Walter Deemer's Daily Market Update -- Wednesday, October 4

     The market was staging a fairly good-looking rally yesterday until the
Fed made their (hardly surprising) announcement in mid-afternoon; it then
tanked into the close, with the S&P falling more than 2% in the final two
hours of trading and the beleaguered NASDAQ more than 4%.  This much weakness
in the midst of the beginning-of-a-quarter funding of retirement plans is not
good news, especially since the S&P is now back to within just 4-6 points of
its recent lows (1438 in the futures and 1420 in the index itself), which
gives it precious little room to work with on the downside to keep its
potential short-term reversal pattern intact.  In addition, the NASDAQ's
rather decisive decline yesterday indicated that its breakdown on Monday was
very much for real, and there is no way to avoid the conclusion that the
NASDAQ is currently entrenched in a full-fledged bear market.

     The stock market, though, remains very much bifurcated, and yesterday's
damage was minimal outside of the NASDAQ.  Cyclicals, in fact, had a very good
day yesterday (foreshadowed by Caterpillar's shrugging off its earnings
warning), although yesterday's weakness in mid-cap and small-cap stocks
indicates that there is no real rush to buy them yet.  The past three days'
weakness in the NASDAQ, which has carried the NASDAQ Composite down more than
8%, also suggests that there will probably be a better time to sell big NASDAQ
stocks than right now; we wouldn't wait for a whole lot of strength to resume
selling them, though -- and we would definitely resist any temptations to
bottom fish in them.

     In the meantime, we'd like to summarize our current working conclusions
again:  1. The broad market averages should have a downward bias until we get
closer to the end of the seasonally-weak September-October period.   2.
Periods of weakness should be used to buy the "new upside leadership".   3.
This is a very good time to try to identify the most attractive mid-cap and
small-cap stocks fundamentally.   4. Periods of strength should be used to
sell the "new downside leadership", big NASDAQ stocks   and we would resist
any temptations to bottom fish in them.   5. The energy sector is making a
top, so any strength there should be used to do some profit-taking.   6. The
stock market will not be able to launch a significant advance until stocks
stop going down on bad news.

     Yesterday's Sector Average Price Changes (in basis points)

        S&P Composite          - 70     Russell 2000         - 137
        -   -   -   -  -  -  -  -  -  -  -  -   -   -   -   - 
        NYSE Financial         - 27     Leveraged Cyclical   + 106
        Growth                  - 4     NASDAQ Industrial    - 245
        Basic Industrial      + 434     Energy                + 44

               Sensitive Indicators Numerical Ratings:
                 Yesterday:  0    21-Day Total:  - 5 

Fidelity's sector fund cash/total asset ratio (previous day):  2.9% vs. 2.8%