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  Market Commentary                 
The Story of Alan and The Boat
Feb. 2, 2001

by Charlie Miller, Analyst-at-Large
The tide was rising, and the boat rose with it before Alan's eyes. "That boat is rising too high" he mused to himself, and grabbing an ax, he leapt into the boat, the "SS Markets", and began to hack holes in the hull, a task that continued for 4 years. "Ahh, I've finally shown that I can stop this boat from rising" he beamed, as the water about him rose higher and higher. "Hmm, perhaps I've let in enough water. Perhaps I'll stop chopping, and cover up a couple of the holes" he thought just as the water began spilling in over the sides and onto the deck. Twice he took boards, and with hammer and nails in hand, he dived to the bottom of the hull and covered a couple of the holes. "Hmm, this boat certainly is undergoing a natural correction to rising high on the tide. They do that, you know?" he announced to the hapless crew. And with that, he sprang over the side, wearing the only life jacket that had been aboard. "Don't worry" he comforted the crew, "I'll watch from shore for a while, and if the boat seems to be in any further trouble, I'll send out some more boards and nails. Good luck!" (Now, replay in your mind the final scene of chaos aboard as the ship went under in "Titanic")

Chaos is about the most apt term I can think of as I watch the screen, and listen to CNBC day after day. I heard at least a half dozen young and old explain breathlessly their newly discovered understanding that all these companies that are in trouble are somehow interrelated, and the problems of each are actually the problems of all. My, my, why didn't I think of that? Perhaps I could have called it "The destruction of the fabric of the American economic and manufacturing infrastructure". Nawww.

Chart A372
Day after day now the indices just decline in lockstep, both in the micro and the macro levels, as can be seen in the intraday charts A372 and A373. No capitulation, no conviction, no good ideas about how to save ourselves as the water keeps coming in over the sides.

Chart A373
It was one of those days when so many interesting things happen that silence eludes me. As expected, the Dow finally broke resoundingly out of the tightening coil of the (6) - (2) triangle. Unfortunately, it broke out to the downside. That it continued to be attached for the 3d straight day to my "Dead Bull Line" (1) is not surprising. Also, it had stayed very obediently within my last EWA prediction for 7 of the last 9 days.

The COMPX had paused at the Support line of my EWA prediction (1) for 4 days, then took off in a burst of irrational exuberance for a day on Feb. 15.

Chart A374
Then the flood of damaging information again began to come in, and made the markets look like the astonishing multicar, nonfatal pileup at the NASCAR race last weekend. The interesting thing to this chart reader is that today's Low was within 5 points of the Low on Jan. 3, the day of Alan's first panic 0.5% rate cut of last month.

The EWA prediction of Jan. 11 has held up for 24 trading days, not too bad for such a manipulated market. It may still have some life in it, if Alan wakes up to the fact that the secret's out that a lot of people actually know that he's responsible for this mess, and takes some serious action - immediately.

Chart A375
It's interesting to compare the current slide to the 3-week slide ending 7 weeks ago. That one was characterized by much higher daily volatility, and on much higher Volume. There was a lot of conviction that the bottom had fallen out, and doubtless helped to panic the Fed. Our slide for the last 4 weeks has just been a gentle, inexorable sinking, as indicated by the Resistance line and it's extension.

Curiously, this evening was the first time in months that EWA detected a useful set of patterns for the 1-year data span of the DJIA. It continued to show great downward pressure on the index. Without further manipulation by Alan, the current "next floor" for the Dow looks like about 10,200. That's about 150 points below Support line (7), but these days, what's 150 points more or less?

EWA continues also to show downward pressure on the COMPX, which is what led me to suggest that the Support line of (1) was likely only to be a pause, rather than a bounce. My ultimate floor level continues to be in the 1,600 to 1,500 range. People will really be getting mean if that happens.

- Charlie Miller 02/21/01

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