On June 18 of last year,

we presented the chart which can be seen below and asked: "The big question now, of course, is whether a move back to the 10,000 area or above is likely or if this is a one-time selling opportunity?"

The conclusion we drew then - that the market was ripe to be shorted - turned out to be precocious. The Dow Jones Industrial in fact hit a peak of 10,753 points on February 19, but has since fallen back by about 7%. It is time therefore to re-examine the situation.

The long-term picture

In January 2000, the Dow Jones Industrial Average peaked at 11,750 points. This all-time high has so far not been superseded and any subsequent pinnacle situated itself at a lower level, such as those of September 2000 and May 2001. The highest point reached in February (10,753) was equal to the one touched on May 2001.

The Dow Jones Industrial Average would certainly have to close above the February high in order to invalidate our bearish appraisal of the present market situation.

The medium-term picture

The medium-term picture not only shows massive resistance from the down trend line connecting the tops reached in 2000, 2001 and 2004, but also from the peak reached in 2002. We feel certain that the down-trend that started in February will not reverse, and apart from occasional pull-backs, it will likely pick up speed.

The short-term picture

What we perceive in the short-term picture is a trend-reversal and, as we know, lower highs and lower lows is what characterizes a down-trend.

While a pull-back towards the 10,500 level is a possibility, this is a worst-case scenario and we rather view an initial move towards the 9,500 level as more likely.

Market Volatility Index

The Market Volatility Index has faithfully forecast any marked decline in the stock market (see white arrows below) over the period the current bear market has been under way.

Be that as it may, by February of this year, the VIX had fallen to a low not seen for a long time and we would like to put into words positively and with conviction that the bear market rally has most likely run its course.

We conclude therefore that it is time to sell the US markets short!

The following recommendations were valid at the time of writing, viz. at

and may no longer be valid at the time of reading.

Peter Zihlmann


www.pzim.com
investment@pzim.com
forex@pzim.com

May 19, 2004

Disclosure: The author has not been paid to write this article, nor has he received any other inducement to do so. The author is a shareholder in the company and will benefit from any increase in the company's share price. Disclaimer: The author's objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information, nor the opinions expressed should be construed as a solicitation to buy or sell this stock. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock.