The two square waves reflect monetary liquidity. In each, high is favorable for rising stock prices. The upper square wave expresses changes in long and short rates over time. The lower indicates the shape of the yield curve--high is positive, low is negative.

Two weeks ago, rates moved favorably, half way to most favorable. But the yield curve remains inverted, a negative factor in the economic and stock-market environment.

This happened recently in the year 2000. But when interest rates and the yield curve followed through favorably, negative price momentum (another validation of the overriding importance of prices) rode the market the rest of the way to a lower bottom.

Now, interest rates can follow through positively or rescind. Like every market decision--a coin toss, no matter what any series of history purports to tell us of today.

This chart and comments are updated when relevant changes occur in monetary conditions. Stock Prices are Standard & Poor's Industrials Average.

                                            Today's date, May 25, 2007


See Explanation         3PORTFOLIOS/SPMOAL73/SPMOAL73+MONE1970.XLC       2-year bars

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