Meanwhile, the backbone of what makes up our market in the technology sector, the Philadelphia Semiconductor Index (SOX), tells us of even more gruesome losses. (See Chart)

A look at the charts of Intel (INTC), Cisco Systems (CSCO), Sun Microsystems (SUNW) and Applied Materials (AMAT), all former leaders in the tech sector, shows that institutional support is not stepping up to help these once beloved leaders to hold at their previous lows. Instead, they still appear to be sinking. At the same time, institutional buying is driving very few if any distinguishable groups of stocks to new highs. One of the only areas that consistently seems to be showing up on the new highs list includes small and mid-sized regional banks. The interest rate environment seems to have been helping their cause. However, in the face of a rising number of defaults and bankruptcies, there are legitimate questions as to how much upside the group could have left.

It may seem like overkill to discuss more negative characteristics present in the current market, but the Advance/Decline line has been sinking for both the NYSE and Nasdaq. Obviously this reveals that the weakness in the market has been broad based, as decliners have outnumbered advancers on by more than 2-to-1 on numerous sessions. For greater reassurance that the market environment is improving, be watching for that balance to change.

STILL ONE MORE DOWNWAVE TO GO... One of the tenets of the Elliott Wave principle is that waves of all sizes still take the same forms. Just as the bigger decline from the spring high appears to be unfolding in five waves, the smaller decline from the August high appears to be doing the same. The next chart shows the bigger wave 4 peaking in late August. The current downleg (which looks like a fifth wave to us) should also break down into five waves before the entire down-wave is over. The numbers show that the decline from the August peak has come down in three waves; this week's bounce qualifies as a wave 4. That means there should be at least one more down-wave. If we're reading the waves right, that could complete the entire down-wave that started in the spring. Coincidentally, that would call for a market bottom sometime during October (when bottoms usually take place). That's one of the reasons we weren't too impressed with this week's low-volume bounce. We think there's room for another washout on the downside. If that occurs, we'll take the next bounce more seriously. (see chart 2)

OTHER INTERPRETATIONS... In the interest of full disclosure, we need to point that reading Elliott wave patterns is very subjective work. Our interpretation calls for a bottom to form sometime during October after another downleg (which could even break the summer lows). We don't believe that will be the "final" bottom, but a bottom. Bob Prechter, who is the chief practitioner of Elliott waves, takes a much more bearish view. His reading is that the decline from the spring high to the July bottom completed five waves. That means that the downturn from the August peak is the start of another "major" downleg. Obviously his reading is a good deal more bearish than ours -- at least through the balance of this year.

OVERSOLD OSCILLATOR READINGS... Another reason we suspect the market may be heading for an October bottom has to do with our daily oscillator readings. Both the 14-day RSI line and the MACD lines are in negative territory. However, both are showing positive divergence from their July bottom. This is especially true of the MACD lines, which are well above their July low. Compare that situation to the placement of the MACD lines during the downturn in the spring. The MACD lines hit new lows during June -- along with the price action. By contrast, the current MACD lines have already broken down trendlines -- and are nowhere near their summer low. That means that the next downleg will produce some serious positive divergences on the MACD lines -- and virtually all of our oscillators. (See chart 3) [Oscillator divergences become more important if they coincide with the completion of five-wave moves. We think we're in the fifth wave of a fifth wave].

Part Two
What do the years 1957, 1962, 1966,1974,1977, 1978, 1987, 1990, 1998 have in common? Times up. Every one of these double bottoms had October in the equation. Don’t ask me why October has bottomed legs of bear markets. I have no clue. Maybe, it’s because I was born in October. Actually, I don’t care. I just deal in facts.

Part There
What do the years 1962, 1966, 1970, 1974, 1978, 1982, 1990, 1994, 1998 have in common? These were all mid-term election years. Once again, don’t ask me why. I just deal in facts. We are now in a mid-term election year.

So...that takes us to today.
July 24th, 2002 was the first low...and we are now approaching the second low. We are just a few days from October. The White House is threatening an attack on Iraq. Talk of terrorism pervades the air. CEO’s are being hauled off to jail. Major companies are filing bankruptcies. At this point, I will let your imagination run with this. Should be an interesting October.

BUT...and this is a big BUT...I do believe that the only way this supposed "double bottom" occurs is with a giant "woosh" to the downside. The recent retest has been too quiet. It has been too calm. It has been too complacent. Just take a gander at the double bottom in 98. The second low had a panic sell-off with a monstrous high volume reversal day. If this works, there may be 1 more inning of pain to go.

Now, let’s take it further. Even if this does occur, it is not the start of a great bull market. Longer-term, I believe we are now at the polar opposite of the years 1982-2000. Those years were a big bull market with mini bear markets. I believe we are now in a big bear market that will have mini bulls. You must go back to the 66-82 period. This period followed a secular bull market period from 1949-1966. Getting the hint? 17 up...16 flat...18 up...

Needless to say, I will continue to let the market be my guide. But I believe my success comes from not only studying what is happening today but also studying the past. Greed and fear are emotions that have been around since the beginning of time. Greed and fear are emotions that will be around forever. These cycles are all about greed and fear. You need to use them to your advantage.

Back to the present.
Near-term, I believe the market could have put in a low that takes you up to the low 8000’s. I don’t believe there is much more than that. There are still too many negatives. Namely, after I went through all of O’ Neil’s printed product index (2800 stocks), I found only about 40 stocks that fit my criteria. The rest of the move on Wednesday (9/25), once again was reserved for TECHS and BIOTECHS that have failed after every rally of the past 30 months.

- Volume continues to be lackluster on any rally. In order to have a more meaningful rally, you must have strong volume.

- I heard 5 pundits say today was the bottom. Of course, those same 5 have been calling bottom since 2000.

- NEW LOWS have expanded markedly while NEW HIGHS continue to be non-existent.

- There remains tons of resistance.

Just stay in gear with me. I have absolutely no ego when it comes to the market. Just like you can’t hide a bad market, when the market turns favorable, it will show itself.

Early on in September, steep losses made it clear that the market was heading back towards a retest of the July lows. Meanwhile, investors were becoming more concerned about the prospects of a longer and more severe market slump as they digested news that Tokyo’s Nikkei was hitting fresh 19-year lows.  Sure, concerns about a war with Iraq have rattled Wall Street, and the anniversary of the September 11th terrorist attacks was enough to make investors timid, but perhaps the greatest uncertainty that plagues the market is rooted more solidly in the fundamentals. Care to take a guess when corporate earnings growth might rebound?

Earnings growth, historically, has shown a strikingly direct correlation to share prices. While weathering the latest economic downturn, the truth is that very few companies are proving able to grow their earnings, much less accelerate their earnings growth. Expectations for an upswing keep getting pushed back, continually delayed from one quarter to the next quarter, or delayed from the second half of ’02 to the first half of 03’ as many now see it. Until there is more substance (instead of hope) in the earnings area, progress in equities is going to be rather difficult. Investors have grown even more cynical when it comes to earnings anyway, as numerous controversies and accounting scandals have eroded confidence in the market.

It has long been known that the market hates uncertainty.  While the course of action against Iraq remains clouded, so does the course of our economy. And you’ve heard that interest rates hit 40-year lows, right? The Fed’s aggressive interest rate cuts appear thus far to have not succeeded in stimulating very meaningful growth. Instead, today we hear growing talk of a double-dip recession (not the same as a technical "double bottom" chart action that is referred to elsewhere). There is limited talk of deflation, and surprisingly few who are mentioning a depression. However, to find anything close to this ugly on the historic stock charts you’d have to go back to the Great Depression era. Oh, and has anyone ever pointed out that the market has a reputation for marking bottoms in October? Call it a self-fulfilling prophecy, but the present scenario looks to be pointing us in that direction again, as cliché as it might seem.

None of this sounds like good news, I know, but there is at least one positive spin we can put on it. That is, that each day we are getting closer to the beginning of a better, bullish phase. By the time a new bull market begins, however, most investors are usually convinced that the market is worthless. As a result, they’ll sit it out and continue to have their doubts while many skillful investors are able to cash in.

Bull markets are hard to miss, just as bear markets are. Next time you see losses mounting you will know what to do, and you will have a game plan for avoiding large losses. Right? You’ve decided on some sell rules, right? Good!

Most people tell me that their buying decisions are easy, but sell decisions are where they always have trouble. So, why don’t we try to reverse that often-heard confession? Let’s make those buy decisions the tedious, well-thought and analyzed decisions based on solid fundamental and technical factors, and at the same time use as little emotion as possible. Keep it subjective.

Why even think about it? Whenever you are down 7-8% are you willing to just sell? Why, or why not? You’ll need to start somewhere with a sell discipline. So, why not take advice from the pros such as O’Neil who say 7-8% is as far as you should ever be willing to go with a losing position?

I believe people over-analyze, over-think, and over-work at investing when the greatest success is sometimes achieved by keeping things simple. There’s always the slow and steady way of just socking some of each paycheck into a mutual fund. But then, when you’re getting more proactive about it, and you’re deciding to buy or sell a stock, sometimes you might just say to yourself, "Gee, is the trend here looking up or down?" and just go from there. Pretty easy!

Sell rules need to be strictly adhered to. Investing is not about the size of your ego, or how that will be affected if you’re right or wrong. No, sir! It is about capital preservation! Then we wait until the sun is shining right on these markets and take advantage wisely.

Since it has a relatively short trading history (it went public in a Mach ’02 IPO priced at $18.00) at least it doesn’t have a bad history weighing on its shoulders. It has shown great earnings improvement in comparisons since the offering. It also has some confirming strength in the sector, while an increasing number of defense/aerospace issues have certainly caught more than normal buying attention of late. Its chart shows a surge to new highs on heavier volume in the past week, a trend that looks like institutional buying or accumulation.

Despite its lack of history as a publicly traded firm, and unlike most of the penny-stock stories relating to defense that you may see being hyped these days, Anteon has a meaningful business size and history. Revenue for 2001 was $715 million with a contract backlog of $3.5 billion as of December 31, 2001. Anteon’s senior management team members average over 20 years of management experience and nearly eight years tenure with Anteon.

I normally prefer a higher EPS rank, yet the outlook for improvement appears rather rosy, as the firm recently announced higher expectations. The company’s earnings estimates would make the case for more favorable (accelerating) earnings percentage increases versus the year earlier in the upcoming quarterly reports.

Sales revenues for the company show growth with acceleration. Note that we are not concerned whether sequentially there is a larger sales number for each quarter one after the other. In many instances, due to yearly variables in certain businesses (and often within certain industries) there are cycles that can weight business into some quarters more than others. It is more useful and by far more important to study the quarterly comparisons versus the same quarter one year earlier. When we study Cooper’s sales revenue history in this manner, it is not bad that we see greater percentage increases in the most recent reports:

April ’01 sales of $57.2 million were up 10% over the year earlier
Jul ’01 sales of $61.4 million were up 18% over the year earlier
Oct ’01 sales of $66.1 million were up 17% over the year earlier
Jan ’02 sales of $58.1 million were up 16% over the year earlier
April ’02 sales of $71.9 million were up 26% over the year earlier
Jul ’02 sales of $90.6 million were up 48% over the year earlier

Something can be learned from studying past experiences both good and bad. Below you will find follow-up commentary on ideas featured in the two previous issues of this newsletter. These remarks help to explain critical technical trading points or news events that occurred which had an obvious impact on the price action of these issues.

eResearch Technology, Inc. (ERES) - Featured 08/01/02
Thus far since we featured eResearch Technology, Inc. it has shown remarkable strength and resilience in a very challenging market, and it has been receiving continually higher ranks on the IBD Stock Checkup® available at www.investors.com. It survived a recent (9/24) test of its 50-day moving average line, and then the company surged higher after announcing that it had received two agreements to provide services for a leading pharmaceutical organization. It has been able to maintain a solid upward trend and has the highest possible Relative Strength rating. Trading 4.5% off its 52-week high, it remains a top choice among the Computer Software-Medical Group of stocks.

Weight Watchers International, Inc. (WTW) - Featured 08/01/02
On Sept. 17, 2002 the company announced the $42.00 per share pricing of a secondary offering of 15.0 million shares of common stock. Rather than diluting the market with the issuance of new shares, the deal was principally a reduction of the interest owned by Artal Luxembourg S.A., a private European investment company that acquired Weight Watchers International, Inc. in September 1999. This offering was not a complete surprise, as it had been proposed on May 31st but had been postponed. Pressure relieved from the stock by the completed offering could allow for a further advance should the positive trend continue in quarterly comparisons. The stock is 10.9% off its 52-week high.

Nutraceutical Int’l Corp. (NUTR) - Featured 09/01/02
On 9/23 & 9/24 NUTR fought to stay above its 50-day moving average and close above its May 21st high close of $7.56. This issue is trading with an Up/Down volume ratio of 1.9 which reflects heavier volume on up days versus down days. It is still a relatively thin trader, with average daily volume near 30,000 shares, so volatility should be expected. Low priced issues are generally more unpredictable, but fundamentally and technically the company appears to be a solid candidate and the indications suggest a positive outlook.

Hanger Orthopedic Group (HGR) - Featured 09/01/02
After briefly slipping below its 50-day moving average, Hanger bounced back on 9/24 with a high-volume reversal. This test of support also seems to have coincided fairly well with previous highs in June that should now serve as a new support level since the mid-August breakout above $15.00. It has the highest possible Relative Strength rating and yet it is 11.4% off its 52-week high. Any break or close below its 9/23 low would be cause for greater concern, so be sure to have a defensive strategy to protect any interest you may have.

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Comments contained in the body of this report are technical opinions only and are not necessarily those of Source Capital Group, Inc. The material herein has been obtained from sources believed to be reliable and accurate, however, its accuracy and completeness cannot be guaranteed. Our firm, employees, and customers may effect transactions, including transactions contrary to any recommendation herein, or have positions in the securities mentioned herein or options with respect thereto. Any recommendation contained in this report may not be suitable for all investors and it is not to be deemed an offer or solicitation on our part with respect to the purchase or sale of any securities. Source Capital Group, Inc. is a NASD/SIPC member firm. Further information is always available upon request. If you know anyone that may have an interest in receiving this or any of our other reports, please call our office locally at (954) 785-1990 or (888) 237-8399 or email kgruneisen@sourcegrp.com