attempted to trade the small price swings that it had. However, I found that this very long cycle area of the market (long term bonds) had large price swings that trended for as much as 2-4 years. So, why start buying when the price is down a small amount when we know it will probably continue to drop for a very long time? Why not just let near standard AIM settings wait out the big drop and then scoop up the better priced higher yielding shares nearer the bottom of the cycle. My primary mission with this part of my portfolio is Dividend Capture not Volatility Capture. By doing so, I also could shrink the Cash Reserve level of this AIM managed holding to a bare minimum of 25% to 30% during price peaks.

With the more traditional AIM settings for ACG, I bought heavily into the 1990 slump, sold into the '93-'94 rally, bought heavily into the '95 bond bear market, sold into the 1998 peak and again bought heavily into the late 1999 - 2000 bottom. Once again as the price/share headed upward of $9/share in 2003 we were again net sellers of this fund. No buying has yet been done since that time. So, since 1986, there have been three periods of AIM directed selling and three periods of buying. Along the way, so as to keep my income rising to match my living expenses I rebalanced my overall portfolio taking profits from my "growth" side of the account and doing significant additions of the bond fund in harmony with AIM's lowest price buying. On one of these occasions I increased my bond fund holding around 33%. This meant that my income for living expenses rose accordingly since it was profit money from zero dividend growth stocks that funded the purchases.

In all the time since 1986 when I started off as a private investor it has been my goal to not touch Principle for living expenses. It has been my effort to have an income portfolio that was large enough to support my family and a growth portfolio that would help the overall account keep up with inflation. For the most part I've accomplished this goal even if the last five years have been tough ones for the "growth" side.

REPORT - WEEK OF 06/06/2005 & 01/13/2005: The I-Wave is telling us the Tale Of Two Markets this week. While the Large Cap risk had risen for several weeks, the Small Cap had been in descent. The Large Cap I-Wave has risen in harmony with the S&P 500 while the Small Cap has been moving somewhat opposite the direction of the NASDAQ Composite. I might have to find a new scale for this smaller cap item if this persists. In the short history of the Small Cap indicator it would appear that it generally moves in harmony with the Nasdaq Composite.

We're very near some selling activity again at the Warehouse. Several items we inventory have approached proper sell points. We're hoping to close those deals soon.

Several AIMers reported their monthly and YTD performances on the IHub AIM Bulletin Board recently. I think all would concur that it's been a tough year for making money. Those trading individual stocks seem to have had more activity than those with Exchange Traded Funds, but there's been greater stability with the funds. So, individual stocks have scored higher on the "Volatility Capture" end of things.

Interest in AIM on several fronts is improving. This will be good for all involved.

REPORT - WEEK OF 05/16/2005 Thru 05/30/2005: From the Shoot Yourself In The Foot Department, it has taken me far longer to recover from a recent computer malfunction than I ever thought. I was very confident in my methods of backing up my W-98 machine and thought at most I'd have a week or two of data to repeat if there were a problem. Well, when the hard drive started to fail, I thought it wise to "ghost" it one last time in case it wouldn't light up again the next day. In doing so, I corrupted my mirror hard drive's FAT tables. All the data was there, it was just in a unsearchable form.

When I looked at the Build Date of that computer and saw that it was a 2000 model year, I decided to buy a new machine and move to XP as a platform. This involves work on its own. Several of the ancient software items I've used for up to 17 years just plain didn't want to be as happy in XP without a lot of fiddling around. I also bought a "data recovery" software which worked pretty well. It will scan a disk and create huge lists of what's stored on the drive. They're not in any particular order, but if you want to recover all your spreadsheets, you can "search" just for those files extensions and it will collect all the bits and pieces.

So, nothing important but time was lost in the process. If I'd not attempted one last backup, it would have gone as planned and I'd still be using the W98 machine. So, half the work would still have to have been done. In the mean time I've upgraded platforms, hardware and added some cute little gizmos like a USB remote hard drive and floppy drive.

The I-Wave for Large Cap stocks had a few weeks of rising risk and still sits just above the long term average value for that indicator. Not much excitement there, and it's too early to see if it's a trend. Considering the general improvement in the S&P500 during May, it should be no surprise that we'd see a little bit of rising risk. At this point, the leader for the indicator is our Relative Valuation component. It's the closest to its own Bearish territory and needs to be watched closely.

The Small Cap I-Wave shows a slow decline in risk over several weeks. This brings the indicated Cash level for that index below 50% for the first time since late 2004. While we've not yet assigned Low, Average and High Risk values yet to this new addition to the site, we can feel pretty well assured that if it's asking for over 50% Cash, it doesn't think it is the BOTTOM of the market cycle! I plan on gaining more historical data to flesh this out a bit and see if we can establish its normal 80% data range and its 10% extremes on both the bullish and bearish sides.

As always, we've continued to have very good discussions on the AIM Users bulletin boards at IHub. The latest Millennium Post Grub Winner was TooFuzzy! Congratulations for being a part of adding another 1000 posts to our board.

REPORT - WEEK OF 05/02/2005 & 05/09/2005: A quick report to get caught up after a week's vacation in Florida.

We managed to off load some IYH cargo while in harbor at a fair price. We were paid $60.83 for each share sold. There's not been much in the way of trades in the Healthcare sector. However, since the 2004 Elections this ETF has been doing better.

Not too much else to report at this time. I'm attempting to clear away a lot of accumulated mail and update files such as the ETF Retirement Account page. I'll have the 13 sector pages updated by week's end. Another task that awaits is updating the PIC List. So, I have plenty of screens to capture and pages to update.

I'm pleased to see the I-Wave Small Cap indicator finally drop out of its High Risk range. It's been quite a while since we've seen it this low. I'm pleased with the correlation of the IW-SC with the NASDAQ Composite. I'm considering changing the IW Large Cap to follow the S&P500 as that's primarily a larger cap index.

Thanks for your patience while I played sun god, piloto, and fishmonger.

I noted errors in reporting the I-Wave Small Cap index for a few weeks. Here's the proper values:
DATE------------IW-SC
March 21---------53
March 28---------52
April 4--------------52
April 11------------52
April 18------------51
April 25------------50
May 2--------------49
May 9--------------48
Sorry for any confusion.

REPORT - WEEK OF 04/25/2005: If anyone had asked me about last week's market activity I think I would have guessed that it was "down" overall for the week. We had some good and bad days, but it felt like the bad ones were overpowering the good ones. Not so! At the final bell on Friday the Dow 30, Nasdaq Composite and the S&P500 were all showing positive percentages for the week.

So, what were all those gyrations about? It's hard to say. Three of the four components of the I-Wave dropped to lower risk levels over the week. All, however, are still showing just Neutral risk levels themselves. Two are closing in on their respective "bullish" territories which might be the best news we've seen in a while. Also, we saw a nice drop in the Value Line P/E as well. The I-Wave is now "below average risk" for the first time in 2005. There appears to be only about a 5% gain available before we would run into a market ceiling. I don't see much more risk than that on the down side either. So, are we to be stuck in a trade range of +or- 5% for the rest of the year? This may be.

Our PIC List stocks did quite a bit of buying a week ago. In my taxable account we also did some buying of individual stocks. The only ETF that's signalled a buy recently was IYM in a virtual account I'm modeling. So, there's at least been some activity. On a negative day, I find myself saying, "Come on! Is that all you have?" With cash reserves available it's tempting to taunt the markets!

With speculation relatively low in both the large and small cap ends of the market, where is the usual speculative money going these days? Could it be that the hot housing and real estate markets have siphoned off much of that nervous money? I guess we'll know the answer eventually. I've never participated in a "housing bubble" directly. Where I lived as a boy was the direct result of the 1920s real estate boom. The neighborhood in which I lived had been built pretty much on speculation. When the market Crash came, the building continued for a short while and then stopped until the 1950s and '60s. We kids used to ice skate in the basement foundations where they'd been poured but the houses never built. Some of these basements sat uncovered for up to 30 years before the WWII generation finally bought and built on those sites.

At the same time monster homes were being built in other areas. These huge homes were beautiful, luxurious places. When the Great Depression came along, many were also empty. Banks were saddled with much real estate. Some homes were sold for back taxes. Banks with too much bad debt eventually folded.

I've tried to imagine if this is the sort of real estate bubble that is now occurring. There are symptoms that are similar. I guess I just don't have enough information to know for certain. Wouldn't it be nice if we had an I-Wave that measured Real Estate Risk?

REPORT - WEEK OF 04/18/2005: We haven't had a week with so many jumpy investors in quite a while. It seems that many have had a taste of bad Lemming recently and are having trouble digesting it. While we've not seen Group Insanity yet, it seems there's at least a bit of Full Moon Fever going around.

Today, Mr. Greenspan spoke to the Senate. As best I could tell, he told them they're spending beyond their means, the economy is barely okay and Baby Boomers expectations for retirement are way too high.
So the market rallied!!!!

Isn't it a logical world?

Well, this week we had some activity at the Warehouse in adding to some inventory positions. More orders were entered than were filled so far, however. Maybe we'll see a market swoon on Friday and we'll get the remaining purchases done.

With all four components in their Neutral zones I am not gaining much insight into the market's future. It's neither hot or cold. We've had several weeks of declines that seemed to accelerate late last week and a couple of days this week. I noted in TRIM TABS that the week of April 14th had shown some inflow improvements to traditional and ETF mutual funds. This was at the expense of high yield and "junk" bond funds. With my junk bond fund nearing the 10% yield level, I'm tempted to get the Purchasing Department involved. We had a dip like this last year and it proved a wise move to be adding shares.

We don't seem to have received the usual annual rally based upon the end of Tax Season. It's still a bit early to hope for a summer rally. So, where are we going to derive any sort of excitement from the market? It might come in the form of surprise earnings from the first quarter. McDonalds announced excellent earnings and surprised many investors just today. Maybe there will be more of this.

REPORT - WEEK OF 04/11/2005: Our Purchasing department is getting anxious. Several stocks and ETFs are closing in on Buy prices this week. We'll be executing orders starting Monday on several positions.

Moderate Speculation in both the Large and Small Cap markets allows for some upside potential. I was surprised with the decline in major indexes that we didn't see a deeper decline in P/E ratios of the same indexes. At least they've not yet been reflected in Value Line's weekly positions as of yet.

A busy week last week and then getting settled back into work this week after racing all weekend has made me feel a bit out of touch. However, with none of my GTC orders tripping, I guess I've not missed too much.

Next race is at The Milwaukee Mile at State Fair Park in mid-May. It's been 23 years since Midwest Council of Sports Car Clubs has been at The Mile for a race. We'll be using the mile oval plus an infield track for some interesting road racing. I've only raced on one other oval in my 15 years of piloting race cars.

REPORT - WEEK OF 04/04/2005: Good friend and fellow investor, Bob Hamilton, wrote this last week and sent me an article from Forbes Magazine (March 28 edition). The title is Bottom Fishing Value Line Stocks. Now that has a familiar ring to it! I wonder if they've been investigating our PIC List? They talk first about Value Line's historically significant Timeliness rank from a Momentum point of view and then offer the idea of "value picking" using it as a Contrary indicator. Well, since 2001 we've been keeping data on this exact idea but with the twist of using the Highest Growth Stocks List as a filter. I've written to Forbes to confirm their idea's validity. Note they list some interesting stocks in their article.

I've been seeing some writings indicating that large cap valuations are low enough to allow for some possible cyclical rallies. That's nice. Our I-Wave is also indicating essentially average risk for the Larger Caps. Our Small Cap I-Wave risk level has also been dropping, but is hardly showing that group to be a bargain yet. Since 2000, the small cap end of the market has been able to maintain many a diversified portfolio even as the larger cap end first declined.

So many investors have been frustrated by the stock market for the last 15 months that I'm sure there's growing anxiety. As with all pendulums, can extremes be maintained for long? Maybe the prognosticators will be right about a slow shift back toward larger cap stocks.

I now have enough history to make worthwhile a web page for Non-US Country and Geographic ETFs. I'll be preparing the graphics and info page in the coming weeks. By the time we're through, we'll have our own AIM World of investment ideas.

REPORT - WEEK OF 03/28/2005: Last week the Dow 30 and the S&P 500 lost well over a percent for the week. The NASDAQ Composite lost nearly a percentage point as well. Where the Dow and S&P had shown strength against the NASDAQ earlier, they gave it back just as quickly. Going back to 2004 we'd discussed a "trade range" for the NASDAQ with an upper limit of about 2200 which has proved to be a tough ceiling. Assuming status quo I guess we can also assume a lower end of around 1750 for that index.

We are hoping to see a continuing improvement in earnings in 2005. We already know the FED's plans. These two trends may keep the market trapped in this trade range for quite some time. Our Relative Valuation component looks specifically at these two trends:

In our Speculation component we see a difference in amplitude between Small and Large Cap stocks. There's been very little speculative activity in the traditional 1700 larger cap stocks of Value Line. You can see that the money's been chasing the Smaller Caps in Value Line for a while. Both are moderating right now. This is a good sign for the future. By the time the data lag in Value Line catches up over the next two weeks we should see the Larger Cap Speculation value fall to its Bullish range. Small Caps need to fall further, so we may or may not get all the way do Bullish there.

So, overall the market seems to be doing a nice job of pruning and weeding just as things were starting to get overgrown. With the FED's interest rate hikes, money market rates are starting to improve. That's good news for all AIMers who are currently holding cash. In the past we've usually seen money market rates higher than the average yield of Value Line's larger cap stocks. Currently that yield is 1.6% and has been for quite a while. It was a very rare thing to have money market rates below the VL yield. Probably some form of indicator could be built around just that rarity. For me, seeing money market rates rise is always a happy occasion. I take current interest as part of my "living allowance" so seeing it rise is nice.

There's been some price reduction in some of the corporate bond funds in recent weeks. This follows right along with the weakness in the stock market. Bond funds which own "convertible" corporate paper usually do suffer during market downturns. Govt. bond funds seem to have held up better. Both are vulnerable to continued FED rate hikes, but govt bond funds are more so. Corporate bond funds as has been seen are also influenced by the general stock market. Effective yields in both continue to improve as the price/share of these bond funds declines. We have cash ready to shift to these funds when the time is right.

You've probably all heard the ancient curse of "May you live in interesting times" and thought about it. Right now the markets have been so boring that many have been wishing secretly for more interesting times! I think it's just hard work to make a buck in the stock market right now. That may continue for a while. I guess we need to roll up our sleeves and work a bit harder on investment selection. Let's start with a macro economic view and work back toward our portfolios and see if there's been any fundamental shift we need to address. If not, then we just need to wait out the quiet times and remain vigil.

REPORT - WEEK OF 03/21/2005: It seems my challenge in last week's Newsletter has been accepted. I stated that 2005 was starting to look even more boring than 2004. Well, just to prove me wrong, the NYSE, S&P500 and the NASDAQ all seemed to take a leap and not one of faith! This week's I-Wave reflects the sudden change in its Divergence component which this week is Bearish for the first time in quite a while.

The drop in the Dow30 and the NASDAQ Comp. won't show up in Value Line's data for a week or so. The drop in the P/E ratio of both the large and small cap ends of the market will be reflected then. As we know, the P/E ratios have been very near their limits relative to interest rates. With the FED continuing to push short term interest rates, the P/E has nowhere to go but either down or into BEARISH territory.

We managed to ship out some JBL shares at $27.95 last week in spite of the market's bad manners. We always like it when a stock of ours heads the opposite direction of the markets in general. That pleases our Savings and Loan Division to no end.

REPORT - WEEK OF 03/14/2005: In a reversal of recent trends, the NASDAQ "out performed" the Dow 30 and the S&P 500 last week by not dropping as far! I'm not sure that sort of statement looks great on a resume! This week we saw the P/E of both the Value Line Large Cap and Small Cap sections pop back to about where they were a week earlier. So there doesn't seem to be any good news there.

On the Speculation front, both the larger and smaller cap stocks in Value Line have seen a moderation of measurable activity.

The 13 week Treasury coupon rate has risen to 2.767 as of this week's BARRONS issue. I guess we could say that the "good news" is that our Money Market Funds should start to earn their way a bit better. They are, however, lagging the rise in short term interest rates. The current average dividend shown in Value Line is 1.6% right now. So, money market funds are now just slightly above that level.

Last week I reported that the PIC list had tripped a bunch of Sell trade activity. Now it looks like it was 'just in time.' Only 4 stocks out of 30 were up at the end of this last week. As can be seen in our traditional I-Wave, there hasn't been much movement in the range of risk since the first of this year. I'd thought that 2004 was a low volatility year, but it appears that 2005 is attempting to be even duller!

REPORT - WEEK OF 03/07/2005: While the I-Wave for the Small Cap stocks has had a higher risk profile than the traditional I-Wave we use for larger cap stocks it has also had a higher range as well. The larger cap I-Wave is still in the middle of its average risk range and shows no signs of breaking out right now. We've had about two full years of average risk with not upsets. The smaller cap I-Wave has shown greater signs of stress here and there but the markets have moved in a quiet fashion for some time.

Some of the financial journalists are beginning to recognize the apparent shift from the smaller cap market to the larger cap stocks. The Dow broke into the 11,000 territory for the first time this week. The S&P 500 has returned to above the 1200 mark. Meanwhile the NASDAQ Composite and the N-100 still are off their more recent highs. Looking at the Advance/Decline and 52 week highs and lows, the NYSE is doing better than the NASDAQ Comp. This appears to be a long slow shift at this time.

I may start plotting the Large Cap I-Wave against the S&P500 and pick another index for the Small Cap market. It would seem to me although both seem to be moving together for now, that may not always be the case. As I research this further a more proper index should make itself known.

Other than continued sales in Energy this week the Warehouse has been quiet. In the ETF Model Portfolio we saw sales in Mid Cap Value (IJJ), Small Cap Growth (IJT) and Basic Materials (IYM). Please click on the link for more details. As of the end of February, the S&P500 was flat for the year to date while the ETF portfolio was up 1.8%. It has been very successful in beating the S&P500 since its start in June of 2000.

In our PIC List Portfolio we've seen some activity in recent weeks with sales of APCC, CHUX, ELX, KSS, MTW, ROST and SWFT. That ongoing portfolio is currently showing a 43% overall profit and is up about 1% year to date.

Overall, while we've waited a long time to see some purchasing or sales activity many of our holdings have been closer to selling than buying. It appears we're near a threshold where we'll start to have more activity. It will be over the next month or so and earnings reports that we'll be able to see a clearer direction.

REPORT - WEEK OF 02/28/2005: While February was helpful in increasing the value of our inventory, it was less than spectacular as a month for AIM trading. Yes, we had a few trades on both buying and selling. However, it was pretty dull by historical standards.

What we did see was a bit of deterioration in the internal components of the I-Wave. Both the Large Cap and the Small Cap portions of Value Line are suffering from very high P/E levels. Both have the added pressure of rising interest rates cornering their Relative P/E values near their Bearish territories.

There's two tales being told on Speculation. In the Large Caps we see a Neutral rating while in the Small Caps we still see fairly high levels of speculation.

Neither Divergence or Zeal are giving us much to work with at this time. It appears that the Speculation and Relative Valuation components are giving us the most information. If Corporate America is doing its job, we'll "earn" our way out of the doldrums. If rising interest rates (to curb inflation) cancel out Corporate America's efforts, about all we can expect is a continuing range bound market.

REPORT - WEEK OF 02/07/2005, 02/14/2005 and 02/21/2005: Maybe it's the winter blahs or maybe I'm getting old and lazy! Sorry for the rather sparse newsletters in recent times. I guess with so little going on in the Warehouse, there's really not been that much to report. Also, if you look at the I-Wave for the last two months, you'll see there's not been much to report there, either. Well, I feel better after this confession. Also, now I can rationalize my laziness!

We're still getting some sales activity with our Energy ETF. IYE broke through the $70 price and has seemed to sprout wings. Just in case they are the wings of Icarus, we've been trimming the feathers a bit along the way. That way we'll be able to rebuild our inventory should the current price levels not be sustained.

The Small Cap I-Wave has been tracking the NASDAQ Composite quite closely.

Overall, I'm pleased with both versions of the I-Wave. They both seem to be keeping us well informed about the relative risk of their own segments of the overall market. While having the Large Cap I-Wave stuck in the middle of the Average Risk range we're not learning a lot, however. Both the large and small cap segments are having trouble with their respective P/E ratios as measured in Value Line relative to the rising short term interest rates. This is the largest single limiting factor holding the markets from rising.

REPORT - WEEK OF 01/24/2005 and 01/31/2005: The NYSE has been doing better than the NASDAQ for the last couple of weeks. It appears that the market again wants to separate itself into two ranges - the Larger caps vs the Smaller caps. In recent times the larger caps seem to be on the winning side. We see this in the "Advance/Decline" values of the two exchanges. The NYSE has been stronger during the bad weeks in this regard. It's New Hi/New Low ratio also has shown more optimism.

If we look at the I-Wave's Small Cap segment, we have had warning that the small caps were over-extended compared to the larger cap portion of the market. The manifestation of that is showing up as a shift from the smaller cap market to the larger end. The small about of AIM trades I've had in recent times somewhat reflect this in that my Exchange Traded Funds are near their 52 week highs (larger cap funds) but I've been doing some buying in my individual stock holdings (small caps). The exception is a foreign stock (ICA) which rose to a level satisfying our profit goals for the Warehouse. I believe I will sell out of this stock in the near future and replace its value with EWW, the Mexican ETF.

The biggest single threats we see in the components of the I-Wave continue to be the P/E ratio both in the large and small cap arenas. At 18.8 and 20.2 respectively, there's not much room for upside in the markets. As earnings from the last quarter start to filter in we may see these P/E values start to come down a bit, assuming the price/share stays steady. Time will tell. The market seemed to adjust to the FED increase in their overnight lending rate. The 13 week Treasury Rate had nicely predicted the FED hike yet again by rising nearly the full quarter point since January 1st.

I may attempt to graph the small and large cap I-Wave on the same image once I've acquired more historical data. That will give a more complete picture of the market's overall risk structure. More on that later.

REPORT - WEEK OF 01/10/2005 and 01/17/2005: It's been a while since we've seen a 4 point move in the I-Wave in just one week. The 2004 year had lulled us to sleep with its minor volatility swings. Only on the Small Cap front did the volatility seem to remain somewhat of a force. This week we have both the small cap and traditional I-Wave moving lower.

We have yet to develop enough data to determine the proper High and Low risk territories for the Small Cap I-Wave, but you can use 35% cash and lower for the "low risk" border and 55% for the "high risk" level for now. These are slightly higher than our traditional I-Wave values, but these smaller cap stocks may prove to need slightly higher cash reserves than what we're used to.

It would appear that the NASDAQ Composite index might be locked into a range of beween about 1700 and 2200 according to this Small Cap I-Wave graph for the last year. If you think about it, we should be able to make some money if the broad index moves that much each cycle. That's just about a typical "Lichello Band" on the index alone. That means there should be plenty of stocks available moving in a greater amplitude than that.

With 2005 expected to see earnings improving moderately, we should eventually see our trade range start to move higher with cyclical lows and highs increasing. The broad P/E of both the Value Line 1700 and their expanded edition have been bumping up against their own bearsih territories leaving very little room on the upside. Improved earnings should soften up the bearishness.

Only a couple of trades to report since the first of the year. Both are on the Buy side. DIGL and GNSS both tripped earlier GTC orders that have been outstanding for a while. Both inventory additions were made at significant discounts to previous sales. Both still have cash in reserve for further buying.

REPORT - WEEK OF 12/27/2004 and 01/03/2005: Usually I close each year with a summary of events from the previous twelve months. This year proves to be the easiest in over a decade of maintaining this newsletter and chronicle. In a nut shell, not much happened in 2004. The market was stuck in a very tight trade range for nearly the entire year.

Of note was the period from August to early September where the I-Wave dropped to Low Risk. If you go back and read the Newsletters from that time frame, you'll find that our Inventory Control Manager, AIM, had us busy buying additional shares of many of the inventory items. As if one was confirming the other, both AIM and the I-Wave were in harmony suggesting that it was time to buy and we'd be doing so with very low risk to the portfolio. Those purchases proved to be well timed and the indexes rose nicely through the end of the year.

I'm still finishing up year end analysis. Most looks pretty good. My retirement account, while up in value for the year did not make double digit gains. The virtual portfolio with 13 ETFs managed a 12.6% gain for the year. In that portfolio gains came in the small and mid cap value funds, small cap growth, utilities, energy, industrials and telecomm. Those sectors carried the rest of the positions which came in with single digit gains. The technology sector fund came in with essentially zero gain. Not one of the 13 sectors had a loss for 2004.

We start 2005 with a higher risk indication from the I-Wave than last year. It started 2004 at 31% Cash for stocks and this week shows. 42% suggested for the same class of equities. While still well below the High Risk level, it does indicate a bit more in the way of general market risk. Three of the four components are Neutral with one being Bullish right now. That said, Relative Valuation is nearing its own Bearish levels. This single component seems to have the best correlation with the market's potential. It's indicating we're at or near an interrim market top. Certainly this first trading week of 2005 indicates a bit of rotation or consolidation. We'll be watching these components carefully over the next few weeks to see if some direction can be discerned.

We've made a start on creating the Small Cap I-Wave and will have more details on that coming soon. Don C. wrote me with information on how small caps are viewed in relation to overall market moves. We'll have to see if some of that interpretation can be worked into the SCI-Wave.