The Anals of Stock Proctology

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Doc does not make trading recommendations. This update reports time cycle estimates and centered moving average projections based on the Hurst cycle analysis method. This publication is for entertainment and educational purposes only. Doc assumes no responsibility for the accuracy or inaccuracy of the estimates and projections presented. The market may or may not meet the projections. Stoolies should thoroughly familiarize themselves with the methodology before trading based on this method. Those who do not have the time or inclination to develop a trading strategy based on testing and research should not trade. Trade at your own risk. Yadda yadda. How's your motha?

PM Update 1/3/03 12:45 PM (Gee has it been a whole year already? Seems like just a few hours.)

So far so good. No follow through on the upside as expected. Cmaps met. Now, will they turn tail, or hold up and head higher? My biased suspicion is that they will continue lower. So far the 1 day cycle downside cmap is 902. But it could drop to 898. That's what Doc will be keying on. The 3 and 5 day cycle ozzies are rolling over. The 8 day is still up. The 1 day cycle low appears to be due between 1 and 3 PM. If they can keep the market steady until then perhaps they can hold on, but with the enormous Feed drain, I have my doubts. There's a 5 hour high due at 3:30. That's the moment of truth in my mind. Here's my WAG for the afternoon.

The cycle map below is en estimate of how the market might behave over the next few hours. Should the pattern be broken, the map should be redrawn to fit the actual. Cmaps and times are guidelines only. Cycles vary in wavelength and amplitude. Directional changes within an hour of the expected turn and a few points of the cmap should be respected. The indicators rule.

5-8 Day Cycle______ 2-3 Day Cycle_______ 5 Hr-1 Day Cycle

Pre Market Update 1/3/03 9:15 AM

The 1 day cycle ozzies on the all sessions fucutures are heading into a top as the pre market session closes. There's no basis for a change in the forecast from last night. Doc will fill on on Intraday Stool.

Next week, Doc will begin a running commentary on a new service called Stooltrading, that will fill in a running commentary between the AM and Mid day updates. This service will be free in the initial weeks of beta testing the service. Doc will keep you posted.

Turdsday's Markets

Intraday - Damn if it ain't deja vu all over again! Seems we see this play every year on January 2. As for cyclicality, there wasn't any. It gapped up, stayed up, and moved up all day. There actually were cycles, of course, they were just hard to see. The 5 hour-1 day wave high came around 11 AM. The intraday cycle low point was around 1 PM. The price highs came later because the upslope of the 3-5 and 8 day cycles were so strong. That can happen in a vacuum, which is what happens a trading range becomes when it has been repeatedly traversed. The market becomes extremely thin between the high and low sides of the range as bids and offers are repeatedly cleaned out in a short period of time.

The upside cmaps for the 3, 5, and 8 day cycles are between 910 and 914. The 1 day cycle cmap wasn't measurable, but a 2 day measurement points also to 910. The 5 hour cycle cmap is 909. The 5 hour high was due at the bell, and based on the after hours, was confirmed. Doc will look for the 1 day cycle high around 11 AM again. This time it should be a price high as well as a wave high because the longer cycle cmaps will be reached. So far, longer cycle waves still have a flat slope. The question is whether the intraday cycles have a sideways down phase. That will tell us more about what to expect over the next few weeks.

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5-8 Day Cycle______ 2-3 Day Cycle_______ 5 Hr-1 Day Cycle

Three Bagger 1/2/03

Today is MoGauge Day, Fed Release Turdsday, and 10-13 week cycle upturn day all rolled into one. So Doc will be brief in order to cover everything.

This upturn is part of a top. It will have minimal follow through, BUT, the 10-13 week cycle up phase will last for up to 3-4 weeks. The topping out process in the 6 month and 10-12 month cycles will limit the upside, and the fact that the 10-13 week cycle is in an up phase will limit the downside. It will be a scalpers paradise, if, and it's a big IF, you have a method that can reliably filter short cycle moves. Doc will attempt to paint some pictures along those lines over the next few weeks.

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The Feed drained $1.5 billion by only rolling over $3 billion of the $5 billion in expiring 28 day repos. They then did $8 billion in overnight repos to replace $7.5 billion in 7 day repos. $3.5 billion in 7 day repos and the $2.5 billion in 3 day repos will expire Friday, along with the overnight repos. Unless Al is ready with the big dump truck, this rally isn't going to last long. Their normal pattern is to rein in for a few days after a patch of strong economic data. The ISM number may have given them the trigger for that.

Two trends are evident on the Feed Index, which is the total Fed holdings of loans and securities. One is the 10% growth trend beginning in May of 2001. The blue channel going back to last December suggests that Al may now be targeting an 8% growth rate. Look at the 4 week moving average (brown line) and compare it with the slope of the tow larger channels for an indication for whether the slope of short term growth is slower or faster than the 2 longer term trends.

Wednesday night, Doc mentioned that The Gang of 22 has dramatically increased their shorting as the T-Bond rally got increasingly hysterical. Whenever the dealers have sharply increased their borrowing of bonds from the Fed, a downturn in the bond market (upturn in yield) has followed within days. The Gang continued their heavy borrowing of bonds from the Fed on Turdsday, suggesting that this bond selloff has a way to go.

The Feedometer is still beyond the upper channel line that resulted in Al pulling in his horns in the past. Chances are they will pull back now, perhaps strongly. If they let an inflationary psychology take hold in the bond market, the already shaky housing and mortgage refi bubble will implode.

The Feedometer theoretically measures excess Feed available for bond or stock market jamming. Al selects a trend level he feels is needed to reflatulate the economy. The Feedometer measures the difference between the apparent trend target, and actual day to day Feeding (Fastow Feedometer), as well as a four week moving average (Snowmo Feedometer). A break above the orange trendline might indicate a more aggressive jamming policy.

The MoGauge for last wee shows total applications up only slightly. This downtrend is now 3 months along, and as Doc suggested that it should, it is beginning to put pressure on broad money supply.

In spite of another drop in mortgage rates (inverted scale on chart) refi activity has barely budged. These data are seasonally adjusted, so it's not the fact that it was Christmas week. More striking is the fact that purchase apps remain in a downtrend. What's going to happen if this uptick in bond yields sticks?

MZM was down in the week ended 12/23 and has been flat since mid November, over exactly the period Al has been pumping fastest. Waning demand in the mortgage market is taking its toll. This trend will worsen as time goes on unless they can engineer some kind of miraculous decline in long term rates. They can't. As liquidity begins to dry up, the stock market will start to come under pressure again.

Even though M1 did uptick a bit, thanks to Al's Feed, the growth rate is puny. When Al takes his foot off the throttle, M1 will collapse. So will stock prices.

The bond market had a gigantic selloff that started well before the ISM news release at 10 AM. Strangely enough, it did not turn the 10-13 week cycle indicators higher. Obviously shorter cycles turned up, but it's not clear that the move is sustainable. We'll need to give it a few days to make a judgment on whether this will lead to a breakout of the trading range. The upside cmap on the 13 day cycle is 4.10 to 4.15.

Long Term Outlook- Bond Yield (12/27/02)

The other day, Doc was ambivalent as to whether the downside cmap on the Inflatables was 8150 or 8250. After Tuesday, he settled on 8150. This is the problem with fine tuning cmaps. The market simply refuses to pay attention! But we knew based on time cycles and oscillator positions that we were vulnerable to a turn at any time. However, while it looks like the 10-13 week cycle low is in, maybe all the fireworks are behind us. The initial upside cmap on the 13 day cycle is 8650, and none of the cycle indicators from 13 days up to 13 weeks turned dramatically higher. Unless Friday shows some follow through on the indicators this may not get too far. We'll have a better idea after another day or two of action. If they can break out above 8600, the conventional measuring implication is 8900.

All of Doc's daily cycle charts are powered by METASTOCK. (Sorry about the bull.) Available at Doc's bookstore! Metastock is the industry pioneer in charting software. Doc has used it for over 20 years. If you have questions about purchasing Metastock from Doc's store, you can email Doc.

Portfolio Sphincters Index (SPX) and Sentiment

Cycle Chart
The red channel is the idealized 18 month-2 year cycle. Dark blue is the 10-12, or 6 month cycle. Teal is the 10-13 week cycle.

Short Term Cycles

The wind finally blew. The up phase in 8-13 day cycle may not last long, however. The cmap is at 915- 925 and a cycle high is due within a day or so. The 4-7 week cycle up phase could last up to 10 days. The initial cmap is 925. That will adjust upward if the up phase progresses. That should happen, if the upturns in the indicators for the 4-7 week cycle don't immediately whipsaw.

10-13 Week Cycle

The 10-13 week cycle upturn looks impressive on the 29 day rate of change, but the cycle oscillator above, and the stoolicator, have not made decisive turns. This makes Doc suspicious. If the up phase is under way in earnest, it could last as much as 18 days, or longer if this were a cyclical bull market. We won't cross that bridge. At this point the assumption is that the declining 6 month and topping 1 year cycle will hold the advance in check.

Long Term 12/27/02

VIX

VIX collapsed. (Chart scale is inverted to show relationship with prices.) The indicator is neutral, and the trend is uncertain. A reading of around 27 may indicate a peak, but it's possible it may take something in the low 20's.

The 15 day rate of change is a proxy for the 4-7 week cycle. The 29 day rate of change is a proxy for the 10-13 week cycle. The dark blue overlaid line is the 10-13 week cycle oscillator, while the red line is the 6-7 week cycle oscillator. The VIX is a measure of implied options volatility reflecting relative fear or complacency. It is plotted below on an inverse scale to better show the relationship to the price chart. The "Stool Bands" may reflect either 6 month or 10-12 month cycles.

Long Term 12/27/02

The Cycle Conditions tables include cycle phase and a wild guess as to number of periods to the next turn, in days for the shortest cycles, weeks (W) or months (M) for the longer ones. This is a fluid exercise, in other words, the projections are likely to be wrong, but they force us to be vigilant for key turning points, and frequently work well enough to prevent costly misreadings.

SPX Cycle Conditions as of 1/2/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7 M	650 WAG
6 Month	Top-Down/0-6W	??
10-13 Week	Up/3-18	??
6-7 Week*	Up/0-10	925 p
8,13 Day	Up-Top/1	915-925

PTT - Periods Till Turn
L-Low, H-High
SWD= Sideways Down Phase- Trading Range
SWU=Sideways Up
p: preliminary
Too Early: Too soon to project
No Factor: Low amplitude is dominated by larger cycles
* The 4 and 6-7 week cycles have split again. The dominant cycle is reported.

Nasgap Charts

Cycle Chart
The stoolicator is a proxy for the dominant trading cycle, either 6-7 or 10-13 weeks. The 17 day rate of change is a proxy for the 6-7 week cycle. The 29 day rate of change is a proxy for the 10-13 week cycle. The teal channel is the idealized 2 year cycle. The light green channel is the idealized 10-12 month cycle. The dark blue channel is the idealized 5-6 month cycle. The red channel is the 10-13 week cycle.

Short Term Cycles

Yesterday, in this space, Doc wrote that the short cycle bottom was imminent. (Thank goodness for the little things.) The very preliminary upside cmaps have already been hit. If the market can add to its gains Friday, the cmaps will move up to significantly higher targets. But if it doesn't, the downturn in the 8 and 13 day cycles due between now and Wednesday could see the Nas retest the low.

10-13 Week Cycle

Although it was a big up day, Doc hesitates to call this the up phase yet. There's not enough data to confirm that the bottom is complete in the Nasty. The indicators which track this cycle are in the bottom zone, but have not turned up. If it takes off like a rocket Friday we'll know, but it's possible there may be a week or so remaining in the process of forming a cycle trough. The Nasty has a habit of false starts and retests. There are still lots of institutions with scads of tech stocks they'd love to dump.

Long Term 12/27/02

Nasdaq Cycle Conditions as of 1/2/03

Cycle	Phase/PTT	Target
10-12 Month	Top/0	1490 Done
6 Month	Top-Down/0-6W	??
10-13 Week	Bottom/0-6	??
4-7 Week*	Up/0-8	1385 p
8,13 Day	Up/0-3	1385

PTT - Periods Till Turn
L-Low, H-High
SWD= Sideways Down Phase- Trading Range
SWUP=Sideways Up
p: preliminary
Too Early: Too soon to project
No Factor: Low amplitude, dominated by larger cycles
* The 4 and 6-7 week cycles appear to have merged into one.

Long Bong Hit - See top of page.

AM Edition Features (Previous) These features are in morning edition, published between 7:30-8 AM ET US, or the Saturday Weak End Edition, published, uh, let's see, Saturday!

Golden Stool

Gold was up slightly yesterday, but nothing like the stock market. The upside cmap of around 351 on the 13 week cycle has been met and the cycle is forming a top. The down phase looks like it will be short ands shallow. Action in the gold market is quiet this morning.

The same comments apply to HUI. Upside cmaps are 150-154 in the 13 week cycle with a cycle topping process beginning. The down phase should be short and shallow, with little downside. The 6 month cycle is topping out however, so upside progress should be slower over the next few months. The upslope of the longer term cycles should prevent any down phase from being worse than sideways for the foreseeable future.

Long Term 12/27/02

Uncle Buck's Illness

Buck got out of bed yesterday, as he sometimes does. Short cycles turned up, but it's too early for an upside cmap and it is not clear that the up phase is sustainable. As with the stock market's indicators, it's not clear that the 13 week cycle has turned up. There's still a downside cmap of 100. That does not have to be met, but without confirmation from the indicators that the 10-13 week cycle turned up, it's still possible. Uncle B is down to 102.88 this morning, .30 below yesterday's high.

Long Term 12/27/02

Suctor Watch and Stoolwethers- Now posted on separate page. Updated each morning between 8 AM and 9:00 AM NY time.

See you in Intraday Stool.

Dr. Stepan N. Stool
Chairman of the Department of Stock Proctology
A.S.S. Endowed Chair
American Society of Shortsellers Endowment
American Academy of Stock Proctology

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Explanation of Intraday Commentary-Build charts at http://www.livecharts.com. For custom time bars insert a comma after symbol and number of minutes, e.g. compx,90. This will give you a bar chart of the Nas with 90 minutes per bar. The one day cycle is usually most clear with 8 minute bars and 26/18 stochastics. It varies from day to day. Sometimes 6 minutes works best. Experiment to find the best fit for your trading style, and the market's dominant frequency at the time.

The goal here is primarily to monitor the condition of the 8 and 13 day cycles. I typically use 90 minute bars with 26/18 stochastics for the 13 day cycle proxy on the indices during regular trading hours. Other cycles use 26/18 stochastics with the following:

8 days- 60 minute bars
5 days- 40 minute bars
3 days- 24 minute bars
2 days- 16 minute bars
1 day- 6, 7, or 8 minute bars

On the 24 hour futures charts, use a time per bar approximately 3 to 4 times the above number of minutes, to represent the cycles listed above.

ABBREVIATIONS:

cma: centered moving average
cmap: centered moving average projection
os or ozzie: oscillator
sto: stochastic
swup: sideways up phase
swdp: sideways down phase