Be a Johnny Applestool! Help spread the Stool! Feel free to repost snippets from the Anals on message boards around the web.  Just give a link back! Many tanks - Doc 

The Feed added $7.5 billion in overnight repos against $4.25 billion in expirations, and rolled $3 billion in 28 day repos. The also did a $680 million coupon pass, for a total net add of $3.93 billion. The overnight repos are the only expirations tomorrow. 

Total Feed is beginning  to climb again. This is concurrent with a series of huge Treasury auctions raising gazillions in new money. The additional Feed that we are now seeing is essentially monetization of the new Treasury debt. It is inflationary, but is has no impact on the stock market because it is being sucked up by the new tidal wave of Treasury supply. The effects are showing up in surging commodity prices, but not yet in the bond market. That's where the Feed support is going. The Treasury market is also benefiting from a flight to safety. (Soon to be an oxymoron.)

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 short term Feedometer has turned up as Al absorbs all the new Treasury supply and supports the bond market. Unless the longer term downtrend channel is broken, there should be no impact on the stock 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.

Department of Yes We have No Inflation

No comment necessary. Except maybe that it's strange the bond market seems to ignore it. 

10 Year Bond yields made an intraday double bottom near 3.75, at downside short cycle cmaps. The 13 week cycle cmap is still pointing to 3.60-65. A test of the October low of 3.56 looks increasingly likely. Falling yields in the short run are giving Al room to Feed aggressively, or, and this may be more likely, it is the Feeding itself which is supporting the price and driving yields lower. In addition to increasing repos, Al has been doing 600 million plus in coupon and bill passes every few days. A few hundred million here and a few hundred million there. Pretty soon you're talking real money. 

The 10-12 month cycle oscillator is topping out here. The 6 month indicator looks like its going the opposite direction. If the 12 month oscillator rolls over decisively, the bias will be to the downside. If it simply hovers, an upturn in the 6 month cycle indicator would signal rising yields. Which will it be? The moment of truth is approaching.   
 

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. 

Dow Inflatables- In spite of the  end of month fun and games. (Down Fido. Down Boy!) The Dow didn't break wind, uh, I mean, break trend. The 10-13 week cycle cmap remained pointed toward the 7350 area. That can and will change, but with the 4-7 week cycles composite oscillator rolling over, Doc will still give the benefit of the doubt to that projection. A close above 7950 would get Doc to crapitulate, and admit that we are in yet another one of the series of  mind bending swups.

If you've been around long enough, you may get feelings of deja vu. But of course, no two periods are ever quite the same. 

What happened after that? The next year, you don't wanna know.
 

It wasn't until after a continuing series of short-killing rallies in 1974, that the final plunge began in May. That one lasted 5 months and carried the Dow to 570. But in the meantime, almost all the public shorts had long since been wiped out. 

All these wild gyrations today? Nothing new. Nothing new at all. Institutions are simply throwing money at the tape in an effort to protect what they have left, and survive. They did exactly the same thing in 1973 and 1974.  It was and is a mean, stupid, and futile gesture on somebody's part. 

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 a top in the 6-7 week cycle. The 6-7 week cycle has been the dominant trading cycle since last July. Upside cmaps were hit last week but the topping process takes time. Doc expects this cycle to turn lower. 

The 6-7 week cycle oscillator on the chart below also began its turn and the 17 day ROC is on the cusp of either a sell signal or a renewed push up. A down phase lasting 4-5 weeks should lie ahead if these indicators turn down decisively in the next day or two. If they turn up, the swup continues and prices push a little higher. 

10-13 Week Cycle

Roughly 3 to 6 weeks should also remain in the 10-13 week cycle down phase, in spite of the fact that some cycle indicators are headed higher. The 29 day ROC is still in a mild downtrend and is sitting on a 7 month uptrend line. Only if all these indicators turn up together, will we know the down phase is over. If they begin to turn back down at these low levels, the bottom could fall out. At any rate, we should know one way or the other within a day or two. This market is gonna either go up, down or sideways. (Does Doc sound cynical?)

The preliminary downside cmap for this cycle is around 790 but still subject to change either way. Another big down day this week will push the target lower. Waffling around would leave it unchanged. An immediate rally would pull the cmap higher. 

Sentiment

VIX fell sharply. (up on the inverted scale chart). Touching the inner channel line, then reversing,  indicates a short term top, or confirms a downtrend. Extending into the low 30's, then reversing, would signal an intermediate top. 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 2/27/03

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 2/27/03

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  2/27/03 PM  

Gold fell sharply. Intermediate downside cmaps are wavering between 340 and 345 on a closing basis. The 8 day cmap is pointed at 339 on a closing basis. The 9 month cycle oscillator looks like a top but the down phase should be sideways. Intermediate cycle indicators are bottoming and short cycle oscillators have turned up.   
Charts as of 2/27/03 Close

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

HUI Dumpty took another dump, but Doc STILL thinks they will soon be putting HUI back together again. Both short and intermediate cycles look like they are bottoming. OK, further shakeouts can't be ruled out. When the cycle oscillators turn up in unison, we'll see a good rally. We getting closer.

HUI Cycle Conditions as of 2/27/03

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 up just a bit. It appears his short cycle oscillator wants to turn up, and the 13 week cycle indicator is still rising, although in a top zone. So the swup is not over yet. The range is narrowing. The upside cmap for the 10-13 week cycle is still around 101, and downside cmaps for short cycles are around 99. The swup should end within a week or 10 days at most, then begin to move lower, although probably not dramatically. 

Chart as of 2/27/03 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