We don't know and neither do they.

Day Old Stool - June

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

Market Strategist of The Year Nominee (6/30/01)
Well, ladies and gentlemen, it's that time of year again, time for Dr. Stool's semi-annual nomination for the Blodgett-Meeker Award (aka BM Prize) for market strategist of the year. To mark the occasion, Dr. Stool has chosen from among all the statements made by these funny guys and gals, the one which he feels epitomizes the depth of comprehension, analytical acumen, and wisdom of Wall Street's most admired spokespersons. And the winner is:

I expect to hear from a "kinder, more gentile" Federal Reserve board when it meets to discuss the future of monetary policy. 

-Joe Battipaglia, CBS.MarketHype, 12/4/00

Perhaps Mr. Battipaglia was expecting Chairman Greenspew to resign, thereby making the Fed "more gentile". By the way, the quotation marks were Mr. Battipaglia's, not Dr. Stool's. In fact, Mr. Battipaglia did go on to forecast, are you ready, two 1/4 point cuts in interest rates by mid-year of 2001. Congratulations Joe, at least you got the direction right.

It was about the only thing. 

OK, not quite. 

Now it is not Dr. Stool's intention to make fun of  Mr. Battipaglia. Dr. Stool promises no more name calling. He has made enough snide remarks about Mr. Battipaglia these last few months. From this point on Dr. Stool will just present the facts in recognition of this most austerious of occasions. Dr. Stool in no way wishes to diminutiate the seriosity of the nominatorius process for the BM Prize. No more Joey Buttafuocopaglia, no more Joey Brattipaglia, Brassiballsia, or Joey Brass Balls, or just plain Fat Head. It's undignified and beneath Dr. Stool to resort to such tactics. Mr. Battipaglia is after all, a professional, and he makes a shitload more money that Dr. Stool, so we must treat him with respect. Beside which, Dr. Stool just learned that Mr. Battipaglia is 6' 8" and weighs 285 pounds. No sir, from now on it's Mr. Battipaglia, sir! 

So lets get on with the facts. In order to be eligible for the BM Prize, the analyst must have exhibited an unusually high level of analytical acumen and integrity for the period from 6-12 months prior. This is because their forecasts tend to be for 6-12 months. So Dr. Stool uses the same time horizon.  

We'll start with a few quotes from Mr. Battipaglia's CBS.Markethype column. This is fun reading. So button up your Depends, and don't hold back. There's way too much crap here for the front page. Read on by clicking here.

White Flags and Blind Whores (6/28/01)
With apologies, Dr. Stool would like to share something Fleck said in his column Thursday night. It's hugely important:

The Microsoft news is out. We've got the end-of-quarter mark-up. We have the Fourth-of-July weekend. In my opinion, I can see how this moment in time could be an inflection point. People were quite lathered up today during the Microsoft halt. Emotions appear to be running wild.... It's possible that this could be a moment of exhaustion, just as we had our maximum moment of exhaustion in March 2000, when the Nasdaq peaked at 5000.

At the end of the column he backed off a bit , apparently in frustration, saying, 

The averages act like death, and inside the market there's frenetic speculation. I'm not sure what it all means. 

Dr. Stool thinks that Fleck's frustration is a sign that the predicted July collapse is coming for sure. For certain, he did not capitulate, but you can hear the doubt creeping in. It is something all committed bears feel, all five of us. 

Now, Fleck and the rest of us will never capitulate, but an awful lot of bears have. Those white flags from the quitters, and the doubts and frustration that the rest of us feel are the best indicators that the end is nigh.

Have no doubt, my friends. The tide is going out. You can wait a few weeks to get aboard, until the last of these short squeezes is safely behind us, but when this thing breaks it's recent lows next month, 1200 on the Sphincter Index, and 2000 on the Nasty, don't you miss the short boat as it pulls out of port.

The other thing Dr. Stool wanted to talk about is something Yobob brought up on the Wire this morning. To wit, "The fed wasted no time this morning on doing both a 5 day and a 28 day repo.  This is the same stunt they pulled after the last rate cut had a null effect." 

To which Dr. Stool would like to add, all of the manipulation, including the repeated deliberate running of the shorts to try and light a fire under the market, has been for naught. In fact, it will have the opposite effect of destroying future potential demand. Fact is, everyone who wants in, is now in, and all but a few shorts are being shaken out of the market by these upspikes. Their covering will not be there as support when the decline gets under way next month. 

As for Yobob, he's like the proverbial blind whore.... You gotta hand it to him! 

Ba dump bump.

We leave it to yobob to bring the really important stuff to our attention. 'Course, (sniff, sniff) Dr. Stool did make the same point last time around, only this time he plum fergot. Lest there be any doubt that the Fed is directly fiddling in the stock market, yobob will be there to remind you. So if ya'll aren't reading his posts, and those of the equally air you dites, BAREasseder, Mathbear, new contributor, asdf1234, who made his name in keyboards, and all the other terrific stool pigeons, give yourself a treat, and go lurk! Better yet, join in the fun at Stool Pigeons on the Wire. 

PIMCO, BM, and Oily Discharges (6/27/01) Had the rare pleasure of hearing Paul McCulley, a big boss at PIMCO, on Cain't Nobody Buy Channel tonight. PIMCO, in case you don't know, manages only about a $1/4 trillion in bonds. Rather than try to summarize what he said, (I'm not that smart) here's a link to his just published commentary. It's must reading. It's a long article, so print it out and take it to the throne room.

On the other side of the coin, heard today that Mary Meeker, the M in BM, or Blodgett-Meeker Prize, is recommending Yeehaw, again. 

Morgan Stoogely is defending itself by touting that it has no investment banking relationship with Yeehaw. Beside the point. The market is dying of lack of interest. You know, who really gives a crap about this market, except for us crazies? Volume is drying up, volatility is drying up. Nobody cares. So the broke rage firms try to stir up a little commission business by trotting out the lying, stinking whores, day after day after day. As Dr. Stool pointed out the other day, they are actually worse than whores. With a whore, at least you get something for your money. So say it with me now, stool avengers, "Bring on the class action suits!"

A final thought. Just a few short weeks ago, the analcysts were universally bullish on energy stocks. Well, Wednesday, energy prices broke down from an enormous top, confirming a bear market and projecting to prices 30% below current levels. All you bears who've been looking for a collapse, we got one. Only it's in an industry nobody expected. Just remember, when Wall Street universally loves something, short it!

Breakout Fakeout (6/26/01) OK, so the stock market is driving us all crazy, bulls and bears alike. Hey, it's summer, (except for you Aussies and other Southern Hemisphere types) and there's more to life than the stinking market. Dr. Stool thinks you should take a vacation, and so should he!

There are lots of signs that this nervous nowhere market trend will continue. The Fed will cut the big one, the market will gyrate, and when all is said and done, we'll probably still be locked in this same narrow range, where every breakout is just a fake out, and no one gets to make out. ~ooh ah ooh woo~ 

Cycle-wise, there are still 5 to 8 days until a projected 13 day cycle low. Problem is, the low is projected within 1-2% of Tuesday's close. On top of that, it's beginning to look like a four week cycle low is due now, along with a 6-7 week low, and maybe even a 10-11 week low. Dr. Stool's been vacillating, because the picture in the proctoscope is a mess.

The market hates uncertainty, and so does your stock proc! He'll wait till the stuff passes, and the view in the proctoscope clears up before taking a firm stand. He still thinks that will happen in July, probably after mid month, and that things will start coming down normally after that. 

Still Too Many Bears (6/25/01)  The Dow and Nasdaq have gotten a little out of synch in their 13 day cycles. The Dow is headed into a down phase while the Nasty holds up in a top, supported by short covering. It's a nerve wracking time for bears, most of whom are short the techs. Come on now, how many of us were short MRK and HD, huh?

Your stock proctologist has noted that bears, himself included, are forecasting a big selloff on the Fed cut. This is worrisome. While short term cycles appear ready to drift lower, they don't look quite right for the big one here. Look, if we bears all think the market will sell off on the cut, we get short before, right? Now remember, our numbers are legion. There are mountainous short positions out there. Anything can happen in an environment like that. While the trends are lower, they are weak at this point. And the cycles will align for another bounce beginning next week. That should be followed by the big down, starting in mid-July.

Stock Proctology MarketWeek (6/24/01) Nothing significant this week. Oh, wait, there is the small matter of the Fed expelling more fetid gas into this Hindenburg of a credit bubble. Unlike the past couple of rate cuts however, this one will be counter-cyclical in terms of stock price cycles. The last few cuts were in the up phase of the 4-5 month cycle. This one will be in the context of not only a declining major trend, but also a declining 4-5 month cycle. Not only will it not do any good, but it's likely to be sold heavily.

The condition of the 4 week through 10-11 week trading cycles have been uncertain, but it's beginning to look as though they bottomed in late May. If that's the case, they should begin to accelerate to the downside this week. Likewise the 13 day cycle, which is in day 6. The Fed cuts the big one Wednesday. Expect some gyrations Monday and Tuesday, with the big dump coming after the Fed's inflatulatory blast. (Heaven forbid they don't cut one.)

About That I'm Sorry Garbage (6/23/01) As a former Whore Street institutional stock broke-er, who got fired for being a lousy salesman (I wonder why, such a charming fellow), Dr. Stool has some first hand knowledge of Wall Street analcysts and managers.The majority are definitely not whores. Whores actually give you something for your money. The people we are talking about, who populate Wall Street in such large numbers, are greedy, narcissistic sociopaths, who care only about one thing, how to separate you from your money. (Yeah, yeah, this isn't news.) They could care less about your losses, or whether they are right or wrong, or even deliberately wrong. These are criminals you are dealing with. They don't care. They're not embarrassed. Was Bill Clinton embarrassed? Is Abby Three Names embarrassed? Is Ralph MakemPoorah embarrased? Is Joey Buttafuocopaglia embarrassed? 

This guy, Boo Hoo Camp, who came on Moneyhype the other night, and said, "Oh I'm so sorry for being wrong about this stock," he's not embarrassed. He's full of shit. That little act he put on in front of millions of boob tube zombies was a self serving bunch of crap. How the hell can you keep recommending a stock from 100 something all the way down to 3? 

The one he apologized for, he apologized like it was the only one. The next night, Moneyhype's on-again, off-again host, Lou Gubrious, exposed the fraud, revealing that the guy had made a bunch of other touts that were just as bad. As if that's supposed to be news. 

I'm sorry, my ass.

Mercky Waters (6/23/01) So they're finally going after the safe haven stocks. Was there a bigger one than Murk? Portfolio sphincters are suddenly suffering a drug overdose.  You're a portfolio sphincter, and you are loaded to the gills with Murk, one of the brownest of the brown chips, one of the greatest scientific-industrial machines in the history of the world, a money making pile driver, a safe port in the storm, and it drops 10% in one day. Right out the bottom of a three month trading range. Stocks like Murk are not supposed to drop 10% in a day.

There's something you need to know about Murk and the drug stocks. As the portfolio sphincters were having tech diarrhea beginning in April of 2000, they were doing drugs. Murk was a biggie. Here's a nice little relative performance chart from Stockcharts. com. which shows that as the sphincters were dumping tech, they were buying up Murk, right up until the beginning of this year. 

 [FrontPage Image Map Component]

They bought somewhere around 1/4 billion shares during the top phase between late October and early January, at prices between $87.00 and $97.00 per share. All of those smart folks are now sitting with losses of at least 25%. 

As of March 31 the mental institutions were holding a total of 1.3 billion shares of Murk. In March, institutions acquired more than 81 million shares. But they were actually sellers on balance, by about 5 million shares. Naturally, that was an interim low. As usual they were net sellers at a bottom. Except for a few folks who bought in mid March (probably NYSE specialists), everyone else who bought the stock since October 2000 now has a loss.

What were the analcysts and portfolio sphincters  saying about Murk during the period from late October 2000 through late January 2001, a period when the stock topped out and broke  down from the top. Of 128 media mentions of the stock, in conjunction with an analcyst or portfolio sphincter recommendation, 103 were buy recommendations. The good news is that three people actually used the word sell. There were 6 other comments which were negative in some way, and there were 16 that were neutral. The analcycst who touted the stock most frequently was, of course, Joey Buttafuocopaglia. 

But overall, it's great news. It means you have a five or six percent chance of finding an honest, competent pro to manage your money, if you try really hard. 

Meanwhile, over the past twelve months, while these Mafia wiseguys were pushing this drug, there were 21 insider transactions. No surprise here. All 21 were sells. 

So, just remember this ladies and gentlemen. While the people who manage and advise your retirement funds were buying this stock in your behalf at the top, and telling you to buy more of it, their corporate godfathers were selling it. 

MU Shorts May Not Be Brown Any More (6/21/01) In case you're wondering why the market rallied, aside from the fact that short term cyclicality is in a positive frame of mind, here's an example of a bigger problem. After the close, Micron reported a loss of $315 mill, much worse than expected, and a rate at which they will run out of cash in 18 months. The stock dropped a buck thirty on the news. Can you imagine? Here's a worthless piece of dogcrap selling at 36 bucks, and infinity times earnings. It's losing its ass, and it drops a buck thirty.

Why, pray tell. Well looky here. Thursday's volume was less

than 9 mill. The short position in the stock, as of May 15, was 26 mill, 780 thou. That's about 3 times Thursday's volume. Shorts, being the active, nervous, hateful little buggers that we are, tend to trade a lot. Now Dr. Stool doesn't presume to know exactly what percent of the day's trading we represent in this stock. But when our positions total three or four times the daily trading volume in a stock, unless the portfolio sphincters are out there dumping like they just drank a quart of Haley's MO -- Hello Idaho, Seattle, Lakehurst New Jersey, and all the ships at sea, WE HAVE A PROBLEM. 

Now this earnings news may just be enough to precipitate sphincter panic. Dr. Stool put the proctoscope on mu, and as expected, he did see it coming down. This is a stock on the edge of a precipice, the verge of total collapse, the last round-up, the final abyss. Aside from that the chart don't look so good. 

So there should be enough selling to send this joke on its way to the trash heap. But it'll be a bumpy ride. When the selling slacks off from time to time, expect to see vicious short covering rallies. It will be tricky, but Mushorts, (sic) your ship may have just arrived in port.

As for the rest of the market, yeah, there's an endemic short position problem for bears. It will be touch and go for a few more weeks as portfolio sphincters start these rolling short squeezes to create markets for the stock they desperately want to unload. They know the gig is up, and they want out, but with a couple weeks of positive cyclicality ahead, they'll be able to pick their spots. The sphincter contractions will grow increasingly urgent with the alignment of  negative cyclicality in July, and the real process of disgorgement will begin.

FBI Director Tells Banks To Lend More (6/20/01) Algae Greenspew said there's no inflation again. This still has that "Stocks have reached a permanently high plateau" ring to it, but what the hell. He also said that increases in labor and energy costs, while spiking, can't be passed through. As a result, corporate profits are being squeezed. Evidently, certain longs used the "no inflation" side of the statement to run the shorts again. Of course, each short squeeze is less impressive than the last one, suggesting that the the ranks of the shorts are thinning. And that ladies and gentlemen, is bearish. 

Greenspew also opined that the banks are too tight! He must have seen Dr. Stool's credit bubble comments the other day, noting that banks had done the Tighten Up. (Archie Bell and the Drells) Now there's a sight, the FBI chairman encouraging banks to loosen credit standards while they are facing the prospect of massive credit losses. That's why he's the Director of Financial Bubble Inc. This is known as the Bull.... Pulpit.

Meanwhile, the inflation-deflation argument is still raging in the markets. Stocks will go

down either way, but it's a question of which groups do worse. Energy and commodity prices broke out to the downside Wednesday, suggesting that the deflationary collapse scenario is alive and well. This is extremely bearish for the universally loved energy stocks. (Thanks, yobob) Curiously the long bond yield didn't drop much, under the circumstances. That of course, would be bearish for the financials. The market could be setting up for a scenario where, finally, everything goes down, pulling the money supply with it. This is the classic case of pushing on a string.

Well, the short term cycle lows appear to be in place, and our "sideways up phase" under way. The question in Dr. Stool's mind is, is this up phase 4 days old, or 4 weeks old. There is an alternative interpretation that says the lows were in May, and that the up phase has been under way since then. The only way that could be so, is if the 4-5 month swing trading cycle is skewed grossly, hideously lower, instead of just, a lot lower. 

It probably won't make much difference in the end result, either way. It's just a matter of timing. If the lows are now, the collapse will begin in mid July. If the lows were in May, than the collapse should begin June 26. The market's action over the next few days will tell. The weaker rally, the sooner the collapse, and the worse it will be.

Odds and Rear Ends (6/19/01) A good stoolie on the Stool Pigeons Wire asked the other day what Dr. Stool thought about what portion of investor losses were on credit. As far as the put options you bought on your MasterCard, well, we won't go there, but the question did get Dr. Stool to thinking about margin debt. Being a stock proctologist means not only never having to say you're sorry, but also means that a picture is worth a thousand words. So Dr. Stool set off to find a good picture. Lo and behold he found the data, and drew a picture which he is happy to bring to stoolwatchers everywhere.

[FrontPage Image Map Component]The long and the short of it, is that margin debt fell by about 120 billion dollars between the first quarter of 2000 and this April. That's a 40% annual decline. Now ladies and gentlemen, that's just for customer accounts in NYSE member firms. It does not count all the zillions of buckaroos in other NASD member accounts. This is just the tip of the iceberg-- the one that sent the Titanic to the bottom of the sea.

All of which further reminded Dr. Stool that Maria Barkanuhuh, and all the full of bull poodits

and analcysts love, LOVE, to talk about all the cash on the sidelines. Why is it that the frickin', lyin' bastards never, NEVER, talk about the opposite side of the coin... the buying power wiped out on margin?

Which brings Dr. Stool to a column that Dave Callaway (managing shill at cbs.markethype)  wrote the other day about it's our fault we followed the analcysts recommendations. The fact that he is right, caveat emptor and all that crap, is beside the point. The editorial again proves that the financial media, with the possible exception of Barrons and the Whore Street Journal, are nothing more than apologists and publicists for the Street. They are, after all, on the payroll. 

Why July? (6/18/01) Not a helluva lot happened Monday. Price objectives for the 13 day cycle lows are slightly below current levels, and it appears the indexes are easing into that low. There are no buy signals yet, but bears need to be alert for concurrent short term cycle lows that may lead to a little pop later this week.

Or the market may simply decide to go sideways for a couple of weeks again. That seems to be the character of this bear, and it would be consistent with a declining 4-5 month cycle and major trend. This is what Dr. Stool calls a "sideways up phase," given his fondness for rhymes. It's what happens when the time phase is up, in a shorter cycle, but down in a longer one. Prices move from the lower edge band to the upper band of the longer wave, in a trading range. In this case, prices should reach the upper edge band in no more than 3 weeks. Alternatively, we might see a brief pop to the upside.

Some time in July, all cycles get in gear to the downside. Given the vicissitudes of the 4-5 month wave, the remaining portion of the down phase, when all key trading cycles are in alignment to the downside, could last from three to eight weeks. That's why Dr. Stool expects July to be period of great opportunity for bears.

Most importantly we need to keep a close watch on the indicators to see if this scenario is playing out according to current projections. The first thing to look for is the bounce. As we watch how that unfolds we should get a better idea of if and when the July collapse scenario will play out. 

Ruminations on the Coming Credit Bubble Implosion (6/16/01) One of Dr. Stool's favorite pieces of bathroom reading is Doug Noland's weekly Credit Bubble Bulletin. Noland has a unique way of making complicated, arcane subject matter understandable, even for a dolt like Dr. Stool. 

Noland's thesis is that our economy has been driven by the greatest bubble in the history of the world, in this case a credit bubble. Week in, week out he patiently expounds on the expansionist mechanisms of the bubble, and warns of dire consequences to come. He has few peers as a purveyor of gloom and doom. Although Dr. Stool doesn't quite "get" all of it, he finds Noland's arguments persuasive. 

Noland has generally refrained from predicting when the bubble would finally burst. This week however, Noland closed his column:

"There is absolutely no doubt today that attempts to sustain levitated U.S. asset prices and dysfunctional processes by perpetuating this bubble economy creates further impairment and risks potential financial collapse. It is our sense that the marketplace is beginning to recognize this predicament."

This had a more ominous ring than his recent remarks, which, while sufficient to cause constipation, did not convey a sense of urgency. Which got Dr. Stool to wondering, "How do we know when this big monster is going to come down?"

Dr. Stool has been fascinated by gas bubbles since childhood, and by financial bubbles ever since he first got burned by one back in the late sixties. There are big bubbles, and there are little bubbles, and there's usually a bubble of some sort, somewhere, all the time. When they blow, they tend to lose momentum for a time before the final peak and initial breakdown. For example, certain momentum indicators topped out and began falling two to three months before the final peak in our fondly remembered tech bubble. There are always little cracks in the facade that forewarn of a coming collapse.

But how in the world do you measure an endemic,  multifaceted international credit bubble. Unlike a stock market or commodity bubble, it cannot be measured by price alone. Or maybe it can, but Dr. Stool isn't sure how.

So your stock proctologist thought it might be interesting to look at a few of the manifestations of the credit bubble, such as broad money supply, commercial and industrial loans, industrial capacity growth, commercial paper, and a bunch of other stuff (Apologies for the technical terminology.) to see if there were any signs of reversal. Under the theory that a few pictures are worth thousands and thousands of woids, here are some pretty pictures for your viewing displeasure. Dr. Stool has added a few comments, but feel free to fill in your own. There are no experts in this business, because even the "experts" don't know what the hell they are talking about. 

Here's M3 broad money supply.

Still growing at an annual rate of 11.8%. Mygod, it's been growing that fast, or almost that fast since late in 1998. No sign of a slowdown there. Is that a good thing? How, pray tell? Seems things keep gettin' worse.

Now here's institutional money market funds.

Growing at only 42.77% annually. Hmmm.

We all know there's been a real estate bubble. So lets look at real estate loans by commercial banks.
Gee, is the economy growing at 11% annually? 

Industrial capacity was growing at nearly 7% through 1999. The rate of growth is slowing dramatically but it's still around 3.75%. And we know what's happened to capacity utilization. Now how does this square with zero growth in demand and flat final sales?  If you look at real estate loans, and other C&I loans, below, the debt burden is growing, while income available to service debt is shrinking. But that's a whole 'nother story.

Here's commercial and industrial loans at large commercial banks.

Looks like they're doin' the Tighten Up. As of May 30, the annual rate of growth had dropped to 1.6%, while the 13 week rate of change went negative. Looks like banks are getting out of the lending business. Fed pushing on a string? How is business going to roll over all that debt they can't pay on all that excess capacity they can't use? 

Finally, let's look at the non-financial commercial paper market.

Uh-oh. Now there's a market that's a shuttin' down. Is this the first crack in the facade, or is it the fact that all that moolah floatin' around ain't stimulatin' squat.   

One thing all these charts have in common is that they all took off into the stratosphere in 1994. Things were relatively tame before that. The breakdown in the commercial paper market, and tightening in commercial lending are possible signs that things are starting to break down. But looking at M3, institutional money market fund assets, and real estate loans, it's clear that some things were recently still inflating at ridiculous rates. 

Dr. Stool will keep you posted on any signs of further deterioration in the Hindenburg's flightworthiness.

As for the stocks, they are, for a change, sticking to the script projected by cyclical patterns. Projections for cycle lows, apparently due this week, have shifted down a notch, so the guess here is that we'll get a little more washing out early in the week, followed by a short covering rally of little consequence. The schedule still calls for the market to get flushed in July.

Shorts Worn Too Long Get Itchy (6/14/01)

The 4-5 month cycle top formations in the major averages are complete, and the cycle is now in a down phase. (Duhhuhh.) The 13 day cycle centered moving averages now project to lows of 10,475 on the Dowager, 1990 on the Nasty, and 1195 on the Sphincter Index (SPX), benchmark of the portfolio sphincters. Projections for longer cycles have also edged lower.

What next? The 13 day cycle low is due between now and Tuesday. That cycle has been the dominant trading cycle, and the market averages are approaching projected lows, as well as levels perceived as support by the analcysts, and everyone else who can read a chart. So the market should bounce next week.

The next question is, how much. With the 4-5 month cycle now headed down, it won't be much. If this low is a 10-11 week cycle low, then prices may head for the descending cycle edge band 3-5% above the lows, depending on the index. But the 10-11 week cycle low could have been last week. Dr. Stool can't tell. If that's the case, then the rally will be very weak, and things should deteriorate rapidly as the sphincters begin to disgorge the crap they ingested in April and May.

Our simple task here is to follow the technical indicators. For now all signals say down, but conditions will be conducive for at least a small rally next week, driven by, you guessed it, short covering. For the first time in months many shorts will be able to take a profit, or get out even, and after the beating some of us have taken these last two months, there will be plenty of itchy shorts buying-in. So let's watch for a minor rally next week, see how far it progresses, and keep your eyes on stochastics and momentum indicators for signs confirming the pending summer swoon.

The Rear View Mirror Syndrome (6/13/01) You wanna hear somethin' funny. Here's how smart the poodits and analcysts are. Years ago, early in his career as a stock proctologist, Dr. Stool noticed that after the market had established a trend for about two months, the analcysts and poodits would extrapolate that trend as the wave of the future. In other words, if the market had trended down for two months, suddenly all the poodits and analcysts would forecast a continuation of the decline. Likewise with bull trends. Of course, the market being cyclical, the new consensus would form just before the trend would make a reversal pattern. 

Over the last few days, Dr. Stool has noticed that the poodits are suddenly forecasting... wait, are you ready for this... they are forecasting a trading range! Can you believe it? What geniuses they are! Dr. Stool forecast a trading range two months ago. Ok, ok, so the range was a thousand points higher than he said, but hey what's 10% among friends, right?

OK, beside the point.

So now they're all saying to expect a trading range for a couple of months. This is called driving your rear view mirror. Markets being winding roads, if you do that long enough, you will run off the road and hit something. Worse than that, the poodits think that a trading range is a good thing at this point. Absolutamente Wrongo. This is a top. After a little more of a selloff, and another little short squeeze to scare the crap out of the bears again, this top will break down in July. That's what Dr. Stool sees as he looks at the road ahead.

Meanwhile Congress is about to put the anal cysts on the hotseat. This will be a replay of the Tobacco hearings, when the mass murderer tobacco executives lied their asses off in a futile attempt to forestall litigation. And we can all rest easy now that the Securities Industry Association is tackling the problem of analcyst conflicts of interest. Yeah.

It's like the mafia proclaiming that it will now self- police its bookmaking, loansharking, and prostitution operations. 

But we have no one to blame but ourselves, and our addiction to gambling, for our losses. As for those slimy silver-tongued charlatan analcysts and stoolbrokers, they've always been crooks and liars, and they always will be. If you didn't know it before, you know it now. 

All in all, if you just do the opposite of what they say, you stand a good chance of making a little money at this game. 

The Big Freakin' Lie of The Month Club (6/12/01) Starting today, Dr. Stool will irregularly feature a short blurb on what he considers an obvious Big Freakin' Lie told repeatedly by poodits and anal cysts, so repeatedly, in fact, that everyone accepts it as truth. Sort of like the one about stocks yielding 11% over the long haul. Except that is the biggest gaddam lie of all time, because everybody, except people who understand compounding, accepts it as gospel.  These lies will be big ones, but not that big. 

The Big Freakin' Lie this month is that strong consumer spending will keep the economy going until, until... until what??? They don't even know. But that's not the lie. The lie is that consumer spending is still strong. Here, Ladies and Germs, is the truth.

This is a chart of real retail sales. It's real because it's adjusted for inflation. Not this nominal crap that says retail sales are still growing. HOGWASH! Adjusted for inflation, retail sales have been flat since Q1 of 2000. The annual growth rate is now running at negative 0.5% (that's half of one percent folks). People are buying less, and they will continue to buy less and less, as their personal balance sheets and purchasing power deteriorate under the weight of the credit bubble and the Fed's reckless monetary policy. 

Have a nice night everyone! 

Whose Fears Are Greater (6/12/01) Another panicky short covering episode negated the loss of control by portfolio sphincters in the AM, Tuesday. It's a battle between whose fear is greater, the sphincters or the shorts. The shorts will win, because they are right, but it will take time, because, as all stoolseekers know, shorts are their own worst enema. Dr. Stool is convinced it is not buying by the portfolio sphincters, but rather, the running of the shorts that is driving this market. Very few people are stupid enough to be buying now unless they're forced to, or they've already had their ass kicked on the short side and are gun-shy. At the first sign of a selloff running out of steam, they pull the trigger and buy-in their position.  

The 4-5 month cycle is rolling over painfully slowly. This is consistent with the cycle pictures on all the major averages. The starters pistol will go off in July. At that point investor psychology will be fragile and anxious, and either a single event, or the tidal wave of events, will trigger a collapse. Odds are it will be slow motion collapse, just a steady erosion, day after day. Everybody will just sort of leave on vacation. 

And stay there. 

All the Fed's Looseness (6/11/01) Nobody promised the market would be exciting all the time. In fact, secular bear markets tend to go from dull to duller, as volume dries up, and intraday volatility drops to nothing. It's going to be this way for a long, long time, if supercycle bears are right.

Monday was a non event. The fact that prices dropped on deadass volume means that short covering is being absorbed by the beginnings of institutional dribbling, seepage, and leakage. But, there's no real selling yet. We're a long way form any sense of panic. And there probably won't be any in the short run. Just the slowly dawning realization that things are going nowhere. Even the collapse that the cycles are lined up for in July and August could be a relatively uneventful low volume slide, that won't seem like a collapse until you look at it two months later and realize the market has dropped 30%. Those of you who were around in the markets of 1969 to 74, you remember what they felt like? Nothing dramatic, everybody just sort of left.  Maybe that's what it'll be like this time.

In the very short run, cycles are configured for a lower market into late this week or early next, then another weak bounce. And so on and so on. Sometime in July a couple of the shorter cycles will get in synch with the 4-5 month cycle to the downside. That's when things should get interesting. 

The wild card is Al G.'s next fart into the collapsing bubble-- how big, and when. This time, unlike the last one, it'll be counter cyclical. This time it'll be an excuse to sell. Like a mass wake up call, all the portfolio sphincters will let loose at the same time when the realization hits them that all the Fed's looseness so far hasn't worked, isn't working, and ain't gonna work. 

Stock Proctology Friday Update (6/8/01) As of Friday morning the hourly stochastics oscillator representing the 13 day cycle in the Nasdaq flashed a sell signal. This was almost exactly 6.5 days from the cycle bottom and is a good sign that the 4-5 month cycle is rolling over on schedule. Dr. Stool is still worried about the potential of the short squeeze reviving, but a little less worried than last night. 

As the 4-5 month cycle rolls over, the market will become more susceptible to having a negative response to negative news, as opposed to ignoring it in the up phase. A little increase in selling by portfolio shrinkers may be enough to absorb the short covering and then some. For bears, caution is the byword, but there's now some reason for hope that the sawtooth decline is underway, and that the July collapse will arrive on schedule.

And Other Positive Notes (6/9/01) Three or four things things happened Friday that Dr. Stool would put in the class of "foreboding auguries." First, the erectile (there's that spellchecker problem again) dysfunction formation in the gold chart appears to have gotten a full dose of Viagra. After drooping badly, price held above the critical 265 level and took off again Friday. Bears watching.

The earliest indicator for the direction of short term interest rates has been the 90 Day T-Bill. It started down weeks before  FBI* Director Algae Greenspew cut his first big monetary fart, and has been going down consistently ever since. EXCEPT for the last three weeks. The last low in the 13 week bill rate was 15 days ago. Now there's something on the chart that looks like a higher low. Verrry in-ter-est-ing indeed. It's too early to draw any conclusions, but also, Bears watching. 

(*Financial Bubble Inc.)

Ditto for the T-Bond Yield. It had backed off to the area of the 53 day moving average around 5.62, and bond investors started selling there, with yields popping back up over the next three days. The intermediate uptrend in yields looks to be intact. The timing of this upturn is coincident with the important quarterly cycle low, and the indicators show that there's powerful upward mo behind the longer term trend. Bond yields could explode higher over the next couple of months. Dr. Stool has a price objective of 6.05 on the 4-5 month cycle, and 6.15 on a 9 month cycle basis. Definitely a recipe for compression of PE ratios, doubly so with earnings in the crapper.

The bank stock action of the past couple of days is another harbinger of doom. After hanging on stubbornly for weeks, the bank index flashed strong  intermediate sell signals. The portfolio sphincters may finally be waking up to the fact that the credit bubble is analogous to the Hindenburg. In spite of enormous declines in short term interest rates, the index was unable to better the late January high. Credit explosions, and higher interest rates may be looming.

As far as the Dollar Death Watch, there are no sell signals yet, but the price and oscillator configurations are extremely precarious. The probability of a crack is increasing with each passing day. Are the Japanese banks, and others, about to bring it on home? That may be why the T-Bills and Bonds are beginning to act so badly-- the beginning of repatriation. 

Energy and commodity prices also upticked Friday. This coincides with a 10-11 week cycle low. Good bottoms appear to be in place on the charts. More significantly, the long term uptrend which has seen commodity prices double in the last 2 1/2 years is still intact. Buy signals from this level would signal that the correction of the last six months is over, and that prices are about to accelerate powerfully to the upside. 

All of this is consistent with the monetary explosion we've witnessed for the last six months. It is inflationary, and inflation is accelerating, in spite of what the old Algae Turd says.  

Here's a nice little picture of the Produce Price Index along with its 12 month rate of change. According to FBI Director Algae Greenspew, inflationary pressures lack zest, and businesses have no pricing power. Dr. Stool thinks the old turd is stuck in '98. The 12 month rate of change is 4.26%.

Oh. Here's Energy. It's only rising at 21.4% annually. But we don't count energy because it's a volatile series. Gimme a break. So what if everything else is only going up at 2.4%. This is where the bottleneck is; this is where we see the hyperinflation. And this is an area that hurts everybody, everywhere. 

Or It Ain't What We Thought (6/7/01) Looks like party time again for bulls. Every day the market gives us a different message, but now there are clear signs that the 13 day cycle is still headed up and still has a pretty good pop left in it. Unfortunately, after that, it could get worse, with the market possibly going into a vertical blowoff. Dr. Stool remains worried about the historic levels of short selling. It's a simple matter of supply and demand. The reason the market is going up is that you, me, and everybody and his brother, are short up the kazoo. It's called a short squeeze when prices start up, and there's no stock to be had.How long can it go on? Not too long. But it doesn't take long to wipe a few tucchises off the map. It's sure looking like we are gonna to take another hit here.

Found an interesting tool on the Nasdaq website. You'll see a little form that links to it, in the right hand column of this page. That little box will enable you to enter your stock symbol and be magically transported to a page that gives you the 12 month short interest trend in your stock. If you're short the QQQ or big tech stocks, Dr. Stool hereby warns you this will not be not a pretty picture. Sure, we may be right, but it looks like we may be dead first. The question is, how much pain can

you stand? Dr. Stool has some more about this in his comments on the Nasty. The short interest in some of the Dow stocks is ass-tronomical, as well.

Our best hope for a downside catalyst at this point appears to lie in another long bong hit, and a big selloff in the bank stocks yesterday. Keep an eye on those charts.

It Ain't What They Thought (6/6/01)

The Stool Panic Ratio indicator looks like it reached it's maximum right on time, as the market finally swooned a bit. In case anyone hasn't noticed, the peak of the rally was 9 days ago,  and it looks as though the 13 day cycle topped out yesterday, only five days from the low. That means we could see a nice little slide develop over the next 8 trading days or so. It certainly would come as a welcome relief for those of us who've been more than a little annoyed at the tenacity of the mindlessness of the portfolio shrinkers and anal cysts, in this market. 

Here's what to look for over the next couple of days. You want the averages not to exceed Wednesday's high over the next day or two. The next step should be a downdraft that lasts five to seven days into the 13 day cycle low. Assuming that happens, the entire portfolio shrinking world is going to find itself chock full of stock bought at higher prices. 

Of course they'll buy the selloff, and generate a little rally, but it too will make a lower high. Sometime in July the mental institutions will begin to empty the stock out of their bedpans when they realize that what they thought was a new bull market... ain't.

GO SIXERS!

Stool Panic Ratio (6/5/01) Dr. Stool's in a panic, which is probably a good sign for bears, since he tends to get most panicky at tops. This proprietary indicator is known as the Stool panic ratio. 

Over the last few days Dr. Stool has been doing some work with NYSE member, specialist, and public short selling data. Those levels are way beyond anything seen historically, as short selling is now accounting for something like 14% of trading volume over the past 21 weeks. Under the circumstances, the market's resilience is not surprising. All those shorts are concentrated in high profile big cap stocks. We get a market wide squeeze as a result. 

That huge short position has resulted in higher highs and higher lows on the charts during a down phase in the 10-11 week cycle. The peak of that cycle was actually in early May. The down phase has been down in the cyclic sense only, as prices have consolidated in a trading range, the dreaded "sideways down phase". This suggests that the 4-5 month cycle is skewed sharply upward, and that could mean that longer cycles have turned up.

There's an alternative interpretation. That is that we are in a parabolic bubble, courtesy of the Algae explosion. Algae, is, of course, FBI Chairman Al G. who has been spewing green at unprecedented rates. Being in charge of  Financial Bubble Inc. must be a fun job. All you have to do is print as much money as you want all day and all night. 

The next couple of days will test the soundness of that policy. The indexes are heading for a test of their highs. Assuming that test fails, this thing should deflate rapidly. Given the level of panic in the Stool panic ratio, (and the configurations of momentum and stochastics oscillators) seems like a good bet. 

Double Edged Sword (6/4/01) A couple of times over the last week or so Algae has made the statement that inflation is not a threat. This has the ring of one of those, "Stocks have reached a permanently high plateau, business is fundamentally sound," kinds of statements. Will this be Algae's epitaph, that he is laughed at and reviled for not seeing the very inflation that his monetary explosion caused. Or perhaps he is just trying to con us.

Sure, in some industries there is no inflation. There's also no demand in those areas. But when it comes to the things real people (excludes Wall Street) give a crap about, food, shelter, and energy, we have hyperinflation, and it will only get worse. 

Dr. Stool's been tracking the short selling activities of NYSE members, specialists, and the public. Through 2 weeks ago, the overall level of short selling by the pros was at astronomical levels. That's ultimately bearish. However, the public has also been shorting at record levels, and the level of total shorting on the NYSE was around 14% of trading volume over the last 21 weeks. That is astronomical, far beyond anything seen historically.

It's a double edged sword. It will put a prop under the market in the short run.

But in the long run, the pros are almost always right. Dr. Stool was concerned about the level of total shorting, but Bill Fleckenstein pointed out that much of the so-called "Public" shorting is trading by NASD members who are options market makers but not NYSE members. A lot of this activity is the hedging short puts they got stuck with when the public was buying puts heavily. 

At any rate, the cycles suggest that this prop under prices, if it is that, will be temporary, and that by mid July the market will be headed down full speed. In the meantime, patience and caution should be the bywords for bears. 

Nothing is Not Interesting (6/1/01) And Other Double Negatives. How do you not write anything about nothing every day and not say something that isn't nothing? Even Stool Pigeons don't not have anything to say. What we can't not agree on in this market is that no crosscurrents go unanswered. And it probably won't not be anything but that for the next few weeks. So don't not expect nothing more than what the market hasn't been doing for the last few days, for the next few weeks.

Got that? Dr. Stool needs a vacation up at the funny farm, I think.

Meanwhile the poodits are all likely to try and convince you how great everything is. A market that does nothing causes money mismanagers to let their guard down. You're likely to see a huge increase in bullishness over the next month, which will of course lead to a big down later this summer. But, in the meantime, foolhardy hopefulness will rule.

Meanwhile a big drop in bond yields is testing the uptrend there. It will be interesting to see whether that trend holds up next week. Dropping yields mean a weaker economy, but also tend to support stock prices. Dr. Stool interprets rising yields to signal stagflation and weaker stock prices, as the stock earnings divisor rises.

The gold chart exhibits a severe case of erectile (Why doesn't Spellchecker like that word? Must be pre Viagra) dysfunction. Can't tell whether that chart is bullish, bearish, or cardiac arrest en coitu. 

The Greenspurts greenback has reached a double top. There are hints on that chart that we may be seeing the top of all tops. But for now, they're just hints.

Last, energy and commodity prices have fallen out of bed in the last ten days. There's a narrowing trading range on those charts, and the indications there are conflicting as well.

All of the markets seem to have reached a bizarre equilibrium. The poodits all seem to think that easy money and tax cuts are a panacea. Dr. Stool thinks the debt overhang, money supply explosion and negative savings will lead to an implosion of the markets. Long term cyclicality is negative, and should eventually drive stock prices lower. In the short run, foolhardy complacency and blind faith rule. So we're going nowhere for awhile.