ON 7/24/98 THE PITBULL CRASH INDEX HIT A -10
The first rule of the PCI....
DON'T PANIC!!!

"What is the Pitbull Crash Index, (PCI)?"

The Pitbull Crash Index (PCI) is a warning indicator developed by Henry Ford in 1987 prior to the crash and is based on an algebraic summation of the number of NYSE new lows and whether or not the NYSE has been advancing or declining over the previous 5 days. This is a very effective monitor of market internals that can show situations setting up that should raise the investor's awareness and allow them to take some precautionary actions until the all-clear is sounded. It is published daily for subscribers and disseminated on a once a week basis to over 60,000 investors. It was back tested over 25 years of data, starting in 1960, and since 1980 has signalled 10 times and been WRONG 6 TIMES....The last time it signalled was in 1994 and it was WRONG then.

"This Indicator HAS NEVER FAILED TO GET US OUT BEFORE A MAJOR U.S. MARKET CRASH!!!"

The PCI is an early warning system to indicate a possible bear market. False alarms are not only anticipated, but welcomed because when they occur it indicates that the public perception may be primed for a bear market decline, rightly or wrongly. If wrong it is usually followed by a sharp rally. When it is right, you have one to two weeks to get your affairs in order. THIS SIGNAL DOES NOT MEAN TO GO OUT AND LIQUIDATE ALL OF YOUR HOLDINGS TOMORROW MORNING. IF IT IS REAL, IT WILL BE FOLLOWED BY MORE -10 DAYS IN THE COMING WEEKS CONFIRMING A BEAR MARKET.

"SO WHAT DOES IT MEAN??? WHAT DO I DO?"

It means, very simply, to look at your investments with a sharper than usual eye and to take certain prudent precautions:

• ABOVE ALL "DO NOT PANIC" If this should happen to be a real bear market crash indicated, you've got time.
• If you are following our MUTUAL FUND ROTATION STRATEGY, follow the nightly reports for any possible exit signal. We monitor the followed sectors and the individual stocks that make up these funds. We have an automatic exit point "MAGIC NUMBER" that if touched will get us out of those positions. This number changes daily. Remember, this number changes nightly, so be sure to check every day if it should get close to that figure.
• If you are a Pitbull Investor, we will also have available the daily PCI numbers on site for you to review, and of course we will give you further instructions of actions to take in the event this alert turns out to be valid. You should check into the nightly commentary page for current market positions.
• Return your investments to an equity position, (do not take or maintain margin positions that could cause you to lose additional capital to cover positions you have open.). If you are an investor and don't know whether you have margined positions or not, you probably don't as you would have signed agreements and it will show up on your statement each month indicating the amount of margin in play.
• Remove yourself expeditiously from riskier, non-productive investments. This category would include 4 letter, high flying stocks that were declining even as the market was making new highs, indicating that they were not keeping up with the general market. If we should be in for a market correction or worse, these stocks will suffer more than others. This may also include those dogs you've been hanging on to for several years. They will get hurt even more in a bear market unless they are hedge stocks you purchased just for those purposes.
• If you are adept at shorting you can look to short high-flyer stocks such as those selected by our "Guide to Shorting Hi-Performance Stocks", that are starting to show erosion when compared to the rest of the market. Remember, we don't look at whether an individual issue is declining, but whether it is declining faster than the rest of the market. Most stocks will follow in a market decline...only those that are failing drop faster and become short candidates.

"I'VE NEVER BEEN THROUGH A BEAR MARKET. THE DOW JUST LOST 500 POINTS YESTERDAY.....ISN'T THAT A BEAR MARKET?"

No...What we have just gone through, if it is indeed over, would be classified as a "Market Crash". Believe me, YOU WILL recognize a bear market when it happens.

Here are the guidelines accepted by most economists and market managers and technicians.

• MARKET DECLINE: Less than 10% drop in the market before recovery.
• MARKET CORRECTION: 10% to 15% retracement in prices.
• MARKET CRASH:The key here is not the depth alone, but the minimum duration. If a price decline of 15% were to occur in less than 3 months, (1 quarter), then it would be considered a market crash. Once the decline deepens and lasts for at least a quarter then it is considered that we have entered a bear market.
• BEAR MARKET: Most say a 20% decline, (I subscribe to 25%), from an Index-high, over a period of 3 months, (1 quarter), would be considered a bear market. If the selloff occurs in a shorter period of time then it is a market crash. Once the decline lasts for at least a quarter then it is considered that we have entered a bear market.

  *At the current level, we would have to sustain this loss through at least October to qualify as having entered a Bear Market as opposed to a corrective phase in a Bull Market.

  REMEMBER: Prices on stocks cannot go higher unless someone is selling and there is a surfeit of stock available to purchase. The way this stock becomes available to fuel the market is from these corrections that scare out the small investor and let others buy in and drive the stock price even higher.

"HOW BAD CAN IT GET?"

Pretty bad...Here are some statistics to put it all in perspective:

• Since 1899 there have been 26 Bear Markets.
• The average length of a Bear Market is 17.4 months
• The average decline is 30.8%, (Almost 1/3 of your holdings)
• The largest declines: 1901(-44%), 1906(-46%), 1929(-90%), 1937(-47%), 1939(-41%), 1968(-44%), 1973(-46%), 1976(-27%), 1987(-41%), 1990(-27%)

"WHAT DO YOU THINK OF THIS LATEST SIGNAL ON 7/24/98. IS IT FOR REAL"

We do consider ourselves to be "On Alert"when we get a crash signal and will remain so until the PCI returns to a +6, which could happen in as little as 4 days, but usually takes a couple of weeks to work out.

SEPTEMBER 1 UPDATE:.With a 19.3% drop overall and a 500point drop yesterday the 7/24 crash signal has proved itself correct. It is still to be determined if there will be further damage, but our prudence paid off. We exited our Mutual Sector Funds and not only were able to get to cash in the majority of positions, but managed to have a spectacular run on our short positions. We also managed to pick up some bargains along the way down, (protective stops in place, of course).

Whether this ends up to be more than a crash/correction and results in a protracted Bear Market or quickly reverses is yet to be seen. If we get another down day today in the NYSE that will signal a -10 PCI again meaning the worst isn't over yet. We won't return to our Full Bullish position until we get a +6 on the PCI.

We will keep you updated in the coming weeks.

Henry Ford
www.pitbullinvestor.com
Questions? whford@imfnet.com