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Rally Squashed
-- August 5, 2002

With the Dow bearing down on 8,000 again, the Nasdaq back down at the 1,200 mark, and the S&P; 500 still wallowing below 900, it is clear that the recent rally has fizzled. Hopefully, you used the rally as a selling opportunity -- it may have been your last.

That's because the fundamentals are atrocious. Day after day, disappointing economic news keeps pouring in. Today, the Institute for Supply Management announced that expansion in the services industry slowed dramatically in July -- even more than economists had expected! That's not good news for an economy that is attempting to recover from a recession.

In addition to poor fundamentals, investors are starting to abandon the markets in droves. Volume has been light on the trading floor. And investors have jumped into the safety of bonds. That should make Wall Street nervous because bonds are less liquid than, say, money market funds. This indicates that investors aren't just putting their money on the sidelines and waiting for the right time to jump back in. On the contrary, by buying bonds they are signaling that they're going to wait out the crash for the long term.

We expect the Dow to fall to 5,000, the Nasdaq to fall to under 800, and the S&P; 500 to fall to 525 or lower before this bear market reaches a bottom. And it may happen sooner than you think!

related article: Another Dismal Day For Wall Street