The ICA purchase had been waiting for some available cash as that account had been fully "tapped" earlier this year. It's showing a loss and also negative cash reserve at this time. It's going to require some "healing" in the form of a firmer Mexican market for stocks.

It would be nice if all the problems of the world would suddenly evaporate and leave us to tend to our various businesses. Then we wouldn't need anything like "portfolio insurance." Since that's unlikely to happen, our AIM program with its Cash Reserve will have to work overtime to give us reasonable consistency. Let's all try to keep our objectives in our sights and hope that our AIM is good.

Veale's Equity Warehouse managed to trim inventories nicely in the last week, keeping the Cash Reserves growing.

There were some "vealies" during the week, but I wasn't as good at recording them for this report as usual. The fat LIFO gains certainly make me smile. Those shares we bought back in September and October have turned into very profitable inventory indeed. With the Idiot Wave rising I'll have to give up the "vealies" and start to sell again to have my cash reserve keep pace. I guess I don't mind either way - my net worth is on the mend!

It has been a very long time since we had updated the Idiot Wave graphs, but that was remedied last evening. If you haven't looked at it in a while, I think you'll be impressed with how well the IW did in calling this last market trauma. Take a look at the IW Components as well. You'll note that I've restructured the graphs to make them more read-able. I plan on some other improvements for them soon. Also, I should have time soon to update the Veale account graphs which have also been languishing for months.

Back in October, it took only a 16.5% gain in 13 weeks to get a stock listed as one of the Best Performers in Value Line. This week it takes a 50.7% gain to make the same list! Is speculation heating up? It would appear so. Has it over-heated yet? No, this is still mild compared to other times in the market. I've found over the years that the market will tolerate long periods of very large short term gains before it gets nervous. Also, we have to remember that when we start the new year, it will be just about exactly 13 weeks after the worst of the market conditions. This tends to skew the graphs a bit. If you look at the Speculation component of the IW, you'll see that there's a bit of a boomerang effect after major market set-backs like we saw in '87 and '90. We'll keep our eyes on this and report back.

The major indicies continue to lead the way higher. Our Small Cap. holdings are still lagging their Large Cap. siblings, however. This may also be part of the seasonal nature of ending the tax year. I'm hoping it might also mean a dandy January rally for Small Caps.

Periodically I try to make small improvements to the IW's calculations. The Idiot Wave needs these tweakings to keep our AIM on target. This is the second change this year. I modified the RELATIVE VALUATION earlier this year to include the 52 week Treasury rate rather than the 13 week. I'll be certain to post these changes as they occur.

Another solid week of AIM trading has added nicely to my growing Cash Reserves. As always, I'm keeping my "good until cancelled" orders up to date at the brokerage. This assures me that I'll get my designated trades even if I'm busy doing something else.

A bit of noise about the FED possibly raising "Margin" requirements managed to upset the market rather dramatically a the beginning of the week. We could almost pick the names of the stocks that were the most highly leveraged by watching which ones tumbled the furthest! It reminded me again of the funniest title for an investment book - the oxymoron of Mr. Fosback's STOCK MARKET LOGIC. Some days it's just hard to find any logic to what happens on Wall Street!

We all must be doing something right! More people every week contact me with questions about starting AIM accounts. It seems that as investors become more "seasoned" the more they appreciate AIM's sensible approach to portfolio management. Plenty of investors were coated with "seasoning" during the mini-bear market we had this fall. If you know someone that would benefit from the AIM strategy, why not give them the gift of Mr. Lichello's book and one of the fine software packages for running AIM! It's not too late to get your holiday orders placed!! Take a look at the AIM Software options available!

Some of my stocks have the luxury of already being fully funded in their respective cash accounts. This has allowed me to pull "vealies" to keep the AIM equity/cash ratio in balance and in concert with the Idiot Wave's suggestions. Here's the last week's AIM activity for Veale's Intl. Equity Warehouse:

So my AIM Cash Reserves rose as a Total and as a Percent with all this selling. What surprises me is that many of my stocks still have not had their first AIM sells since the rally started in mid October. Although most of these other stocks have risen in value (like VLSI from the low $7s to $12) it's still not been enough to trigger AIM's Sell mechanism yet. In many cases it has to do with the fact that I didn't buy as much stock as AIM would have liked at the very bottom. This was because there wasn't enough cash to go all the way around!

With the spectacular rise in some of the internet stocks in recent days, we can expect to see my SPECULATION index go back to High Risk soon. The excitement of the market's recent big mergers certainly is making things interesting. We need to see more "trickle down" to the smaller caps, however. The Russel 2000 is still 20% off its previous peak even while the DOW 30, S&P 500 and the NASDAQ Composite are all soaring. Are we ever going to get a Small Cap. Rally???

I want to say hello to my good friend Carl, whom I've been trying to coax into trying AIM for years. He has recently (the last year) become computer literate and now even knows how to find these pages! Carl's selected two stocks which to AIM and is off to a good start. He's had one buy and a couple of profitable sells. Congratulations Carl!

One more item - I made another attempt to reach Mr. Lichello last week. A Florida friend came up with a "newer" address and I've mailed an intro letter off to him. Let's keep our collective fingers crossed and hope we hear from him!!

The other two components showing Neutral are the Speculation and Divergence measures. This week Read-Rite shows its skills with a score of 133.7% rise from just 13 weeks ago. By comparison, NovaCare numbed up its investors with a drop of 61.2% in the same period. We're starting to see a speculative imbalance here. In the Divergence measure, there were 179 new highs and 178 new lows last week - almost perfect balance! Unfortunately too high a value to keep this indicator bullish.

This week's BARRONS had an article titled BOOMERS' TIME BOMB on page 57. It relates to the demographic shift that will start to become apparent over the next decade as the "boomers" start to retire. The article asks who we expect to sell our equities to when we need cash in retirement. It suggests that the stock market may not be user friendly for a while after that point in time. It makes interesting reading, but unfortunately doesn't happen to offer us the ultimate solution to this problem.

During last week's market consolidation, my own account fell quiet with just a couple of trades taking place:

In the rapid pace of change the market has had recently, I neglected to keep my "good until cancelled" orders on the Buy side up to date. Some if this may have been subconciously intential, since my cash reserves had been drawn down so low recently. This became embarrassingly apparent when my OmniQuip stock (OMQP) cycled from my last sell point of $15.25 to around $12. I had a "gtc" order in at about $9-1/2 left over from a couple of Sells ago. I quickly changed the order to $11-7/8 where it should have been now, but alas, it was too late. The stock had been at $11-3/4 earlier in the day, but never visited those levels again before running back up over a dollar per share. The lesson is that we should really keep these orders up to date!!!

My email has been very busy and interesting as people find AIM and inquire about getting started. Mail from as close as 1-1/2 hours away by car to overseas mail from England have arrived in my email box recently. Thanks for all the kind words and continued interest in AIM.

To confirm what's been going on, here's a list of the last week's AIM activity in my accounts:

With the NASDAQ up about 25% since hitting a recent low point, we have to recognize that risk is rising, too. If we subtract the IW Oscillator value from the Idiot Wave reading from two weeks ago (IW = 30, Oscillator = -10) we would have a low point of 20% Cash Reserve indicated for our AIM stock accounts. Well, our reading this week is 28%, so you can see that our fearless Idiot Wave is telling us that we need a bit more caution.

Most of my mutual fund accounts are already nearing their first AIM Sell points. One did this week, but it already had more cash than the IW was requiring, so it got a "vealie" instead. This is the first time I've had the opportunity to use the "vealie" strategy from a "low risk" market point in time. Mostly I've done them when the market and my stock prices have been near their high end, not recovering from a bear mauling. I'm very pleased with the results so far.

Mention was made in this week's BARRONS magazine that mutual funds will be selling for their own "tax loss" accounting. The article was on Page 27. It indicated that it could actually bring on an early "January effect" by selling the dogs off early and then letting the sell pressure off. After all, the institutions do most of the trading on the exchanges, so this makes some sense. Interesting article.

I hope you all are getting your own chances to raise cash for your AIM accounts as this recovery continues. It's certainly pleasant after the bashing we took earlier. It wouldn't hurt to evaluate your portfolio for those things that you feel are best for long term AIM accounts. If you aren't confident of your stock's future, maybe this rally is a good thing to use for some "reallocation."

AIM's kept me busy the last week:

Many of my stocks have not yet returned to their 26 week Moving Averages. Several are still at half their previous highs. It's hard to believe that we could already be selling with the prices still so low. However, remember that AIM is a Proportional Control Device. The bigger the moves the bigger the action.

Isn't it nice to see all those green Bullish and Low Risk readings at the top of the page? I must again state that Low Risk does not mean NO RISK! Please don't get greedy now and not follow AIM's sell market orders. It's necessary that we rebuild our cash reserves as quickly as we can. So place your Sell Orders on a "good until cancelled" basis and let them happen. There will still be lots of shares left to sell at higher prices. Our Equity Warehouses are running along smoothly now. We have plenty of inventory and demand is building nicely. All we need to do is make sure we ship on time!!

Again this week I want to congratulate those of you that have just seen your first deep AIM cycle. Like many a "learning experience" it probably didn't seem very pleasant at the time, but you'll look back on it favorably. Thanks for sticking with AIM and me.

I hope you can sense my enthusiasm, because I'm feeling better about the market today than for a long time. I don't believe that all the world's problems have been simultaneously solved. I do believe that in recent weeks, the majority of those problems have been used to discount the prices of many equities to very attractive levels. It's a good time to put money where we find the best possible fundamental values.

Reviewing my SPECULATION index, I find this week some sample numbers:
Best Performers, Last 13 Weeks

Let's compare those numbers to the end of July:
Best Performers

The last item of our four components of the Idiot Wave to finally give a bullish signal is the RELATIVE VALUATION figure. This week we got a double gift with the drop in the Value Line P/E ratio AND a reduction in the 52 week Treasury coupon rate. This pleases me greatly to see a bullish signal finally after all this time.

Just a few trades to report for this week's AIM/Newport efforts:

Please let AIM guide your accounts back to healthy cash reserves. Remember that this may not be the end of the bad times, but just part of an interim trading range which will define the actual bottom. If we can nip a few buys and sells over the next quarter, we'll be very happy when the actual rally gets going. In the mean time, I'm delighted to have positive Cash Flow here at Veale's International Equity Warehouse. Congratulations to all of you who have been sticking with AIM, Newport and me through this recent ugly market. You'll be pleased you did. Thanks once again Mr. Lichello!!!

If we subtract the IW Oscillator value from the IDIOT WAVE itself, we end up with a reading well down into the Low Risk area. Risk seems to want to continue to fall, and as many have discovered there's some pain involved in the reduction of market risk. We may not have reached the bottom, but we're much closer than we were just a few weeks ago. The IDIOT WAVE has been kind enough to confirm that much of the excesses seen back from April through mid-summer have been removed.

Only 19 new highs were reached on the NASDAQ last week. That's out of 5598 issues traded. Realize, if you will, that there were simultaneously 2201 new lows registered! This gives us one of the lowest DIVERGENCE readings we've ever had. This is usually a short term bullish sign. Advances numbered just 760 issues while 4413 issues declined on the NASDAQ.

I'm always happy to see the SPECULATION reading in negative territory. This signals an over-sold condition. That's one of the sure ways to eliminate excesses from the market - SELL EVERYTHING!!! That's exactly what institutions and non-AIM investors have been doing for over two months. We AIMers have been there to bargain shop all the way. We may not see new highs in our favorite stocks for a while, but we should see a return to more normal valuations in the near future.

RELATIVE VALUATION needs only to fall 0.13 and it will bring this last component of the IW into the Low Risk area. I like it when all four components confirm Low Risk. It's never been wrong when this has occured. The "average" P/E for Value Line has fallen 20% since the end of July and interest rates are still falling. This is extremely good news, looking forward.

Here's what happened at Veale's International Equity Warehouse this last week:

A quick check of my account shows it down about 22% for the year to date. For the month of September, the account was up just slightly. My IRA has done better with break-even performance YTD and up just a bit for September. Inside my IRA, the Cash Reserve has fallen by 1/3 and now stands at 21% of that AIM portfolio value. New buy orders for more TWCUX in my IRA have been placed at $27.80.

So, my advise for now is to get those "Good until cancelled" AIM Sell orders placed! We don't want to miss a chance to capture a bit of CASH if the markets are feeling generous. Remember, we may have to churn some trades in a range before the market starts to track upward again.

Lots of orders, lots of negative Cash Flow for the Equity Warehouse. Those of you that use Newport Programs know that each time we buy or sell, we have to call our broker and adjust our next buy and sell prices. So, not only did we record all these trades, but we adjusted our "good until cancelled" limit orders for every one of these stocks. The best news is that the Sell prices that AIM/Newport now calculates for us is dropping.

Not since October 16, 1992, when the NASDAQ stood at 637, has the Idiot Wave shown as low a risk reading as it is right now. Although we're not to the LOW RISK end of things yet, we're closing in on it. Certainly when this week's statistics are added in we'll be that much closer. Today, Wednesday, the NASDAQ tested its recent low of 1499 and, unfortunately, didn't hold there. It closed the day at 1462.6 down 48 points or 3%. It's these breaking of barriers that usually upset the Technical Analysis folks. As you know, here at Veale's International Equity Warehouse, our motto is:

When we see stocks like BMY off 25% from recent highs we know that this is more than just a "sector shift" going on. This is what it takes to cook the fat out of the marketplace. Well, the burners are on HIGH! As I've noted in earlier newsletters, there's a good number of stocks in my portfolio that have stopped falling in recent weeks. Since my AIM Equity Sponge has soaked up almost all of my available cash, it's nice to see some stocks stop falling in price!

A better mix of AIM trades was experienced this week:

Although some stocks are rising back up (yes, even Amazon.com) many are still at or near lows not seen in a very long time. If you and AIM did your work accumulating shares, chances are you'll also get a chance to do some AIM related selling in the future. Good Until Cancelled limit orders to sell are a great way to assure yourself that those first sales will take place even if you aren't looking at that moment.

All in all, it looks like I may be able to put the GUT WRENCH back in the tool box for a while. I always enjoy putting that tool away!

The biggest contributor to this week's risk decline comes from my Best/Worst Index which measures Speculation. WMS Industries is the Best performer in Value Line's universe of 1700 stocks this week with a gain of 73%. This is while MedPartners has LOST 77.9% of its value in the same 13 week period. Well if the biggest winner and loser were just about a wash, what about the rest of the lists? Consider the fact that it now takes a 54+% LOSS to get on the Worst Performers list while it takes just about 19% to be listed with the Best Performers. This shows how big the imbalance is. Everybody's bad, nobody's good! Sounds over-sold to me; how about you? The Best/Worst Index has been quite good at calling out bullish turns. A reading of minus four is decidedly bullish.

During the last week, AIM kept me busy:

What's longer that Gone with the Wind, has fewer characters, no plot and boring dialog? The clinton deposition. Why is Wall Street so worked up about this? Do they expect to see Perry Mason there? For better or worse, the next two years are "Lame Duck Session" for w.j. clinton. I don't think this means the end of the world, after all, we've already had 6 years of a benign presidency. Personally I'm tired of the daily soap opera "Days of our president!" What about Iran? What about Hurricane Georges? Why waste any more of the American people's time on a Lame Duck? Think of the quality people that run our favorite companies. These folks have had to make more decisions in tougher competition than any Washington Bureaucrat. They've continued to be innovative, cost conscious and productive in the face of a world of competition. Thank goodness Industry works with a different standard than does the Federal Government. Long live the American Industrialist!

There, I feel better!!!

With the IDIOT WAVE at 25% for mutual funds, I'm looking forward to a long string of tax free "vealies" before I have to sell any of these recently purchased shares. Most of the diversified mutual funds that I own have about 25% Cash Reserve left in their accounts. This week's Value Line update has the section on foreign country closed end funds. Most of the ones listed are selling at about 30% discounts to their Net Asset Values. It may take some time for the countries and these funds to start back up, but the prices are certainly more attractive than a year ago. My two country funds, Mexico Fund (MXF) and Hong Kong Fund (WEHKX) are WAY OFF previous highs. The whole group of foreign funds should be studied. There's still risk of currency problems in many places and many of the funds are trading at discounts to NAV for good reasons.

Again, with Value Line's data base catching up with the market, my Speculation measure - the Best/Worst Index - has fallen into the Bullish area. If V-L used today's price for the Best Performer it would be even lower. However, they still show Amazon.com at $88 when it's really at about $79. Even so, it's still up either 86% or 108% in the last 13 weeks, depending upon which number you use. Compare that to Samsonite which is down 78% in the same period and you see that SPECULATION has been washed away in a flood of SELL orders for now.

Next is the DIVERGENCE measure. With 23 new highs two weeks ago and 31 new highs this last week, it hasn't been exactly a run-away bull market the last few weeks. Compare those numbers to the 2412 and 989 new lows (respectively) the last two weeks and we get a feel for why the NASDAQ Hi/Low Logic Index is now Bullish. As you can see, there was nearly NO divergent opinion about the market recently. If the market starts to recover, we'll see this number start to rise again.

Finally we have ZEAL. This measures the level of IPO activity to tell us whether the market can absorb these new issues. If we have a declining number of issues then dollars tend to concentrate into the remaining stocks. That's what we've had most of this year. This is a good long term Bullish indicator.

I've been spreading the remaining Cash Reserves around my portfolio where I how it will do the most good. A few of my stocks have continued to fall in the last week - VLSI and CGNX in particular. I've added shares there and in my SEE account. There's lots of talk about hideous tax selling that will occur before year's end as people sell off their losers to offset gains taken earlier in the year. This does happen and can extend the length of time for a recovery to take hold. In a brief conversation with my broker, he says that for the last two weeks their office has handled mainly SELL ORDERS, with the exception of my account and a couple of others where he's using AIM as his guide for his client's benefit. I know I'm contrarian, but I didn't think I was THAT unique! I have to admit, with my account down in value by 23% in the last month, I've had moments when I've questioned AIM's guidance and my stock picking abilities! Well, I've not lost faith, and hope you haven't either!

As you may have noted in the above boxes, I've changed the risk statement from Low/Ave./High to what I'll be using now which is Bullish/Neutral/Bearish. I hope this will make things clearer! Also note that if we were to subtract the IW Oscillator value from the current IDIOT WAVE reading, we'd actually be in the Bullish territory (formerly Low Risk). I hope you appreciate the fact that we've only had this occur briefly in 1982, and in 1988, and significant Bullish readings in 1987 and in 1990. So, if we get to a Bullish reading, it will be only the 5th time in 16 years and the first one since 1990. Tune in next week for the latest!!!

Considering how awful the week was, I'm relatively pleased that just 4 stocks are down from my last purchase price. Remember that during the week, the NASDAQ lost 4.46% and the DOW lost 5.11%. One week is a bit short for judging whether we've won the war, but at least we won the last skirmish!

Only one other time in all the history dating back to 1982 have there been fewer New Highs on the NASDAQ relative to the total number of issues traded there. That was the week of November 20th, 1987. This week only 0.4% of the issues hit new highs. A whopping 42% of the issues hit new lows!!! It doesn't appear there was much divergent opinion about the market last week! Again this last week, if Value Line was up to date with their data base, my Speculation index would look quite different. It shows 8.6 only by including Amazon.com as the Best performer, up 193.8% at $127. However, since it's not there any more, that data is somewhat "tainted." Using the second best performer (Yahoo) my Best/Worst Index drops to a negative 3.9 - a low risk reading. Of note, if we substitute that value into the IDIOT WAVE calculation, the IW drops to 42 for the week and the IW Oscillator drops to minus 12. So, it would appear that we have more of a risk contraction to be seen in the next few weeks.

Many of my stocks may need considerable time to recover to the point where they will be selling some shares again. I guess if I'm looking at LIFO gains while I wait, that's not all bad. I hope you all did as well with your purchases last week.

Bob Norman noted that NEWPORT added Idaho and Iowa to its list of States with users this week. That brings the number of States to 34 plus the District of Columbia where AIMers are active. I believe California still leads the way in total number of NEWPORT users. With cool fall breezes starting to blow through Wisconsin, it's none too soon to start thinking about an AIM Users Seminar in some warm, sandy place!! Now, if the market were to rise about 25% I could probably afford a ticket to..............

Out of Nasdaq's 5746 stocks traded last week only 39 hit 52 week highs! A whopping 1809 stocks hit new lows!!! Both numbers are impressive, Mr. Fosback's Hi/Low Logic formula calculates out to be one of the lowest values I've recorded in my data base from 1982 to the present! Value Line's data tends to be a little behind "real time" so Amazon.com is still shown to be up 190% at $129/share. As we know, this number doesn't hold water any more. Without AMZN's influence on my Best/Worst index, it would have fallen to a negative 1.9 (low risk). Maybe by next week, the data will reflect this. In the mean time, please remember that stocks need to only have a 13 week gain of 26+% to make the BEST list while it takes a loss of 48+% to make it onto the WORST list. The IDIOT WAVE will tell us when the true low risk period has begun. Risk is less than a few weeks ago, but it still hasn't fallen to the "average" value of 40% cash suggested for Stocks. Please reserve appropriate CASH amounts if you are starting new AIM positions.

Well, how did AIM and I react to all this ugly news? Okay, here goes:

That pretty well takes care of the last few days!!! I'm sorry I can't report the percentage purchases in this report, but I'm writing from home and don't have the data here. Some of the prices I don't have here either. Not every purchase was as large as AIM would have liked me to make. I allocated my Cash Reserve as best I could. This was the most aggressive buying I've done since 1987.

I mentioned in the Silicon Investor thread that brokerages had been hit hard. They traditionally don't do anything but make money in their retail businesses under such circumstances. Brokers like AG Edwards and Raymond James Financial are primarily retailers. As we've seen in many other sectors, there's guilt by association. These stocks should recover nicely assuming market volume doesn't dry up.

As you are learning (if you haven't been through a big sell_off before), AIM does its first buys at a nice discount, but they are small trades. Once the prices drop significantly, then AIM really kicks in and does serious buying. For me, it's been serious enough to just about tap my overall cash reserves dry. I still have quite a bit of cash left in my Mutual Fund accounts, but even after yesterday's buying, AIM's begging me to spend more. This is typical of AIM as it "pumps the brakes" in a rapid decline. With almost all mutual funds we're stuck not knowing just what price we're going to get until after the close of business. It's impractical to try to out_guess just how far a price might rise or drop, so we'll just have to complete the work later (if the price stays down).

I chanced to listen to CNBC for a short time during the lunch hour today. I've never heard such double talk! The condensed version is "All Bets Are Off!!!!" Some think the FED will lower interest rates, some think it won't. Some think the selling is over, some don't. If I hadn't been eating lunch, the time would have been completely wasted. Personally, I think today the market was celebrating president clinton's leaving the country! It's a reunion of old friends dating back to the early '70s, after all.

I'm still concerned about the upcoming Labor Day Weekend. The market's short term traders like to sell off speculative positions before long weekends _ especially if there's political or economic tension around. I'd say there's plenty of that. After the holiday, I believe cooler heads will prevail. We AIMers will be renamed the "Cool Hand Club!!!" If you are tapped out of cash, remember that you and AIM have done good, efficient buying. If we miss the ultimate bottom by some small percentage, it won't make much difference in a few years. If it's the end of life on Planet Earth, then it really doesn't matter, does it? As you can see from the above list of purchases, I firmly believe that AIM is acting as a good fiduciary, purchasing agent and inventory control manager. It takes guts to stick with any program that's this seriously Contrarian. If the market has made your head spin, just think how the poor person feels that was 100% (or more!) invested in mid_July!! AIM guided you safely to a hefty cash reserve, now let it guide you towards a fully stocked Equity Warehouse.

I probably forgot to mention that the only way the IW gets to a Low Risk reading is through market pain and suffering! We've been getting a small taste of undercooked Bear meat just recently. Believe me, it's no better when cooked well-done! I've noticed the harmony in many publications recently. They're all singing the hit-tune "I told you so." Amazing how clear all the signs are now that the market's given up considerable premium.

Why, then, would the IDIOT WAVE be dropping in its assessment of risk? Doesn't it understand that the world is on the brink of disaster? First of all, 45% Cash Reserve as a recommendation is hardly indicating "Happy days are here again." Since 1982, the average value of the IW has been about 40%, so we're still high of that mark. It's dropping fast, but still needs to fall below 30% before we feel that we're in a true Low Risk environment for new investing and for existing accounts. The last time was in late 1990.

What would it take to get the IW to a low risk reading? Zeal would have to remain the same, Divergence can't rise, Speculation has to drop to negative values and we still need to shed quite a bit from the Relative Valuation reading. Just eliminating Amazon.com from the Best Performers list in Value Line would take Speculation to -3.8, well into its Low Risk area, so this isn't where the problem lies. Relative Valuation seems to still be the culprit. Well, what has to happen to get that value to low risk? Do we really want to know? Low risk for Relative Valuation is when the number falls below 18.5; it's currently at 21.74 so it has to decline by 3.24. Let's assume that it all came from the 13 week interest rate reading - can we really expect 13 week Treasury bills to fall to 1.8% interest? Okay, then how about the Value Line P/E? Could we anticipate it falling from its current level to under 13.5? The last time we had P/E's that low was 1995. Does that mean the last three years in the market have been pure fluff? Maybe. If so, then the DOW would have to fall to about 6850 (about 27% below the previous high) or there'd have to be a surge in earnings. Lower fuel costs could help earnings this year. Will it help enough? Of the DOW Industrials or the S&P 500, how much of their total cost is related to energy?

So, maybe a combination of things could get the job done. A bit better earnings from low energy costs, maybe a dip in interest rates and a good old fashion rout in the market!

The only graceful way I can see for the above to happen is if money slowly starts to shift (for value reasons) to the smaller cap. stocks. A stampede will just disembowel one end of the market to feed the other. I don't anticipate the masses giving up on "momentum" investing, so I'm not expecting anything graceful to occur.

What has been more common for the IDIOT WAVE is for it to cycle from average to high risk and back rather than dropping from high risk almost straight to low risk. So, if we have it continue to drop to the middle of the Average Risk range, then maybe we'll see it stablize. If the components stay right where they are, in a few more weeks we'll be in the middle of the average area. Just think how smart we're all going to look when we get back to our first Sell Point in our AIM accounts.

I'm now getting AIM buy signals for which I don't have indicated Cash Reserves. This is the first time in about a decade that my accounts have been drawn this far down. Only my mutual funds have plenty of available cash. In the 1987 crash, mutual funds fell an average of about 30% from their summer highs. Funds that work good with AIM fell nearly 40%. So, let's use what's left of our cash reserves as wisely as possible. It will mean all the sweeter recovery.

Isn't it nice to see how quickly the Idiot Wave reacts to market situations. After slowly rising along with the market earlier this year, the last few weeks have seen it drop rapidly from the 50s to 46 this week. To non-AIMers, the last few weeks felt like getting too close to the fires of hell, but we know that it was just the excess fat burning off some of the pudgy stocks. Also encouraging is the IW Oscillator showing that risk is dropping quickly.

If we eliminated Amazon.com as the lead stock on the Best Performers list in Value Line, the Speculation Index would have already dropped into its own low risk area. Indeed, Amazon's 135% rise in the last 13 weeks is way ahead of the number 2 stock, which is up just about 75%. Samsonite is still lugging around a 77.3% loss for the last quarter. It takes a drop of 48.9% to get your stock listed on the Worst Performers list but only a gain of 21.5% to make the Best Performers. See how this imbalance displays how Speculation has disappeared recently?

My own buying slowed this week to just three stocks. I'm getting buy signals in two mutual funds and will answer those pleas for more $$$ yet this week.

The number of new highs on the Nasdaq remains very small this week while the new lows are still very high. This helps the Divergence indicator to remain in the Low Risk area. The number of new lows should start to taper off as the market bottoms out.

From the email I've been receiving, it would appear that AIM has done a great job of reducing anxiety among its users. I'm glad that it has been a good guide so far on your investment journey. AIM's not easily distracted by news from Wall Street or Washington, D.C. or Moscow or anywhere for that matter. Luckily, AIM's not suffering from any "critical lapse in judgment" such has befallen the President of the US. Maybe he should AIM to clean up his act!!

The rather convincing arguement that the Big Bull is temporarily stumbling was not missed this week by the IW's Divergence component. As more and more investors become seriously concerned about the general health of the market, the number of new highs on the NASDAQ has evaporated from 356 the week of 7/17 to only 129 this week. The number of new lows swelled to 811 this week. Not much divergent opinion there!! With so many new lows, this has to be starting to tap heavily into most AIMers' Cash Reserves.

Some days it feels like one is standing in front of a moving freight train. My piddly little orders did nothing to slow the momentum (negative) that the market showed all day. Up and down my screen were negative moves. What confounds me is that many stocks should now be viewed as bargains, but so far there's been no buying support in these smaller cap stocks. The few green arrows I had on my ticker today had to work hard to actually go up today!

It's not as though we weren't warned by the IDIOT WAVE. Only three out of the last 17 weeks has the IW been out of the High Risk area, and then just barely. It's interesting to note that the week in early April that the IW turned High Risk, the NASDAQ stood at 1855. Today it's nearly unchanged from that value. In the mean time, the NASDAQ did hit an all time closing high of 2008 or about 7% above its present level. Easy come, easy go for the non-AIMer. If AIM was fast on its feet, it realized some profits since April. That's much nicer than giving it all back.

Jeff Weber has started another AIM chat site. It can be reached through his web site. You will need to register, but there's no fee at this time. I've only had a chance to register so far. I'm interested in seeing what the chat area has to offer.

Amazon.com and Sunbeam share opposite ends of Value Line's Best and Worst Performer's rainbow for the last two weeks. This week Amazon.com is up 141.7% while Sunbeam is off 67.1%. Although this shows a bit of imbalance, it's still within my defined limits of what's "average risk" regarding speculation.

According to the news this morning, much of the increase in the DOW, S&P500 and NASDAQ can be attributed to a handful of stocks. As if to confirm this, IBM reported earnings in line with expectations, its price rose about $8 per share and the DOW rose 35 points! Then, Merck announced that their earnings growth might slow and suggested to analysts that they temper their enthusiasm regarding their stock. This triggered a bunch of reductions in ranking for Merck from strong buy to buy and from buy to hold. The DOW then retreated to negative numbers, even while IBM continued to do well. Amazing!

I've not caught up with the trades that have gone on in the last two weeks. I'll post those later. A good time was had by all the participants of the Watkins Glen and Elkhart Lake races during the last two weekends. I came home with no cuts or bruises on either my body or my '53 XK 120 Jaguar. That makes for a pretty good vacation!!

There's now over 5000 posts on the AIM bulletin board! We seem to be gathering some steam and bring more new and old AIMers into the group. Thanks to everyone for their participation!