We don't know and neither do they.

Day Old Stool - May

Dr. Stool' lead columns for: January, February, March, April

Get Ready For-- Nothing (5/31/01) Dr. Stool has written a lot of bad columns. He's been wrong a lot. But he's usually not boring. Now is the time. Dr. Stool is ready to give you his summer vacation forecast. It's:

Nothing

That's right nothing. Dr. Stool is now going on record to forecast a narrow trading range on all the market averages that will last through most of July. 

It's different anyway. How many poodits and anal cysts do you know who predict a flat market? Wouldn't it be something if it actually happened?

Actually, this is not a joke. The 13 day wave is bottoming now, so the bullasses should stage an effort to keep things form falling apart for the next week. After that the 6-7 week cycle will be turning down, but the 10-11 will be turning up, canceling each other out. With the 4-5 month cycle still working through its top phase, there's not enough negativity yet to force things lower.

Add it all together and what does it spell. F-L-A-T. At least for a month or two. So take your chips off the table and take your vacations early. But be back by late July, because that's when the real fireworks should get started. If ever a time looked right for a collapse, that time is late summer. It's just way too early to think about now. Of course, if you need to move a few billion, it's never too early to sell. 

The Fat Bastard, The Matterhorn, The Finger and Three Mile Island (5/30/01) Joey, Fat Bastard Brassyballsia was on Moneyhype with Suicide Lou Wednesday night. First of all, where the hell is Willow? Lou Dobbs fergodsakes, the terminally fully invested bull. What does this tell you about AOL Time Warner? That in the end, they have absolutely no idea how to keep an audience? Willow, aside from her other assets, was a reporter. She could have cared less which way the market was going, which made her infinitely more interesting than these depressive boohoo crybabies. ooooh, the market's going down is this just a correction or whatisit, boohoo.  

Oh. Let's ask the Fat Bastard, that lying worthless piece of crap who gets more airtime on the financial soap opera networks than any other anal cyst. Why? Because he can lie without blinking? This is a man who has been personally responsible for the loss of billions and billions of dollars. Yet no reporter ever says, after the interview, by the way folks, "This guy is a freakin' crook." What exactly do the networks gain by featuring scum like this.

On to another Matterhorn. Dr. Stool checks his web access logs frequently through the day. One of the things the logs report is the search terms people use to find the site. Wednesday, one visitor got here by searching for the keywords "Matterhorn formation." This, of course, is one of the rare chart patterns that occurs in a bear market, which yours truly first discovered and gave its name. The implications of the formation are self explanatory. 

In fact, the visitor was most observant, because, lo and behold, Dr. Stool looked, and there it was, plain as day, on the chart of the Sphincter 500, the favorite of the portfolio constrictors.

Dr. Stool also noted the infamous Finger formation on this chart. The Finger formation, as in "Yo, d'you just gimme da finger?", occurs when an index spikes through a key moving average, stays there one day, and spikes back down under it the following day. It's the market's way of saying, F You, portfolio shrinkers. This pattern is a favorite of the NYSE specialists and Nasty market makers. As a matter of fact, it's their signature. 

Finally, if you've ever been to Harrisburg, Pennsylvania, you may notice on the Nasdaq chart one of the rarest formations of all, The Three Mile Island formation. The Three Mile Island formation is a succession of three small explosions, one on top of the other, followed by an evacuation and fallout. Right now, we're in the evacuation stage. After this, the fallout. Portfolio shrinkers should start losing their hair any day now.  

Who's Buyin' Now? To The Tune of Who's Sorry Now (5/29/01) The Mother of All False Breakouts is coming to its ultimate conclusion. The S&P tells the story best. Two weeks ago the specialists and market makers smelled blood. They goosed prices a little and got a panic started leading to the breakout from the huge "bottom" that had formed on the charts. One sided buying from the portfolio shrinks drove prices up and through the neckline of the formation and then through the descending 7 month moving average, which represents all cycles longer than 7 months. Sure looked good.

One sided public buying was met with one sided selling from the specialist firms and the trading departments of the firms that advise the portfolio puckers (p-p's). And all the p-p's got in, all of them, every last one. Because they know, they just know, that the market is going up because the FBI* Director is easy, and because there was that great big breakout on the charts.

Just one problem. That big breakout was a big phony. Lo and behold we are right back below where it started. And now, since everybody's in, and all the public shorts have been burned out by the same nonsense, who pray tell, who I say, who is going to buy now? Not you certainly, and not Dr. Stool for sure.  

And now with the 4-5 month big intermediate wave topping out, now, finally bad news will matter again. It didn't matter before because the cycles were headed up, and because insiders, and portfolio puckers and FBI Chairman Greenspurts were all conspiring to make things look good by spurting money all over the joint, and seeing to it that it went into stocks.

Well looking good, and actually being good, are two different things. They made it look good enough so that every last bear capitulated, except for Three. 

We're about to see what happens after things "look good" but ain't. Dr. Stool predicts that it will be a happy ending for the Three Bears. The portfolio shrinkers and anal cysts will again be revealed for their true genius, being most wrong at major turning points. But of course they will find something or someone else to blame. Right Joey? Right Ralph? Right Abby? Right Dr. Ed? When the market goes south, simple, just blame those stupid investors for not recognizing how good things really are.

(*Financial Bubble Inc.)

(5/26/01) On this Memorial Day Weekend permit me, as Dr. Stool's top secret assistant, to write to you in the first person. 

First, I want to report to you that, thanks to you, like fertilizer in the wind, Capitalstool is slowly but surely being spread around the world. The month of May will be our best so far. Based on the most recent week, traffic is running at a monthly rate of over 8,000 monthly visitors and 35,000 page views. Now, that might not sound like much, but considering that the site first went live just six months ago, and not a nickel's been spent on promotion, it's not bad. Traffic's been growing at about 10% per month lately, all thanks to you spreading it around.

I'm also happy to report to you that, unlike most internet businesses, thanks to low labor costs, the Capitalstool.com business is profitable, with a profit of $87.29  on sales of $113 in the most recent month. Revenues are generated by advertising and book sales. Capitalstool will be expanding its product offering to include Capitalstool T-shirts, coffee mugs, and mousepads. I wanted to share this news with you because I knew how excited you would be. Again, without you, this would not have been possible.

In the last month, Capitalstool also benefited from an extraordinary item, a $50.00 donation to the Stock Proctology Institute of Technology (SPIT). Dr. Stool was truly stunned by the fact that someone actually liked this website enough, and cared enough, to turn their money into SPIT. Whoever you are, wherever you are, I say to you, sir or madam, PT Barnum was WRONG! 

So Capitalstool's future is assured. It is a growing, profitable company with a dark and stinking future, again thanks to you. Stock Proctology as a disipline is spreading around the world as others learn to see the offerings of the mainstream financial media for what it is.  SeeBS.Markethype can just see us coming.

Finally, I'd like to thank a few of you directly. 

• yobob1 and BAREister, whose regular contributions of their insightful views of the markets have helped the Stool Pigeons Wire to get off to a great start. 

• Mathbear, whose support and insight have been invaluable, and who saved the day when I lost my archive of lead columns for April. 

• Hornblower for his contributions to the Stool Pigeons 

• And all of you who have left your droppings there.

I'd like to thank Bill Fleckenstein, King of the Bears, and Crash Lewis over at Prudent Bear, for actually answering my email, and providing encouragement. Aside from being smart and right, bears are really nice people. History will remember Fleck for being a lone voice in the wilderness when it counted.

Finally, I want to thank all of the websites big and small who have incoming links to Capitalstool, in particular Prudent Bear, Beartopia, and Wall Street Follies, the funniest site on the web.

Oh, and we can't forget Wall Street, for providing all the fodder to write about. What a crazy place!

As for the market, you know what I think! It's going down. 

Have a great holiday weekend. All of the major index comments are updated.

Oh, I almost forgot. I especially want to thank Al Gore for inventing the internet. Without his invention, I never could have become a publisher!

Your Droppings

Just a Little Gas  (5/24/01) Is it writer's block, or was the market really that dull Thursday? We're in a top phase (we hope), and tops are dull. The 10-11 week cycle top often takes two to three weeks to first form, then break down. Every top has a left, a middle, and a right.  This top phase is five or six days old depending on which index you look at. So we're in the middle. It's that last step out of the right side we're waiting for. Yet, even that may be only the middle of the 4-5 month cycle top.

Tops are usually marked by complacency, of which Wall Street shows an abundance, and, of course, a trading range which usually traces out something that looks like a head and shoulders or double top, or the like. 

Things are generally quiet until something triggers that inevitable loss of control, which we know so well as the brown pants syndrome. (Thanks, mathbear) 

Right now, the market only has the slightest sensation of discomfort. It's like one portfolio shrinker calls another after their power breakfast with the lyin' sunofabitch market strategist, and asks, "You feelin' ok?" and the other says "Yeah, yeah, sure, you??" They both ate the same bad stuff, and they're feeling a little light headed. They a have a vague sensation that something might be coming down, but they're just not sure. So they place their buy orders, lean to the side in their leather chairs, and let one go, still thinking it's just a little fart. Well, one of these days....

Meanwhile, we saw a big uptick in long term yields, as investors took another hit on the bong. Yields closed at the high of the day. The futures lost 28 ticks. At the same time there were huge selloffs in commodities and energy reversing recent buy signals, and leaving these indices in bear trends. What gives? Weakening worldwide economy leads to commodity deflation, but too much gas in the bubble leads to hyperflation in other areas?  Something has to give.

Bulls GOP (Grand Old Party) Takes a Crapper (5/23/01) Nothing like government turmoil to catch the attention of the bulls. Threatened with a little government uncertainty, and the imminent de-coronation of an illegitimate oligarchy, the bulls started to dribble a little of the brown stuff, finally. Earnings? Who cares? Excessive money growth? Who cares? Energy crisis? Who cares? Debt overload? Who cares? But government gridlock? Now there's something the bulls can shit themselves over. Dr. Stool said it will take some unknown catalyst. Now we have it. What a country!

The sharpness of the selloff in the Dow was enough to pull down those wacky upside projections for the 4-5 month cycle. There are early but good looking sell signals for most cycles, and objectives for all cycles up to 10-11 weeks on all the major indexes have pretty much been met. This time it looks like its for real.

Dr. Stool is going to wait for the first dipshit bounce before throwing caution to the winds. He's looking for the pullback to head for the 22 day moving average on the charts, pull in some portfolio shrinkers, shimmy and shake a little, then break down. The break below the 22 should be the all clear for the downhill express.

What is really bearish is the scenario of a false breakout from the various downtrends and bottom  patterns on the charts. Whipsaws like that are usually followed by a resumption of the primary tend for an extended period. A drop back below 11,000 on the Dow, and 2200 on the Nas would do the trick. On the other hand, a pullback to those areas, rather than through, would mean there's more upside. Given the cycle configs, and Wednesday's action, a breakdown is probable.

Today's Lesson (5/22/01) That little pullback in the Dow Tuesday didn't do squat to change the technical picture, which remains ugly as sin for anyone with a  shred of sensibility. True, the longer term trend remains what it was, a secular bear market. But in the meantime, look for a little pothole dip, which the dipshits will buy, and a few more weeks of madness after that, before the bear reasserts herself.

Dr. Stool now expects this bear market to look a great deal different from past bear markets. The bear of the late 1960's through the 1970's looked nothing like the bear markets of the 1930's. Likewise this bear is beginning to define its own personality. 

This one is developing a personality of extreme volatility, driven by the Fed's excessive flatulence as it seeks to sustain the FBI (Financial Bubble Inc.). Fed Chairman Greenspurts is also the Director of the FBI. He has no choice but to flood a teetering financial system with flammable cash gushers. An out of control monetary policy is dictated by out of control markets and an over-leveraged, out- of- control, financial bubble that mad scientist Greenspurts created. The Fed now has reached the point that it feels it must feed the monster.

So for the years ahead, we are doomed to extraordinarily huge swings in the markets until,

somehow, this mess is unwound. The Dow may even eke out a new high, as it did in 1973. But the rest of the market will continue to quake and then crumble. There will be big moves up, like the one we are in now. They will be followed by bigger moves down. 

It will be a difficult market to trade, but the key will be to follow the indicators as they follow the trends. It won't pay to be a hero. You may have to fall on your sword if you try to anticipate turning points. The moves will be big enough to take out the middle. Just don't be early. That's the lesson of this rally.

Revisiting the bm Effect (5/21/01) Dr. Stool's done such a great job of underestimating this rally in true bear fashion, he thought this would be a good time to remind readers about the bm effect, so here it is. (Check out the Dow, Nasty, and Spoox for updated cycle projections)

Bull Market- bear market Effect Explained (12/22/01) Dr. Stool has had a hot hand for quite a few months now, and is beginning to wonder when the market will make him look like an idiot. With 37 years as a stock proctologist, Dr. Stool knows well that this is inevitable. In scientific terms, this is known as the bm (bear market) effect. There are two types of bm effects, the lower case bm effect, and the uppercase BM (Bull Market) effect. The more well known of the two is the upper case BM, or the big BM.

The BM effect takes place as Bull Markets (BM's) end and become bear markets (bm's). In a Bull Market, all analysts, in fact all investors, look like geniuses, because they are right all the time. However, when the Bull Market ends and becomes a bear market, the bullish analysts are revealed for the idiots they are, because they are still bullish. Likewise, their analytical work is exposed for what it is. That's the big BM. It's the big BM because it is far more common, and more widely recognized than its opposite, the little bm.

The little bm is not as widely known because bearish analysts and bear markets are so rare. However, when a bear market (bm) occurs, bearish analysts achieve the prominence they didn't have during the big BM phase. During the bear market, the public acclaims these analysts for warning of the impending doom. The bears then are widely regarded as the geniuses who would have saved us from our folly, had we but listened. 

But alas, in the end, the little bm effect takes effect and the bearish analysts are then revealed for the idiots they are, because they remain bearish throughout the bull market. So, as the bear turns to bull,  the work of the bears is exposed for what it is. That is the little bm.

Dr. Stool, as your Stock Proctologist, urges you to be aware that all market analysis is either Big BM or little bm. It is up to you to decide when to choose one or the other.

Dr. Stool, Fundamentalist (5/19/01) The Fed has cut rates again, the printing presses are running full bore. Energy prices are skyrocketing and there are shortages. California is on the verge of third world status. Gold is signaling hyperinflation, or the collapse of western civilization, or something. 

Meanwhile stocks have run wild. Or have they? Here's the S&P weekly action since the beginning of 2000, along with a little TA of the PE trend. PE is price, after all, and is subject to technical analysis. Are PE's topping out or about to break out? 

Here's a bit longer view of the PE of the S&P. Prior to 1986, PE's were never above 22. Seems "Stocks have reached a permanently high plateau." (Professor Irving Fisher- 1929)

Or maybe it's significant that stock prices have rallied back to 26, are at the absolute max of their downtrend channel, and are overbought. It's been a 9 week buying orgy apparently based on nothing more than blind faith. 

Actually, while it looks like hysteria, it's just a direct result of Fed revaluations. Lower interest rates mean lower divisors when portfolio shrinkers value stock earnings. The Fed has cut short term rates from 5.5% to 4.5% since April. That's like raising PEs from 18 to 22. 

Now this may work in the short run. Problem is, the portfolio shrinkers expected long rates to follow the Fed moves. The shrinks tend to base their discount rates for projected earnings on a 5 or 10 year treasury yield. Lately we've had a market move based on the Fed forcing short term rates lower. But intermediate and long rates have been going the other way as inflation rears its ugly face. Yields bottomed in March and have moved up smartly, with a couple of pullbacks since then. This is going to start exerting pressure on PEs. The big question is, when. 

Over the long haul, PE's have risen as yields have fallen in response to declining inflation. But inflation's been rising since 1998. Bond yields bottomed in October 1998. PE ratios topped out in April 1999, except for a brief spike during the last stages of the bubble. With yields again rising, the drop in PEs shouldn't be far behind.

One of the arguments made by the bulls is that the Fed will continue to cut rates, because there's no inflation. Well the Fed may just do that. But to say there's no inflation is just a lie, plain and simple. There is inflation, and there are pockets of hyperinflation in critical areas of the economy, which you are well aware of, if you drive a car, live in California, or both. 

According to the anal cysts, corporations have no pricing power. Huh? Look at this. This is the year to year rate of change in the PPI over 10 years. The PPI just bounced off a base at 3%, and has been between 3% and 4.5% since Q3 of 1999.

Now with the way the Fed's been managing monetary policy, this can only get worse. Here's annualized M3 growth over the last 10 years. We're headed for 21% annual growth. Now, is GDP growing 20%? Are profits growing 20%? Is fixed capital investment growing 20%. Just what the hell is growing 20%? That, friends is inflation, flatulation of the money, plain and simple. 

The inevitable result of this monetary explosion will be an upside breakout of inflation above the 3-4.5% range. The goldbugs are on to something. And the bond boys smell it as well.

As for when all this will impact the stocks, it should be soon. This "stuff" we've been experiencing has been going on for over two months. That's the usual limit of a bear market rally, if that's what this is. From here on out, every time Greenspurts spurts green, inflationary pressures will increase, and the guys in the bond pits will sell. The more astute, conservative types, are on to this. When it gets to the point where it becomes a headline, like a huge bulge in the CPI, portfolio shrinkers are in for a shock, and that will really get things rolling downhill. But that's in the future.

This week is important, no doubt about it. The battle will be joined at major resistance levels. Dr. Stool calls those flat and descending trendlines, sobriety test lines. This is the week we find out if the market is ready to sober up.

Fed Bomb Tsunami (5/17/01) Cyclic analysis hasn't done very well lately. Whether the fault lies in the method or the practitioner, or something else, you'll have to judge. 

One thing cyclic analysis cannot do is predict the timing and impact of an experimental policy of direct central bank intervention in the stock market. The Fed's monetary policy is like the class smartass's high school science project. He's playing with highly flammable materials and dead things that smell bad. The hypothesis is that you can bring the dead back by putting them in a balloon filled with methane, and holding it over a bunsen burner. Most of the class is cheering and egging on, but there's three nerds scared to death, screaming at the idiots to stop. Doesn't do any good, though. Initially the bag begins to expand from the heated gas and the volatile molecules bumping into each other. A few escape into the air leaving a horrible smell. After that we don't know what happens. The next chapter is yet to be written.

What we do know is that normal cyclicality has been disrupted by direct Fed manipulation of the markets. Ok, so the Fed wins for now, and the criticism aimed at Dr. Stool for relying on cycle work too much is justified. It's not working because this is not the

free market at work. It's the wizard behind the curtain manipulating the emotions of the people, while his minions hand out wads of cash on the street corners. This is a blind but transparent effort to halt the implosion of the financial bubble by pumping it up with flammable gas, then exploding fireworks nearby to get people all excited. 

As for the cycle not working, if you explode a big enough bomb in the ocean, close enough to shore, you'll get a big surf for awhile. The normal wave action will be obliterated by the explosion.  Surfs up. And surfers will surf. But the waves are huge, dangerous, and unpredictable. There will be a price to pay. 

FBI Director (5/16/01) The Fed handed out bunches of fresh new money on Tuesday. Then they got scared when nobody did anything with it, so they called around to their big banker friends. They told those good old boys, "Boys, you take that new money and get the hell in there and buy those stocks, or else you're not gonna believe how bad it will get." So they did, and the result was yet another massive short squeeze and buying panic. 

At least that's Dr. Stool's fantasy. The Fed is engaged in a grand experiment. Rather than being the lender of last resort, it has now assumed the position of Director of the FBI, Financial Bubble Incorporated. Dr. Stool doesn't see how it's possible for all this flatus to lead to anything but the ultimate explosion of a massive inflationary bubble. 

This business about inflation being moderate is hogwash. It's always moderate at the beginning of an inflation. But it's less moderate than it was yesterday, and tomorrow it will be less moderate than it is today. There are already pockets of hyperinflation in key areas of the economy, like commercial and residential rents, housing costs, food, energy, health care, slowly but surely labor costs, and in case you hadn't noticed, the cost of long term money. Ladies and gentlemen, if you are holding fixed income instruments, you are in the middle of watching gilt edge paper turn into shit, this very moment.

As for the stock market, who the hell knows? Dr. Stool has posted his best guesses on the  updates of the major averages. Through  yesterday, he had been looking for just a little more buying from the bulls, before the market headed south. Guess he kind of underestimated slightly, huh? 

The Fed's recklessness is finally stimulating another bubble, which will again burst, God only knows when. This time the bubble looks like it will be concentrated in the Dow, which would be a repeat of the 71-72 bull phase in a secular bear market.  

We are in a blowoff. It could last 10 more minutes, a day, a week, a month. The Fed is applying monetary policy to an explosive situation, furiously attempting to inflate an asset bubble, in an attempt to prevent a credit bubble collapse. Once the buying frenzy ends, people will finally wake up and see the trends that have been put in place by reckless monetary expansion-- falling bond prices, rising gold prices, real estate inflation, rising energy prices and growing shortages, corporate profits remaining under pressure from rising costs, in short all the same shit we had in the 70's. One of these days there will be a rude awakening. All we can do now is wait for the alarm to go off, whenever that is.

Long Bong Hit II (5/15/01) If it's action the Fed wants, it won't find it in the stock market. No reaction, zip. Bonds are acting like hell, though. The T-Bond yield rose to its highest levels in 6 months Tuesday. There are some really bearish looking things going on on that chart. (Don't forget, it's upside down.) The Fed's is in a Catch22 now.

Preliminary cycle projections indicate the bond is going to break out above 6%. How much more than that, it's too early to tell. 6.25% looks like a reasonable bet, for starters.

Dr. Stool's been harping on the bond. He has no doubt that bonds are in the early stages of a bear market. Stocks will simply not be able to compete with bond yields above 6%. And with a rising income divisor, stock valuation models used by the portfolio shrinkers are going to force valuations lower, which in turn will force some of the more mechanistic funds to begin selling. This is something they haven't had to cope with in this era of never ending declines in yields. That era is now over. 

Yeah, there've been a few big corrections in bond yields over the past ten years. But the stock market has been cushioned by rising earnings, or at least the widespread belief in rising earnings. A lot of that was a fairy tale, but that's another story. Now, no more rising earnings, no more declining yields. 

Push is about to come to shove. Only the stock pushers don't know it yet. They're still drugged up on last month's April Fools Rally. So the stocks are taking their sweet time topping out. 

That is consistent with what cyclic analysis has been telling us. The time isn't quite right for the big dump out yet. But it will be soon. When the long bond hits 6%, things should start getting verry in.. ter..est..ing.

Time To Pay (5/14/01) Here we sit, waiting, waiting, just waiting for it again. Why does it always seem to take so long. Always seems like the Fed's behind. Yeah, that's the ticket. 

Of course, it's that much worse when it's a total surprise. Maybe old Greenspurts will surprise us again, and give us... NOTHING. 

What your shorts wouldn't give for that. Or you're sitting there waiting all this time in anticipation of putting your shorts back on, Greenspurts doesn't cut one, and boom, straight down! No upticks, no executions. Wouldn't that be a hoot?

No big deal, just wait for the next bounce. They're going a lot lower. While some of you may be praying for that scenario, others are waiting for that one more perfect opportunity. The market is rarely so accommodating. Right now, no matter what you want, you probably won't get it, because we are still in a period of, (Dare he say it?) "crosscurrents." 

To the anal cysts and poodits, that's what it'll look like. They'll crow about the battle between the bulls and the bears, but it won't be that at all. The bears can just sit back and wait for the inevitable. The bulls are stumbling like a bunch of drunken stumblebums at the tail end of a binge. They have one more swig left. After that, party over. It'll be time to pay. 

Everybody Else Is Doin' It, Must Be Right (5/10/01)  Wall Street's credo is, "Doesn't matter what I do, just so long as everybody else is doin' it." Nasdaq futures were up the limit Thursday morning, prompting another round of furious buying by money mismanagers. All this, because an anal yst told 'em to buy some tech stocks. How original!

If you ever had any doubts about the stupidity of portfolio shrinkers, Thursday morning's circus should have finally disavowed you of it. We'd all laugh, but then we stop to think, these are the people running our retirement funds. Well, certainly not stool seekers', but probably your brother-in-law's and your next door neighbor's.

Each day the buying peters out a little more, and grows a little more concentrated. Concentrated, spelled D-O-W. Now, here's another funny thing. The freakin' Dow has been in the same damn trading range forever, at least relative to the time horizon of most investors. Even if you were real sure that the trading range wasn't going to break down out the bottom, would you buy them all the way up here at  10,999999. Not if you had any sense you wouldn't. It's crazy. You don't have to be a chartist to know that 10,000 is low and 11,000 is high. 

But that's why they're portfolio shrinkers. Get stone fully invested at the top, and dump out as much as you can at the bottom.

Ok, the market. No surprises. Slow grinding deterioration as the 10-11 week cycle tops out. The Nasty flashed a pretty good looking sell signal in stochastics, and intermediate oscillators remain at levels indicative of major hysteria. Dr. Stool still looks for dip buying from the dipshits, but they look to be pretty much out of gas. Things should start to get really ugly a couple of weeks out.

If Things Are So Good (5/9/01) If things are so good, why is gold breaking out? If things are so good, with short term rates dropping, why are bank stocks acting so lousy? If things are so good, why can't the major averages approach major resistance? 

Maybe they ain't so good. But we know that. It's just the portfolio shrinkers still buying the dips as they rush furiously to reduce their cash positions to absolute zero who don't know it.

Dr. Stool rechecked upside price objectives for the 10-11 week cycles, factoring in an adjustment based on the impact of the Fed revaluation. After adjustment, last weeks highs came within a hair of those objectives on the major averages. 

Overbought mo and supply-demand oscillators have not corrected at all through the sideways churning of the last week. With the portfolio shrinkers lopsidedly bullish, who's selling to them? Has to be the market makers building their short positions just below that huge overhang of public sell orders. They see the handwriting on the wall. 

There are no definitive sell signals to confirm a downturn, but it's just a matter of time. Cycles are mixed for a week or so, but they will become increasingly negative in the weeks ahead. 

Recommending Crisco Again(5/8/01) The market slipped a little more Tuesday. Not to worry said the Preparation H boys (shrinking swollen portfolios), just normal digestion. Dr. Stool, on the other hand, put the good old stock proctoscope on the market and heard some loud rumblings down there, sort of like his wife's stomach after some hot spicy Thai food. Yeah, we all know what comes next. 

Dr. Stool was shocked, shocked, to see another anal ist actually recommending Crisco again, after the heart attack it gave us last year. This product is not only greasy, it's high in cholesterol, very bad for the health of your wealth. But the anal ists think that things are so bad, they are bound to only get better. So they recommend loading up with Crisco. Do they really think they can stick that stuff to us again?

Well, evidently, some dumbass portfolio shrinkers still believe these anal ists, the very same ones that stuck it to 'em last year. This proves once again that most portfolio shrinkers have stool for brains. Of course, when they try to think for themselves, they're in even bigger trouble. 

As for the price action, the sideways action in the averages over the last week has not been corrective. In fact, intermediate indicators have gotten more dangerously extended. We're looking at configurations that are every bit as bad as they were at the top of the market last fall.

For Wall Streeters, it looks like it's going to be a long rainy summer in the Hamptons.

Send Us A Sign, Oh Lard! (5/7/01) The market quietly deteriorated Monday. Not enough for bears to get excited about, but enough to keep the pigs from farting. When will the market  confirm our belief that this whole thing was one of the big phonies of all time, a giant scam engineered by the Fed in a failed gambit to prevent collapse?

Both the Nasty, and the Dowager bumped up against key resistance. The Nasty fell back as buyers withdrew each time the index approached its long term downtrend line. Mo is weakening on all indexes. Short and intermediate stochastics are at levels suggesting that the portfolio shrinkers have shot their wads and are  pooped out. It doesn't look like they'll be able to get it up enough to breach all that supply lying in wait just overhead.

But sellers aren't yet ready to get aggressive. Although the 10-11 week cycle is in a top phase, the 4-5 month cycle is still positive, and the 4 and 6-7 week waves may be weakly positive for a week or so as well.  

That picture suggests that the market isn't quite ready to give up, and that there may be a few more thrusts into the resistance over the next week or two. This testing process should fail if Dr. Stool is correct that the long wave (i.e. fundamentals) is headed down. Still bears need a good plop soon, if only a little one. A sideways consolidation with indicators correcting would not be a good sign for bears. 

Grave Danger (5/5/01) Portfolio shrinkers took a second look at the unemployment numbers on Friday, and decided stocks were worth more than they thought, because the fearless Fed will be forced to pump another load of gas into the system, cutting rates once again. Many of the portfolio shrinkers use a valuation model based on discounting stock earnings based on a one year treasury yield rate. So if yield drops 50 basis points, the discount rate they would apply to stock earnings (the reciprocal being the PE ratio) would also go down, not necessarily the same amount, but down nevertheless. In other words, they when short term yields drop from 5% to 4.5%, the shrinkers then think their stocks are worth 25 times earnings instead of 20 times. So immediately, when they think the benchmark yield will come down, they buy more stocks, and price them up to where they "should be" in relation to the benchmark.

Couple things wrong wit dat. A lot of those mental institutional managers are looking at longer term yields for their pricing benchmark. As the Fed pushes for hyperflatulation to bail us out of our Catch 22, the folks at the intermediate and long end of the bond market are getting more and more pissed off. They are not cooperating, and longer term yields are actually higher now than when the Fed began its rescue operations in January. So the portfolio shrinkers basing their valuation of stocks on benchmarking against the 5 and 10 year treasury yield, which are actually rising, are seeing their stock holdings getting even more ridiculously overvalued again. They start paring down as a result. There's another problem. The other half of the I/R=V equation is I, income, i.e. earnings. A lot of stocks don't have any, and the ones that do aren't going to soon, and for the foreseeable future. The Fed can manipulate the prices of financial instruments to a limited degree, but they can't force business to spend on plant and equipment, and stop firing workers, when there are too much of both to begin with. So the economy will not expand, and earnings will continue to disappear.

The market's action has been a direct result of all of the excess cash pumped into the system finding its way into stocks, because there is limited demand, and limited opportunity for it anywhere else. This could result in another bubble, no doubt. On the other hand, neither bond yields or earnings are likely to cooperate, and the few people of sound mind remaining in this business are going to be selling. 

The battle will be joined this week, as the Dowager, the Nasty, and the Spoox approach major long term resistance trendlines. As these levels are approached, second thoughts should begin to win the day if sanity is to prevail. If those second thoughts do not prevail, then we have another financial asset inflation bubble, which will be completely unsupported by economic activity and corporate profitability. If cooler heads do not prevail now, the only possible result in the long run is a thunderous hyperinflationary collapse of our economic system.

Why Bad News Matters Again (5/3/01) Suddenly, bad news matters. Why this week, and not last week? Simple. Cycles. Bad news didn't matter last week because the 21 week and 10-11 week cycles were in their up phases. As of Thursday the 10-11 week cycle was just past its mid point. Psychology has crested, which is why, after weeks of going on their merry way, the portfolio shrinkers just noticed for the first time in a month that everything sucks. As cycles get deeper into their down phase, bad news matters more and more, and what good news there is, is  interpreted as bad. So buying will gradually dry up over the next 5 weeks.

Coincident with the mental institutional managers noticing that the news is bad, momentum oscillators began to show their first signs of weakness, after reaching levels indicative of hysteria, and staying there  for a couple of weeks. Think of these indicators as not only pictures of the supply demand balance, but of the emotional state of the wild herd of portfolio shrinkers, the steely eyed market makers, and the suckered public. Understand that these indicators represent the never ending waves of hope and fear that drive buying and selling. 

The Fed, and the markets, can create or destroy liquidity together. The Fed can also try to inflate, and the markets can deflate, what the flatulent Fed inflates. The Fed spews gas,

and the market burns it in a bear market. That's another cycle that we see in the indicators. 

With the 10-11 week cycle now topping out, we will see hope begin to fade, grudgingly at first, because some shorter cycles are due to turn up. Buying will dry up as hope dissipates, and reality begins to dig its claws into the psyches of the portfolio shrinkers. Finally prices will fall in a complete absence of buying interest.

This current 10-11 week cycle will be in its down phase while the 21 week cycle is cresting. The conditions aren't yet right for the market to suffer a big washout marked by heavy selling. To the bulls, this down phase will look like a normal testing period. Complacency will play its usual role. They'll pull their bids, but they won't do much selling. The pundits will constantly reassure us that all is normal, and we'll get a summer rally, after the Wall Street whores declare a successful testing of the lows. But the rally will be far weaker than the majority expects, because by then intermediate cycles and secular forces will be weakening concurrently. The conditions will then be ripe for the collapse that you've been looking for. 

Hyperflatulence (5/2/01) Another spin of the roulette wheel in tech, and wheels spinning in the mud in the big cap blues, were the order of the day Wednesday. The Fed's dangerous experiment of reflatulating a bubble by furiously pumping it full of hydrogen, goes on. The immediate effect is for the gas to flow into overpriced pieces of flying crap. Empty vessels filling with hydrogen are lighter than air, so they rise. But like the Hindenburg, sooner or later they will bump into something and come down in a horrendous conflagration. 

Dr. Stool is horrified to see how far this rally has run. Without a correction for a month, timing oscillators have gotten grossly extended. Demand is stretched to the limit just when long term charts show prices reaching major trend resistance, which should bring forth a torrent of selling. We saw the first signs of that Wednesday in the big cap stocks which actually have earnings. Seems there are some skeptics among the more conservative types who like relics like earnings and dividends. 

The worthless speculative crap is what attracts the hot money flows. They have a natural affinity for one another. Boids of a fedda flock tuhgedda. 

Those Nasty stocks, and you know who they are, have just now reached that downtrending selling line going back to last fall. Don't believe that crap that the market has already broken out. Yeah sure the bulls had fun cherry popping the little short term downtrends. But now they have to face the Mother of All Downtrend Lines, and she ain't gonna give it up so easy.

She's a big strong Mutha Bear, and she'll put up a fight. Dr. Stool is betting that the bulls have shot their load already. They may push, but the big old Mutha Grizzly is gonna take a good hard swat at 'em. Then we'll see what that hydrogen filled Hindenburg is really made of. 

The Big Show (5/1/01) Yes sirree, step right up ladies and gentlemen, step right up to the greatest show on earth, The Wall Street Circus. Today, in the center ring, you'll see dancing bulls fly through the air with the greatest of ease. 

You will get a show Wednesday. But while the bulls show off their tricks, bears are going to feel like they're at a funeral. It definitely won't be fun for the shorts. 

Is the bear dead, as so many have proclaimed? (See below) Well it may be on life support, but it's not dead, yet. The rally has been powerful. In many ways it has looked and acted like the first leg of the bull. But there's still plenty of evidence that it's just a big damn bear market rally.

None of the averages have violated downtrend channels in force since last September. There have been no significant violations of upside price objectives. Yes, there are beautiful reversal patterns on the charts, but prices have yet to break out of those patterns. Demand is extended, and the indexes remain just below overhead supply lines. 

On the other hand, the thrust behind this rally was powerful, and the residual momentum has had surprising staying power. The Fed's flatulence is definitely inflating things, and some of that excess gas is clearly finding its way into stocks, because it has nowhere else to go. Certainly, it's feeding a false euphoria, but up is up.

We'd say the indicators are overbought, but you know Dr. Stool's feelings about that. If this really is a new bull market, they'll stay "overbought" for weeks as the market rockets higher. On the other hand if the bear remains in force, these indicators need to turn down, and they need to do it real soon, or bears like Dr. Stool are in big trouble.