We don't know and neither do they.

Old Stool -January

Dr. Stool's recent lead columns: February, March, April, May

Predictability (1/31/01)
Perhaps the oldest truism in the stock market, dating back to at least 1628, is buy the expectation and sell the news. So Dr. Stool supposes that no one is surprised that the market sold off following the Fed's second dropping of this month. However, in spite of the fact that the majority expected the selloff in the short run, the majority overwhelmingly expects the selloff to be temporary. Dr. Stool does not.

Dr. Stool sees lots of signs that something much bigger is about to come down the

pipe. First, stochastics show all of the indexes to be extended to the upside. All major indexes have met upside measuring objectives. All have reached important resistance areas. 

Furthermore, there are strong indications of accelerating price weakness in commodities and energy. These important indicators are breaking down from major tops. We know that short term interest rates are dropping like a rock, and bond yields also looklike they are headed back down. In normal environments that's bullish, but not in an economy on the verge of deflation. The financials have made a double top, and also appear ready to head south. This is the first sign that serious investors are finally beginning to recognize the implications of a deflationary implosion of the credit bubble.

Day of Reckoning (1/30/01)
Well it's here. You holding your breath? This rally's been going for awhile,  and most indicators are in a high risk zone. Short term price objectives are no more than 1% above current levels. Daily stochastics oscillators could trigger sell signals within the next day or two. 

Dr. Stool is thinking about the fact that "overbought" indicators can stay overbought for a long time at the beginning of a bull market. Could that possibly be the case now? The scenario would require another blastoff from here. With the Fed dropping another load today, and with limited alternatives for the excess liquidity, it's possible.

On the other hand, T-bill rates broke down again Tuesday. Likewise the backup in treasury bond yields looks like it peaked yesterday. Dr. Stool saw signs of reversal on that chart. Commodities and energy prices appear to be on the verge of breaking down from a major top. 

These are all signs of looming deflation, a condition which would be horrendous for stocks. So being the naturally pessimistic stock proctologist that he is, Dr. Stool thinks that the signs of an impending peak in stock prices will come to fruition coincident with the Fed's load hitting the street.

L-Day Minus One (1/29/01)
Everybody knows what's going to happen

Wednesday. The only question is how much. Dr. Stool suspects that this is a quintessential sell on the news scenario, no matter what the Fed does.

The charts show a little more upside, particularly in the Nasdaq, but they also show the potential for a top within the next  two days or so. 

Strange things are happening on the interest rate and bond yield charts. T-bill rates are crashing and are near new lows. Bond yields are inching toward new short term highs. The bond guys aren't going to let the Fed off the hook. The bank stock index is headed for a double top. Commodities and Energy prices are near a breakdown from major tops. 

All very interesting and contradictory. Dr. Stool can't wait for Wednesday.

Waiting for the Fat Lady (1/26/01)
Dr. Stool advises bears everywhere to remainpatient and vigilant. Bulls are not known for their intelligence, but they have more money than we bears do, they have the gas company on their side, and bears with itchy shorts have been known to cover up during periods of severe discomfort, thereby aiding and abetting the enema. 

There were buy signals for the five day cycle early on Friday, which should have most of the indexes, Naz, in particular, trying to put the squeeze on for another day or so. Dr. Stool sees the greatest upside potential in

the Nasdaq, where of course, most of the short interest is. He wouldn't like to see it, but an un-met price objective of 2970 remains a possibility. Ugh.

Less fireworks are likely in the Dow and the S&P, but there are still no sell signals on the daily charts. One thing that looks interesting is that bond yields look like they may be getting ready to tank again, although, no signal on that yet either.

How's this for a scenario? Stocks hang on through Tuesday. Fed has more loose stools on Wednesday, bonds soar, and stocks tank, as the Fed's increasing panic about the  deepening depression scares the crap out of everybody.

New Indicator! (1/25/01)
Dr. Stool has hit upon a new, and highly reliable sentiment indicator. It is the Capitalstool Traffic indicator. Dr. Stool has noted that whenever traffic to this website drops to an extreme

low reading, the market tops out. Seems no one loves Dr. Stool at tops. 

Now Dr. Stool never met a top he didn't love, and admittedly he has fallen in love with a few tops that weren't tops. You know how that goes. But based on the traffic (low), and the proctological charts (high), it does look like we're putting in a lovely little short term peak in here, which has the potential to evolve into a long term love affair. 

Losing Credibility (1/24/01)
Watching his traffic sink slowly in the west, Dr. Stool knows when he is losing credibility. Loyal readers need have no fear however. Dr. Stool does this for love, not money, and unlike most newsletters which have not updated their sites in eight or nine months, or have simply disappeared, this Stool will be hanging around

for awhile, or sticking around. Hanging on? Anyway, fellow bears, and curious bulls, Have no fear, Stool will be here! After all this is Wall Street.

As for the market. The Dow has pledged itself to eternal neutrality, and the rest of the gang has scaled the Matterhorn. After a brief second look at the panorama from the peak, they'll be skiing on down any day now.

Bubblemania II (1/23/01)
The Fed's panic injection of excess gas has obviously digested its way down to where it can do the most harm, the stock market. Lots of little minor breakouts and the downtrend lines are broken in the S&P and Nasdaq. The brokerage house technicians are going to go crazy with that Wednesday morning. The market will go nuts for a while. 

But, Dr. Stool remains resolute. Most short and intermediate oscillators have reached levels that have marked market peaks in the last nine months. And there's plenty of stock waiting just off the market makers' books.

Bond yields are rising, bank stocks are rallying again, and commodities and energy prices are dropping. Not

much sense to be made out of that. Just too much fuel feeding the fires of speculation, an economy bereft of demand, and the bond crowd with the crap scared out of 'em by that whiff of the stench of staghyperflation. 

A Whole Lot of Nothin' (1/19/01)
Definitely not the kind of market traders love. But for bears, days like this are essential for getting your shorts off, a little up, a little down, and a little more up, that sort of thing. Without those upticks, you miss all the fun that comes after. As for you put buyers, well Dr. Stool sends his condolences. Tough way to make a living. Anybody out there know any option buyers who make money? (And keep it.)

As for the indexes and indicators, nothing happened. Some technicians evidently believe the downtrend has been broken. Well not in the stock proctoscope it ain't. The downtrends in all the major indexes are intact.

Verdict is In (1/19/01)
Guilty, Guilty, Guilty. The market is guilty, the bulls are guilty, and can you believe it, our beloved ex-president is guilty. Who'd a thunk it. Next guilty party? President Hoover.

Doc Stool took a look at the charts tonight and saw a historically rare confluence of events. A number of extremely rare and foreboding chart patterns have suddenly appeared on a number of index charts. The study of rare chart patterns is a must for stock proctology interns, and your Dean of Stock Proctology has designated today's index updates as required reading.

One thing that all stock proctology interns need to understand is that bear markets, while rare, are not unusual. (Anybody remember Joe Kuharich?) History does repeat in the markets, and this bear is repeating the patterns of the Great Bears of the past.

A key lesson is, the bigger the Bear, the bigger the rallies. And for the guilty, retribution will be swift, and sure.

Congratulations Dr. Stool (1/18/01)
The staff of Capitalstool.com wishes to congratulate Dr. Stool on missing a 500 point Nasdaq rally which is about to get bigger. Way to go, Procto.

How much more of this abuse can Dr. Stool take? The markets have turned on him, his staff is deriding him. Dr. Stool admits his short sightedness. His only excuse is that he was blinded by the bm effect. 

What does he think now? It's a big damn bear market rally, that has farther to go, probably a 15 minute, 10% spike. If you're short, you're gonna get creamed on the opening. If the market isn't headed down hard by day's end, cash out, and if you've got anything left, head for Vegas, where the odds are better.

Thought from the rear. On the other hand, the bank stocks are acting like stool. All of the action is in stocks with big short interest, driven by a combination of conspiracy and panic. When it does finally end, the big squeeze will be followed by the big dump.

On the Cusp (1/16/01)

All of the indexes are at critical levels. They've reached downtrend resistance, and oscillators are at levels which marked previous rally tops. Dr. Stool expects market makers and portfolio managers to run the shorts, again, and sell into it. For details click on the index links.

News? What news? (Redux) (1/11/01)
One of the rules of Stock Proctology is that the news follows the charts. Dr. Stool heard a rumor that there was big news after the bell Wednesday, uhh, make that Thursday. 

Here's how it works. The market may go up on good news, or down on good news. Down on bad news or up on bad news. Depends on the technicals and cyclicality. The pundits will either attribute the

market's move to the news, if the news is in harmony with the technicals, or claim that the market moved in spite of the news if it's not. Got that? Supply and demand, driven by emotional cycles, available liquidity, and investment preferences, drive prices. News is a convenient excuse that may help things along a little, or just be ignored.

Thursday, the pundits got all excited because the market went up in spite of bad news. They said, "Oh that's bullish. Means the market's making a bottom." Ain't life grand?

Hmm, wonder what they'll say tomorrow?

January 9 Comments  A couple of very short cycles, 5-8 day duration, were turning positive just as the market tested last week's lows. Dr. Stool didn't think those cycles would be strong enough to make any difference. But they are  delaying the inevitable, as the four-week cycle is topping out, and all longer cycles are still heading down. 

Cycles grow increasingly negative heading toward the inauguration. President Hoover's inauguration speech should give the market a lift.

A chicken in every pot! A Ford in every garage! Definitely should help.

Dr. Stool did get a bit over-anxious in his weekend comments (below). He tends to become a little excited in bear markets, being that they are so few and far between. Those who examine markets from the underside have to face that fact, and bear with it.

January 7 Comments Dr. Stool's market proctoscope is revealing a confluence of all short and intermediate cycles to the downside. The next three days, in particular, are a time of extreme risk. Given the news backdrop, conditions are ideal for a classic selling panic and crash. Dr. Stool feels the odds are significantly higher that this will occur now,  than at any time so far in this bear market.

Panic buying on Wednesday, exhausted potential demand for many days to come. This could be the crash of 2001.

Looking at the major indexes, Dr. Stool sees the potential for minimum moves of 3-8% down on the Dow, 10% to 25 % on the Nasdaq, and 4% to 9% on the S&P. Those are short term targets, with cyclical weakness persisting until the last few days of the month. 

There should be some improvement after  President Hoover takes office. Intermediate cycles begin to turn up in February. But it'll be a bear market rally.  

If you are interested in the precarious position of our financial system, check out Credit Bubble Bulletin over at Prudentbear.com.