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The Feed did nothing, allowing overnight repos to expire for a net drain of  $2.75 billion. There are no other expirations until Turdsday's 28 day repos.

Total Feed remains in the middle of the year long 6% growth channel, at a level it first reached three months ago. Al and his henchmen are in a relatively neutral stance in comparison to 2001. Stoolie paranoia regarding the Feed is misplaced. Al's hands are tied by the creeping inflation signals, along with the threat of a resumption of the dollar decline and the accompanying capital flight. 

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. Over the last several weeks the trend is flat. This again is evidence of inaction and neutrality by the Feed. Seasonal 401k flows are keeping the market afloat, not the Feed. The liquidity situation is not that bearish at the moment. Uncle Buck holds the key. If foreign investors stay put, the market can remain somewhat stable or rally a bit.  If the dollar starts down it means foreign investors are pulling out. Stocks would drop with Uncle Buck. 

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.

10 Year Bonds rose and yields fell, hitting downside short cycle cmaps of 3.75. However the 13 week cycle cmap may be as low as 3.65. A test of the October low is possible.    
 

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-  In spite of all the waffling, the 10-13 week cmap still appears to be pointed at 7400. The 4-7 week cycles composite oscillator is topping out and the 10-13 week cycle oscillator remains flat in negative territory, indicative of mild trending. If you want something to worry about, how about this? A close above8000 would turn most indications higher, suggesting an up phase that could last for several more weeks, and an upturn in the 6 month cycle that would delay the next downleg for months.

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, now 31 days from the last high. Upside cmaps were hit but a retest is possible. The problem is that there are a slew of conflicting indications. A move through the 850 area would signal an extension of the up phase and a probable upturn in the 6 month cycle. 

The 6-7 week cycle oscillator on the chart below extended its uptrend, suggesting that this swup is not over yet. The 17 day rate of change is still in an uptrend as well,  also indicating that the up phase is still in force. Until these two indicators begin to turn, bears cannot relax, especially with an upturn in some longer cycle indicators. Using protection is always a good idea, especially so under current conditions. We have seen the damage that can be done to shorts when the bulls run the squeeze play. The 855 area is a logical line of demarcation for short covering buy stops. Given the fact that everybody sees that, it will trigger a vicious short squeeze.

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 steeper decline. The problem is that the cycle oscillators have turned up and the 6 month cycle oscillator is on the cusp. The 29 day ROC is still in a mild downtrend and this is ordinarily indicative of distribution. The configurations of the cycles on the price charts suggest the  indicators may bounce around at a low level while the cycle continues to downtrend, but if all turn up together, the down phase is over. Remaining short at that point would be hazardous to your health.

The preliminary downside cmap for this cycle is still below 800 but subject to change either way. One or two big down days this week will push the target lower. Waffling around would leave it unchanged. An extension of today's rally would pull the cmap higher and raise the nasty possibility that the low is behind us. 

Sentiment

VIX declined. (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. Extending into the low 30's, then reversing, would signal an intermediate top. 

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 2/25/03

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 2/25/03

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  2/25/03 PM  

Gold dipped. Intermediate cmaps suggest that it could dip as low as 340 before a bottom is in. 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. Doc thinks accumulation has renewed, but that a trading range of 340-385 could last many months.  
Charts as of 2/25/03 Close

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

HUI Dumpty dipped again. Short cycles have turned back down. Intermediate cycles are bottoming but cmaps declined slightly, with a low of 127 possible. This should be the last shakeout before another rally. Nice of them to back up the train to pick up stragglers. 

HUI Cycle Conditions as of 2/25/03

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 was little changed after wild swings in the pre-market and early going Tuesday. He likes hanging around 100. Odd, considering the index is a basket of other currencies. Round numbers should be totally irrelevant. Opposed cycles could keep Buck locked in a range for weeks or months. The upside cmap on the 13 week cycle is 101. Shorter cycle downside cmaps are 99. 

Chart as of 2/25/03 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