So much for the retest of the July lows. This retest refrain met the same result, a new low, as prior retests. And, so it goes. This is just an ugly bear market folks! It's interesting that the Dow, Russell, Small Cap, and other indices are now falling, in percentage terms, more than the Nasdaq. Does this mean that tech selling is washed-out? Or, are these other indices merely joining their tech brethren in descent? No one knows. What we do know is the trend is down.

We remain short.

MARKET STATUS & COMMENT

A retest of the lows is the current conventional wisdom. But, we have seen failed retests for almost three years now. Maybe there will be a successful bounce off the lows, in which case we could get stopped-out. There doesn't appear to be an appetite for stocks, as mutual fund money-flow remains negative, denying the market the fuel necessary to sustain a rally.

We remain short.

MARKET STATUS & COMMENT

We are short, again. In addition to the QQQ's, we added the IWM (Russell 2000), and IJR (S&P Small Cap 600) to our positions.

When we started a short position this past spring, I said that for us to make money in that trade some "ugly things would have to happen". They did. The same is true now. All market environments are difficult, but this market has more twists than a barrel of pretzels. September and October are usually volatile months, and on top of that, volume is drying up as investors lack conviction. (Monday saw the QQQ's trade only half their normal volume). Low volume makes trading more difficult as markets are more susceptible to significant counter-trend rallies. And, counter-trend moves are our sworn enemy!

The weak economy (disappointing Industrial Production numbers), poor corporate forecasts (JPM yesterday and EDS tonight), and more negative corporate governance issues are currently overwhelming threats of war and terror. After the close today, Merrill Lynch announced more senior executive firings tied to the Enron debacle. This follows a shakeup at Salomon Smith Barney. To top it off, Bear Stearns announced that all employees must dress-up like bankers of the last century. (Yikes! Now that's going way too far. Maybe they should just get the guys who cheated and lied to everyone and force them to wear Brooks Bros. stuff all day while they're doing time. Kind of like a Wall Street "scarlet letter").

Stock prices are low, on a "price" basis, but on an earnings basis many argue that they are still expensive. Frankly, when earnings are going down, PE's always look too high. When earnings are rising, PE's expand and then look too low. For the market to stop going down we'll need to see some positive signs that the economy is turning around, companies will have to show better results and forecasts, scandals have to recede to old news, and whatever is going to happen in the Middle East needs more clarity. Then psychology can improve. Until then, we follow the trend.

ACTION ALERT

At the opening of the market, Wednesday, September 18, 2002, The TechTrend Advisor will "sell short" the QQQ (Nasdaq 100 ETF), the IWM (Russell 2000 ETF), and the IJR (S&P 600 Small Cap Index ETF) as "market orders".

PERFORMANCE & LAST THREE TRADES

Let's go over the last three trades and discuss each one individually.

July 15th trade. This was a re-entry, "short" into a strong downtrend. We had already booked a nice profit in the prior trade. High volatility during strong trends can lead to "stops" being hit which is what happened in this transaction. This type of re-entry can be unsuccessful. However, on the occasions when it succeeds, it does so in dramatic fashion. They are worth the risks. I would and will make this trade again.

August 18th trade. This is the type of trade we've made many times. It was a typical attempt to get aboard a new trend. Small profits were given back and we incurred a small loss. I would and will make this trade again.

September 5th trade. This trade caused me great indecision when I placed it, prompting my "rough ride" forecast. First, volume was exceedingly light. Light volume was causing the QQQ's, which are supposed to be tracking the Nasdaq 100 Index, to trade at high premiums and discounts to the Index. This means that "stops" can be more easily hit without the underlying Index moving as much. Concurrently, the September 11th anniversary was approaching and volume was getting even lighter. Finally, we were forced by our "stop" discipline to exit the market on a trading day that saw the Nasdaq open at 11 AM while the other exchanges opened somewhat later. This opened the door for arbitrage by specialists and others. I have re-examined the trading system and have added one filter to it that would have eliminated this last trade without negatively effecting overall trading performance. In fact, the filter increases net returns with less volatility. But, as you know, my practice is not to publish simulated returns. Therefore, I would not make this trade again.

Overall I am proud of the record we've been able to build over the past few years. Even with the most recent trades, we're still up nearly 30% this year. I'm making every trade myself and don't like losing money. The system I've developed does very well when we are able to climb aboard good trends. We will not do well when the markets are choppy or trend-less which is why we're in cash 25% of the time. Our system of trading is not a perfect system. Acceptance of small losses is essential in the quest for outstanding long-term returns. I rarely tweak the system to allow for new phenomena, but have done so here based on careful study.

Finally, I'm not going to get shy about whatever the next trade signal may be. It could very well be that we re-establish the same trade that just failed. Nothing surprises me about what the market does or the system produces in terms of signals.

MARKET STATUS & COMMENT

The TechTrend Advisor was filled on its short-covering trade at $24.09.

I said when we put this last trade on, that it could be a "rough ride", and it was. I don't want to write too much today about this given the somber nature of the day. I'll have more to say tomorrow about having three bad trades in a row and the causes of such an outcome.

ACTION ALERT

At the opening of the market, Wednesday, September 11, 2002, the TechTrend Advisor will buy to cover its short QQQ position as a market order.

(Please remember that the market will not open until 11 AM EDT tomorrow. Due to potential international and/or domestic events common sense would argue to not place your order until just prior to the market's opening).

MARKET STATUS & COMMENT

The TechTrend Advisor was filled at $22.68 and is now "short" the QQQ's. The market gapped higher at the opening and stayed up through most of the day. This "relief rally", as many have described it, just confirms my earlier observation that, if we got a signal, it would make for "a rough ride". To our advantage, the higher opening led to negligible damage to our position. Then again, due to the much higher opening, our stop is not far away.

The market lacks conviction as demonstrated by a lack of volume and seesaw price action. Volume should continue light through 9/11 and then the way ahead should become clearer.

ACTION ALERT

At the opening of the market Friday, September 6, 2002, The TechTrend Advisor will sell the QQQ's short as a market order.

MARKET STATUS & COMMENT

The bottom line is that today's market action did not alter our current position--cash.

I wonder if I'll ever put this "if it's down on the Friday before a Monday holiday, it will follow-through to the downside on Tuesday", into its own trading program. I thought I might get a "short" signal for Friday, but it just didn't happen.

We start the month of September with more negative economic news, and more IPO bribery investigations. This is a political year and politicians will want to exploit these corporate "fat-cat" issues.

Technically, the volatility is heating up again, volume is light (it may remain so through 9/11), the market appears to be returning to its primary bear market downtrend, and many technicians expect the Nasdaq to make a double bottom at its prior July low, around 1200. Given this, any "long" or "short" signal here would make for a rough ride. But, whatever the signal, we'll be on it.

AUGUST COMMENTARY

September 2, 2002

"A leaf that is destined to grow large is full of grooves and wrinkles at the start. Now if one has no patience and wants it smooth offhand like a willow leaf, there is trouble ahead."

Johann Wolfgang von Goethe

August gave us our first opportunity in some time to go "long" the market. Unfortunately, it was a failure. Our QQQ PLUS program lost -3.302%, while the QQQ's buy & hold, lost 1.51%. The top-ranked mutual fund lost -8.19%. By the way, this fund is the Fidelity Select Electronics Portfolio (FSELX) a large ($3 Billion in assets) and highly ranked (Four Star) by Morningstar.

The markets now enter the notoriously difficult month of September. The bad news that lingers over the market like a menacing storm cloud is well-known: the 9/11 anniversary (with warnings attached), an escalating move toward war with Iraq, a smoldering Middle East powder keg, continued economic confusion, and more potential for corporate corruption issues to surface surrounding IPO bribery. The good news is that maybe the market is already discounting this negative news and is just in the difficult early stages of forming a bottom. Since you know this already, and so does everyone else, I have nothing new to add. Again, that's why we trade technically.

Important Announcements

Given new subscribers this month, I wanted to review a few important matters vital to the successful use of our services.

Our goal it to help you make money, but we would be the first to acknowledge that our service is not a "money machine". You should examine closely the track record of QQQ PLUS. (You may download all the trades by going to the Track Record page). I want you to notice something important. There are periods where we have not made any money, or experienced open trade volatility. I refer specifically to two periods: 05/03/00-09/26/00 and 04/19/01-08/10/01. Both of these periods lasted between four and five months. In the first instance the Net Asset Value went from $1.57 to $1.55, and in the second, from $2.52 to $2.38. So, while the year finished with excellent returns, there were, and will continue to be, times when performance is flat to down. This will occur when markets are choppy and trends are either not identifiable, or fail. We try to neutralize losses as much as possible by use of stops and/or remaining in cash protecting purchasing power.

I have never recommended the use of options in concert with our service. Since our best signals last between 4-8 weeks, many of our trades will yield 10-15% profits. Option premiums matched to this duration may exceed 10%. You do the math. I was an Option Principal at one time and no one has shown me an effective way to match our system to effective option strategies.

It's interesting that, unlike a mutual fund, you get to see all our trades, good and bad. Mutual funds will, when reporting, give you their largest positions and pass through their gains and losses. But, you don't get to see how they're operating the fund on a day-to-day basis.

I don't have something to say every trading day. Unless you're unable to access your email, don't bother logging-in if you didn't get an email.

I am impressed at how the world of ETF's is rapidly expanding both in the US and overseas. ETF's are to conventional mutual funds what the discount commission was to the brokerage industry. They will lead to a dramatic change in the way individuals, and some institutions, invest. Competition between exchanges and other would be ETF originators are heating up. I'm very excited about the prospect of adding more ETF's that are suited to our trading system. We're very proud to be at the forefront of this revolution.

Finally, I've been getting a lot of questions about why I'm doing this. I've owned and managed complex investment companies. I disliked how difficult it was to manage highly regulated companies, employees, and all the attendant duties that took me away from people and trading. I'm now 57 years old and, while I enjoy fishing and the outdoors, there's only so much of that I can do. I love the markets and interacting with people from all over the world. I want to make money in the markets and have some fun at the same time. The internet has made this business possible and I love it.