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The Feed added $701 million in permanent money with a coupon pass and $2.75 billion in overnight repos for a net add of $3.451 Billion. There were no expirations.  The overnight repos expire Tuesday. There are no other expirations until Turdsday's 28 day repos.   

Total Feed is still in the middle of the year long 6% growth channel, today's moderate Feed notwithstanding. It remains near the level it first reached three months ago. Three months, zero growth. Where's the reflation? Right now Al is still trying to keep the inflation cat in the bag. Too much Feed and the gig is up. However, with no expirations scheduled, other than today's overnight repo, until the 28 day rollover on Thursday, the bias will be to the upside this week in the absence of a surprise reverse repo. 

Two trends are evident on the Feed Index, which is the total Fed holdings of loans and securities. One is the 10% growth trend beginning in May of 2001. The blue channel going back to last December suggests a 5% growth rate.  Look at the 4 week moving average (brown line) and compare it with the slope of the two larger channels for an indication for whether the slope of short term growth is slower or faster than the 2 longer term trends. 

The longer term in the Feedometer trend remains down, suggesting that Al is less inclined to pump excess Feed into the system to jam the markets. Feed alone is insufficient to support the market.  Foreign capital flows had been bearish, as indicated by Uncle Buck, but he has stabilized, so capital flight is not as much of a problem at this instant. As tax day nears, seasonal 401k flows will keep the mutual fun portfolio sphincters from pulling the plug. All in all, the liquidity situation is not that bearish. Watch Uncle Buck though. If foreign investors start voting with their feet again, the market will tank. Nothing Al can do. Feeding would make it worse as it would stoke inflation fears in the bond market. 

The Feedometer theoretically measures excess Feed available for bond or stock market jamming. Al selects a trend level he feels is needed to reflatulate the economy. The Feedometer measures the difference between the apparent trend target, and actual day to day Feeding (Fastow Feedometer), as well as a four week moving average (Slowmo Feedometer). A break above the gold trendline might indicate a more aggressive jamming policy.

Inflation developed a gas problem today. 

10 Year Bonds rallied and yields sank. Yields appear to be headed for a test of the December lows near 3.75. Cmaps from 13 days to 13 weeks are in that range. Short and intermediate term indicators are in gear to the downside but that isn't likely to last too long. 3.75 is the low end of a 4 month range and is likely to generate selling.   
 

Long Term 2/21/03- The 6 month and 10-12 month cycles will continue to oppose each other as the 10-12 month cycle tops out and the 6 month bottoms. This will lead to a months long extension of the trading range as the long waves bottom. They should begin to turn up after the next 10-12 month cycle low in the second half of 2003. 
Long Term

Dow Inflatables-  The 13 day cycle high was due on Friday. The cmap was 8080. Surprise, surprise.  The 8 and 13 day cycles turned down. The preliminary cmap is 7700. The 10-13 week cycle cmaps still indicate a continued moderate decline toward 7400 over the next couple of weeks. The 4-7 week cycles composite indicator is topping out. 
 

All of Doc's daily cycle charts are powered by METASTOCK. (Sorry about the bull.) Available at Doc's bookstore! Metastock is the industry pioneer in charting software. Doc has used it for over 20 years. If you have questions about purchasing Metastock from Doc's store, you can email Doc.

Portfolio Sphincters Index (SPX) and Sentiment

Cycle Chart
The red channel is the idealized 18 month-2 year cycle. Dark blue is the 10-12, or 6 month cycle. Teal is the 10-13 week cycle. 

Short Term Cycles

The short cycle oscillator is turning down in the distribution (aka overbought) zone, signaling that the top is forming in the 6-7 week cycle. The timing is also about right, 6 weeks from the last high. Upside cmaps were hit and the market never looked back today. 

The 6-7 week cycle oscillator on the chart below is at a level  where it has topped out 3 times previously in the last year. The 17 day rate of change turned down just below the zero line but is still at least several days form a confirming signal. These two indications may give late sell signals because of the short up leg.  Lagging sell signals are bearish. Using protection is always a good idea, where there's a logical place put it, in this case the 855 area. 

10-13 Week Cycle

Roughly 3 to 6 weeks should remain in the 10-13 week cycle down phase, whether it's a shallow trough or resumption of a steeper decline. Looks like it's going to be the latter. The cycle oscillators upticked but the 29 day ROC is still in a mild downtrend. Although the cycle oscillators upticked in the past few days, the configurations of the cycles on the price charts suggest the  indicators will bounce around at a low level while the cycle continues to downtrend. The end of the down phase will be signaled only when all of the indicators turn decisively higher from a recognizable trough pattern. 

The preliminary downside cmap for this cycle is back below 800. That is still subject to change, depending in particular on what happens over the next 2 days. One or two big down days this week will push the target lower. Waffling around would leave it unchanged.

Sentiment

VIX rose. (up on the inverted scale chart). Touching the inner channel line, then reversing,  indicates a short term top, or confirms a downtrend.  The next significant intermediate cycle low should reach at least 50-60. 

The 17 day rate of change is a proxy for the 6-7 week cycle. The 29 day rate of change is a proxy for the 10-13 week cycle.  The blue line overlaid on the price chart is the 10-13 week cycle oscillator, while the red line is the 6-7 week cycle oscillator. The VIX is a measure of implied options volatility reflecting relative fear or complacency. It is plotted below on an inverse scale to better show the relationship to the price chart. The "Stool Bands" may reflect either 6 month or 10-12 month cycles.

Long Term View 2/21/03

Linear Regression Analysis- The rally off the July-October lows was the first to fail to reach the upper regression projections within 4 months of breaking the lower channel in the bear market. The 1 year regression is sloping down more sharply than at any time throughout this bear. Using METASTOCK, Doc took the 12 month regression channel with the time span fixed at one year, and moved it across the entire chart. In no prior 12 month period was the down slope as sharp as it is now. Having failed to break this 1 year regression channel, the market may be in a period of extended and accelerated decline. The last line of defense was the long term central regression projection. The lower blue projection line has been a congestion area since July, delineating shport on the way down. The 1 year center regression line also indicated an area of shport.  

Long term cycle configurations are shown on the chart below. Keep in mind that the longer the nominal cycle length the greater the variance in the actual length of the cycle. The 18 month cycle can range from 12 to 24 months. The nominal 4 year cycle can be 3 years. It can be five years. Four years, give or take a few months has been most typical, especially in the latter half of the twentieth century, but a 3 year cycle is not uncommon. In the first half of the century, cycles frequently lasted 3 or 5 years. Hurst called them "nominal" cycles because cycles vary in length. Looking at charts going back 100 years or more you can see that a 1 year variance is not uncommon for the 4 year cycle.   

Doc has reformulated the long term forecast taking into account recent price action. The 3-4  year cycle low appeared to be between the April and September 2001 lows. Reconsidering the action of last July-October, that was more likely the 3-4 year cycle low. The 4 year cycle actual price  high was in January 2002. As opposed to the price high, the wave high is where the upper edgeband of the wave envelope contacts the upper band of the next longer wave. That was from last November, when speculative fever was at its peak, through early January, when we saw a second wave of speculative frenzy. The degree of speculative mania during the 3 month trading range in the fourth quarter of 2002 was consistent with a major 4 year cycle top. Cats, dogs, and pigs could fly. Doc now thinks this speculative 4 year cycle top could extend though mid year of 2003, and that repeated bursts of manic speculation such as we saw this week, will continue. Because of  the sharp descent in the secular trend, the final high of the 3-4 year cycle will be lower than the high reached in January.  

The 3-4 year cycle is irrelevant for practical purposes. The power of the secular trend has suppressed it. The dominant cycle in recent years has been the nominal 18 month cycle. This cycle has a typical variance of 6 months, so that it can last from one to two years. 

The July-October double bottom was an 18 month cycle low. The 18 month cycle wave high is ideally due around mid-year but the price high was in December at 940. The current projection puts the wave high in mid-year 2003 around 880. After that, this cycle should turn relentlessly lower. The 2002 lows should be broken in the third or fourth quarter of this year. At the current secular trend rate of decline, the mid year 2004 low extrapolates to around 600.  In the event of a panic low an extreme of 525 is possible.

Currently the 10-12 month cycle is completing a top. The 6 month cycle is making a low. Churning is the typical result when these two cycles juxtapose. The 12 month cycle should be dominant, so that the general tilt will be slightly toward the downside. This should result in the up phase of the 6 month cycle playing out as a swup. But there could be huge swings within the channel. Doc thinks it will be necessary to focus on shorter term cycles for trading purposes. 

The third quarter of 2003 looks like a period with a high probability of extended decline. The 6, 10-12, and 18 month cycles all project to be in down phases during that period.  

As noted in this space last week, the index had moved to the bottom of the 18 month channel. The 13 week cycle down phase was expected to last into March or early April but with limited downside. This week's action reaffirmed that the remainder of the down phase should be shallow. That will only change if we see a big downturn this week. Even if that were to occur, a low below 780 is highly unlikely over the next two to four months. After one or more weak rallies following "successful retests" of the lows, there will be another 20% killer wave down in the second half of 2003. 

Check out the symmetry of the bubble's inflation and deflation. 

(Subject to change without notice. Dealer title, tax, and tags not included. Consult your local directory for prices in your area. Past performance is not necessary to be a Wall Street analcyst.)

The Cycle Conditions tables include cycle phase and a wild guess as to number of periods to the next turn, in days for the shortest cycles, weeks (W) or months (M) for the longer ones. This is a fluid exercise, in other words, the projections are likely to be wrong, but they force us to be vigilant for key turning points, and frequently work well enough to prevent costly misreadings.

SPX Cycle Conditions as of 2/24/03

PTT - Periods Till Turn
L-Low, H-High
SWD= Sideways Down Phase- Trading Range
SWU=Sideways Up
p: preliminary
Too Early: Too soon to project 
No Factor: Low amplitude is dominated by larger cycles
* The 4 and 6-7 week cycles are distinct but usually overlap. The dominant cycle is reported. 

Suctor Watch and Stoolwethers- Updated each morning between 8 AM and 9:00 AM NY time. 

Nasgap Charts

The Nas has been stronger than the SPX, but cycle direction and timing will be similar. In the interest of publishing the Anals earlier in the evening Doc is presenting the charts and data without commentary, as it is largely redundant relative to the SPX commentary above.  

Cycle Chart
The stoolicator is a proxy for the dominant trading cycle, either 6-7 or 10-13 weeks. The 17 day rate of change is a proxy for the 6-7 week cycle. The 29 day rate of change is a proxy for the 10-13 week cycle.  The teal channel is the idealized 2 year cycle. The light green channel is the idealized 10-12 month cycle. The dark blue channel is the idealized 5-6 month cycle. The red channel is the 10-13 week cycle.

Long Term View 2/21/03

The Nas is stronger than the broad market, typical of the speculation during periods of major cycle tops. The 12 month cycle is forming a top. Both the 18 month and 3-4 year cycle highs appear due in the second quarter of 2003.  The 3-4 year cycle low would be due no earlier than mid 2004 and possibly not until 2005. Ultimately the 3-4 year cycle low should be around 400, or below on a selling panic. After the following bull phase, the next bear phase will end with the Nasdaq folding, and the bigger stocks going over to the NYSE, perhaps in 2008 or 2009.  Looks like the venerable Amex will be closed much sooner.

Nasdaq Cycle Conditions as of 2/24/03

PTT - Periods Till Turn
L-Low, H-High
SWD= Sideways Down Phase- Trading Range
  SWUP=Sideways Up
  p: preliminary
Too Early: Too soon to project
No Factor: Low amplitude, dominated by larger cycles
* The 4 and 6-7 week cycles appear to have merged into one.

Suctor Watch and Stoolwethers- Updated each morning between 8 AM and 9:00 AM NY time. 

Long Bong Hit  - See top of page.

Golden Stool  2/24/03 PM  

Gold jumped. Short cycle cmaps are pointed at 360 on a closing basis. Long term upside cmaps have come down, now at only 375 - 385. The 9 month cycle oscillator looks like a top but the down phase should be sideways. The short cycle oscillator has turned up, and the 13 week cycle oscillator is in the bottom zone. Doc thinks accumulation has renewed, but that a trading range of 345-385 could last for months, or longer.  
Charts as of 2/24/03 Close

Long Term 2/21/03- Doc projects gold to recover and make new highs in the second half of 2003.

HUI Dumpty fell in spite of the rally in the pog. Short cycles have turned up and intermediate cycles are bottoming. This is the last shakeout before another rally. Nice of them to back up the train to pick up stragglers. 

HUI Cycle Conditions as of 2/24/03

Long Term 2/21/03- After consolidating for a few months, HUI is expected to break out to the upside near mid-year.

Uncle Buck's Illness 

Uncle Buck took it on the chin again. Up one day, down the next. He likes that 100 number but it looks like he is be topping out a 13 week cycle swup. The cycle oscillator is in the top zone. The upside cmap on the 13 week cycle is 101. Shorter cycle downside cmaps are 99. Buck could be stuck here for a while but eventually he will head lower.  

Chart as of 2/24/03 close

Uncle B and SPX (gray line on chart) usually move together because Uncle Buck's index measures the flow of capital into and out of US paper assets. The relative magnitude of the moves varies and wide divergences are followed  by convergence. Central banks intervening to buy dollars are not going to help stock prices, and cannot drive sustainable advances in the dollar. 

Longer Term 2/21/03  Buck is going much lower but perhaps not until the second half of 2003. In the meantime he could churn around 100. Here's another case where the 6 month and 10-12 month cycles may oppose for a couple of months, leading to a trading range. 

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Suctor Watch and Stoolwethers- Now posted on separate page.  Updated each morning between 8 AM and 9:00 AM NY time. 

See you in Intraday Stool. 

Dr. Stepan N. Stool
Chairman of the Department of Stock Proctology
A.S.S. Endowed Chair
American Society of Shortsellers Endowment
American Academy of Stock Proctology

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Explanation of Intraday Commentary-Build charts at http://www.livecharts.com.  For custom time bars insert a comma after symbol and number of minutes, e.g. compx,90. This will give you a bar chart of the Nas with 90 minutes per bar. The one day cycle is usually most clear with 8 minute bars and 26/18 stochastics. It varies from day to day. Sometimes 6 minutes works best. Experiment to find the best fit for your trading style, and the market's dominant frequency at the time.

The goal here is primarily to monitor the condition of the 8 and 13 day cycles. I typically use 90 minute bars with 26/18 stochastics for the 13 day cycle proxy on the indices during regular trading hours. Other cycles use 26/18 stochastics with the following:

8 days- 60 minute bars
5 days- 40 minute bars
3 days- 24 minute bars
2 days- 16 minute bars
1 day- 6, 7, or 8 minute bars

On the 24 hour futures charts, use a time per bar approximately 3 to 4 times the above number of minutes, to represent the cycles listed above.

About centered moving average projections.

ABBREVIATIONS:

cma: centered moving average
cmap: centered moving average projection
os or ozzie: oscillator
sto: stochastic
swup: sideways up phase
swdp: sideways down phase