Forecast for Year 2002

It's time once again for our annual stock market/gold mining forecast for the coming year. As the final few months of 2001 were noted for a stock market rally in an overall bear market environment, the Year 2002 will be notorious for its collapsing stock prices, in effect picking up where the bear market left off in 2000. In the precious metals arena, gold and select gold mining equities will finally witness the great bull market we've all held our breaths for the past few years as runaway K-Wave deflation completely decimates the financial and economic systems of the world, leaving the yellow metal as the only legitimate save haven unscathed by the carnage. Year 2002 won't be a pretty sight, but for gold investors it will pay rich dividends.

One year ago in making our forecast for 2001 we wrote, "The NASDAQ Composite has nearly reached the point of downside exhaustion and should begin to bounce impressively higher." In fact, 2001 could be a year of overall upside "correction" for the tech stocks after suffering a horrendous year in 2000. The Internet stock outlook also looks to improve in 2001, and several major Internet stocks should be considered as buy candidates. In fact, we predict that the beaten-down Internet sector will be one of the surprise performers of 2001." This forecast was largely fulfilled, and we have even greater confidence that this year's forecast will come to pass since our understanding of the cycles grows more and more with each passing year.

Based on where the cycles are due to top and bottom at various key dates during the coming year, we make the following predictions:

1. There will be an "October Massacre" at which time stocks will most likely see their lows for the year. This is when the dominant interim cycle bottoms, and because it is falling under the momentous forces of the Master Cycle (120-year cycle), K-Wave (55-year cycle), the 30-year cycle, 20-year, 12-year, 6-year, 4-year, 2-year, 120-week, 60-week, 40-week, and a few smaller ones besides, it will definitely produce a hard bottom manifest in the form of a crash. We are 95% certain that this will be the low point of the year.

2. The 120-week cycle, which is the dominant trading cycle (under 2 1/2 years), peaks in February and is down into March 2003. Although there will be considerable pressure on equities into late 2002, we believe October-November 2002 will be the low point for quite some time since the yearly cycles will have bottomed by the end of 2002, and while the 120-week won't bottom until 2003, this cycle's downside force will be mitigated considerably once the big cycles bottom at the end of the present year.

3. There will be strong selling pressure on the market from about mid-February into early April, at which time the market will likely experience a secondary rally, then a resumption of the decline into June-July (likely to correspond with the seasonal "summer rally" tendency). After the June-July bottom, there will be another mild rally into August, then a free-fall into October.

4. As 2001 ended on a positive note, 2002 will end on a negative note with the market falling into January (although the low for the year, as we have already mentioned, will have been made in October). At the end of 2002 will occur simultaneously the bottoming of several of the longer-term cycles we referenced above.

5. Gold futures will exceed benchmark resistance of $320, the last psychological and technical barrier preventing the gold price from exploding. Also in the coming year, we will finally hear an end to the never-ending talk of a "permanent cap" on gold under $300.

6. The physical economy here in the U.S. will continue to see acute deterioration, particularly in the second half of the year. Unemployment will soar as the year wears on and by year's end will be at or above 30-year highs.

7. The best-performing global stock market, on a relative strength basis at least, will continue to be Russia, followed by China.

8. The best-performing stock mutual funds for Year 2002 will be the Rydex Ursa and Tempest Funds along with the Prudent Bear Fund. The top-performing gold fund will be the Rydex Precious Metals Fund.

Based on current cycle configurations Year 2002 will visit Wall Street with unprecedented devastation and financial chaos. The even-numbered years typically prove the most bearish - and Year 2002 will be without doubt the most bearish year in stocks since the Great Depression. Subscribers to "The Bear Market Report" will be prepared to survive and profit from the unprecedented challenges and opportunities that lie ahead. Will you?