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Strategies & Market Trends : Piffer OT - And Other Assorted Nuts
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To: Jorj X Mckie who wrote (31815)5/5/2000 9:10:00 AM
From: Alan Smithee  Read Replies (6) of 63513
 
SI wouldn't let me post last night. I took a look at what Martin Zweig says about the "Fed Indicator"
in his Winning on Wall Street book. This is what he says:

The "Fed Indicator" uses a scoring system for Fed changes in either the funds rate or in reserve
requirements. He states:

"An increase in either the discount rate or reserve requirements is bearish.... A hike in either
one receives minus one point for that component of the Fed Indicator. It would also wipe out
any positive points that might have been there at the time. The negative point remains for six
months, after which it becomes 'stale' and is discarded."

For purposes of market sentiment, Zweig assigns as "moderately bearish" a score of -1 or -2.
A score of -3 or greater is "extremely bearish."

Using this scale, I come up with a current rating of -3 for the market. Assuming we get
yet another rate hike at next week's FOMC meeting, the score would go to -4,
which would be adjusted shortly to -3. I compute as follows:

According to the Fed's Web Site (http://www.federalreserve.gov/fomc/), the history of
rate hikes is:

No changes for some time prior to 6/30: Score: 0

6/30/99: Fed Funds Rate increased 25 bp to 5% Score: -1

8/24/99: Fed Funds Rate increased 25 bp to 5 1/4% Score -2
Discount Rate increased 25 bp to 4 3/4% (not counted)

10/16/99: No change

11/16/99: Fed Funds Rate increased 25 bp to 5 1/2% Score -3
Discount rate increased 25 bp to 5%

12/31/99: No change (Happy Holidays and Yr2K!) Score -2 (6/30 increase drops off)

02/02/00 Fed Funds Rate increased 25 bp to 5 3/4% Score -3
Discount Rate increased 25 bp to 5 1/4%

02/24/00: Score: -2 (8/24 increase drops off)

03/21/00: Fed Funds Rate increased 25 bp to 6% Score -3
Discount Rate increased 25 bp to 5 1/2%

Assuming the Fed increases rates at the FOMC meeting, the score drops to -4, but on 5/16,
the November increase drops off, so we revert to a -3 score (still "extremely bearish")

For what it's worth, per Marty Zweig, things not looking so hot here for the bulls.
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