Prepared by Market Systems Newsletter

Mutual Funds

Our previous long-term forecast two years ago, in January, 1995 for a Dow 5000, provided an aggressive long position for mutual fund investors. We also recommended using a 5% trailing-stop strategy, which kept us fully invested until May, 1996. This 5% trailing-stop was hit in May, generating an intermediate-term sell signal. We then forecast a sideways market during the 3-month cycle (May-June-July, 1996), with corrective lows expected during this cycle. The lows did occur in July, and in our August 2nd newsletter we recommended buying the market with a stop-loss at the July lows

As forecast, the market did work higher with new all-time highs occurring in late September, 1996 as predicted. In our November 1996, and January, 1997 newsletters we continued to forecast even higher prices and a continuation of the buy the dips strategy until mid-February, 1997.

In both our January and February 1997 newsletters we forecast a major top to occur mid-February, ideally on February 14, 1997. We recommended taking profits on all mutual funds and all stock positions. Those who followed our recommendations took profits within 3 days of the all-time highs on the S&P 500.

Since mid-February, 1991, the S&P 500 has dropped, and then it has rallied from March 3rd to the 11th, but failed to exceed the February highs.

Our forecasted high energy date for March 11th, timed the start of the latest decline. The failure to take out the old highs is bearish, while the new lows in the wave-pattern are also bearish with lower lows, and a lower high. This all signals a potentially very negative pattern that could lead to significant selling pressure in April.

We believe that it is highly possible the market will continue to work lower into late April, before another rally occurs. In fact, it is highly possible that the mid-February highs will be the highs for several months. Therefore, we continue to recommend for intermediate-term, and long-term investors to either stand aside, or to look to short the rallies.

Turning Point Dates And
Short-Term Trading Strategy

The best turning point dates or high energy dates occur on March 31st; April 4th, 11th, 22nd, 25th; and May 1st.

As stated in our February newsletter, the next turning point date occurs on March 24th, following the lunar eclipse on March 23rd. The market direction after the lunar eclipse is uncertain; however, whatever the direction the market moves following the lunar eclipse, it is likely to continue into March 31st.

On March 31st, we expect a change in trend lasting into April 4th, or April 7th (new moon date) However, the most significant date for the month occurs on April 11th.

On April 11th we have a cluster of harmonic indicators that portend a fast move in the market. If the news on the producer price index is negative on this date, then a significant decline will occur in the market.

The following week does not have any significant indicators to change the trend, thus, we would expect a choppy market pattern. The news on the consumer price index on the l5th may impact the market direction for that day only. Thus, we have no high probability for forecasting the market's direction going into the April 18th option expiration date.

The next date to look for a change in trend to occur is April 22nd, which is a high energy date (date of the full moon). We would expect a two- or three-day counter-trend move going into the 25th. If the 25th ends up being a low, then a rally bounce should occur going into the end of April.

We would then expect another short-term change in trend starting on May 1st, and lasting into May 12th. More on this time frame in our next newsletter.

March 21, 1997
Market Systems Newsletter
4433 Moorpark Way, Toluca Lake, California

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