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 1/6/03 1:00 PM

Straight up from the open and then a steady grind higher. Is the market trending higher, or is this a blowoff move hey are at the second set of short cycle cmaps on the daily charts. The hourlies also look like upside cmaps have been hit, as have the 1 day and 5 hour cycle cmaps. The problem is that it's virtually impossible to guess the timing for the highs because of the big shift in patterns under the influence of what looks like a new impulse. More questions than answers today. With all cmaps hit, if it goes higher, the only option is to switch to a trend following mode. No shorting until clear sgins a top is in.

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 1/6/03 9:15 AM

Fucutures were strong in the after market Friday, and remained in the same range overnight last night, closing at 909, this morning. Doc suspects the market may be a little stronger than Friday's late forecast, but the evidence is less than overwhelming. He would take Friday night's cycle maps and shade them 2-3 points higher. He'll keep you posted on changes in IDS.

Friday's Markets

Intraday - Friday was a nervous, flat day, at least until the last minute short panic. The usual cycle patterns were not apparent, as the market cycled every two hours or so, establishing a pattern of slightly lower highs and lower lows until the last minute. Doc believes the low at 12:00 was the 1 day cycle low and that the 1 day cycle high came at the end of the day or will be hit early Monday. The mid morning spike looked like a buy program, and not a cycle wave. Measuring from the noon low, lets look for a 5 hour cycle low around 10:30 Monday, and a 1 day cycle low again around 12. We should see the high on the open or shortly thereafter. Based on the futures close, the cmap for the high is 912.50. The 3, 5, and 8 day cycle cmaps remain at 910-912. Update at 9:15 AM Monday. Solid strength in the fucutures will negate these projections and turn the channels up.

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

Smoke 1/3/03

Stoolie Metamucil said it all. The 13 week cycles are bottoming and it remains to be seen to what extent the longer cycles will suppress the upside action. He was referring to the fact that the 6 month cycle has is down and the 10-12 month cycle is topping out. At this point the answer to the question isn't clear, although the upside does appear limited. The market has had a huge rally in the first two days of each of the last three years as the sphincters position new 401K money in their portfolios. That's not new, and it will repeat in most years. In 2001, it lasted all month. Last year it fizzled after two days. So the fact that it happened again does not tell us anything about whether it is sustainable.

The signs of economic strength of late, like the auto sales and ISM numbers, were an echo of the mortgage bubble blowoff in the 4th quarter that we saw in M2, M3, and MZM. The same thing happened last year. But as ECRI's data shows, the latest weeks data wasn't quite so hot.

The market will go down this year. As usual it will be much lower in mid year than late in the year. Dislocations and crises will grow as the credit bubble implodes. Watch M3 over the next few months. It has already leveled out. When it begins to decline in another month or two under the pressure of rising long term interest rates (See the leading MoGauge in the Turdsday Anals), the collapse will be under way. The bond pits are showing signs that they are beginning to pay attention to the Fed's maniacal pumping, and signs of inflation busting out all over, such as here.

No one knows what the future holds but those who pay attention to massive, slow moving, secular forces which, once set in motion tend to remain in motion, will certainly have a better idea than those who don't. The forces behind this decline are massive ones, moving at a constant rate, with cyclical fluctuations and noise around a mean rate of descent. Because our inbred institutional and cultural responses to the problem remain the same, the underlying causes of decline have not been mitigated. So the trend will continue. For example, Japan has had up years in the last 13, but because nothing has changed with Japanese institutional or cultural forces, the decline marches on. The same thing is true here, but after only 3 years of decline, it's not apparent yet. Until the system faces up to the truth, and there is massive reform, nothing will change.

Enjoy the rally while it lasts. Because we are going down.

First, in the short run perhaps everything hinges on what happens Monday morning. A strong open that gaps Friday's highs and holds would portend a move to at least 935 on the SPX and 1435 on the Nas. Even if that were to occur, it would not change the bigger picture forecast that the trading range will stretch into at least the middle of the first quarter. At some point in the second quarter, all cycles will be in gear to the downside.

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

The Feed drained an astounding $14 billion Friday by sitting on their hands while that amount of repos of varying duration expired. As Doc guessed it would in the last Anals, the combination of the strong ISM data and the tanking bond market spooked Al into a major draining operation. This was the biggest 1 day drain since Al took back the enormous post 9/11 pump out! You can see from the Feedometer chart that major vacuuming operations are always associated with declining markets. The Gang has to liquidate something, and stocks should be among the first to go.

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.

There's the strong pullback Doc was looking for from the top of the Feedometer channel. Al cannot afford to allow inflationary psychology to take hold in the bond market because it will cause the immediate and total collapse of the mortgage bubble, which in turn will bring down the entire financial system. Aggressive draining as a sign the Fed is paying attention to incipient inflationary forces may be the order of the day for a few weeks. This would be very bearish for the stock market, given that the money supply is already showing signs of stress. Negative, or even flat growth in the M's would be the kiss of death.

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.

Fed Turdsday Monetary Review

The bond market was virtually even Friday. As with the stock market, it is not clear whether there will be any follow through right away. Bond prices are slot rattling in a trading range that has been virtually cleared of bids and offers after being traversed repeatedly in recent months. The intermediate trend is still flat as the long term tend bottoms. The Fed will try to keep the bond market stable and may be sending a signal that they do not want to "overflate." The upside cmap on the 13 day cycle was 4.08. That was hit.

Doc's long term view for bond yields is that a bottom is forming in the secular trend and the 18 month cycle. The long term cycle cmap was 3.75.

The 13 day cycle cmap on the Dow Inflatables looks like 8650. If they can get through resistance at 8640, the 6-7 week cycle cmap will move up to 8900. If they get above 8900, the entire investment community, except for a few crackpots, would turn foaming at the mouth bullish, setting up the greatest bull trap of all time. But that's putting the cart before the horse.

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

There is ambiguity in the short cycle indications. Doc does not share the confidence of some stoolies that this rally will extend for 3-5 days or more. An 8-13 day cycle high could come within a day or two. There are cmap indications as low as 910 and as high as 925. The same is true of the 4 and 6-7 week cycles with a cmap range of 910 to 935. We know it's an up phase, but the slope and duration are in question.

10-13 Week Cycle

The upturn on the 29 day rate of change stalled and the cycle oscillator upturns are less than impressive. Doc suspects the bottoming process might not be complete, and that it may include a deep pullback. The declining 6 month cycle, and topping process in the 10-12 month cycle should lead to the up phase taking the shape of a swup. It could last into mid February. Or it could end by next week

VIX

VIX dipped again Friday.. (Chart scale is inverted to show relationship with prices.) The indicator is neutral, and the trend is uncertain. A reading of of less than 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

Doc sees the 10-12 month cycle completing a top by mid February coincident with the 10-13 week cycle high. February-March should be awful, but a "successful retest" of the lows will get the bulls screaming again. When the midyear rally is weak, we'll see another round of crapitulation. 3-4 year cycle low not till 2004 or 2005.

This chart shows the 18 month, 3-4 year and 12 year cycles. These are nominal cycle lengths. The 18 month cycle may be from 1 year to 2 years. The 3-4 year cycle may last less than 3 years or more than 4 years. The lows and highs of each are marked with color coordinated labels.

A theoretical 12 year cycle low is due in 2006-7.

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 1/3/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7 M	650 WAG
6 Month	Top-Down/0-6W	??
10-13 Week	Up/5-30	??
6-7 Week*	Up/4-12	910-935
8,13 Day	Up/0-2	910-925

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

Short cycles are headed up. Beyond that, the pic is about as clear as mud. There are 2 possible cmaps. One is at 1395. The other is around 1435. A lot hinges on what happens Monday. If they can't get it up, the rally is Neidermeyer. The 8 and 13 day cycles highs are due between Monday and Wednesday. The 4 and 6-7 week cycles up phase could extend for up to two weeks, or could end immediately. That's worthless information, like saying it may go up or it may go down, so hopefully the market will give us something more readable after Monday's action.

10-13 Week Cycle

Doc isn't sure that the bottoming phase in the 10-13 week cycle is complete. The next week remains a period of downside vulnerability. Again, it all depends on Monday. The indicators which track this cycle are in the bottom zone, but are not showing the kind of upturn that would leave Doc confident that there will be follow through. The Nasty has a habit of false starts and retests. Doc has made a probably stupid bet on the Q's that there will be one more downdraft. Once the up phase does get started, it should be short and weak, as the pressure of the declining 6 month and topping 10-12 month cycle keeps the lid on. So, sideways into February it is.

Long Term

After a couple of months of range bound trading look for a breakdown in the second quarter as the 6 and 10-12 month cycles get in gear to the downside. The third quarter will be just as bad. After that no one will give a damn.

Nasdaq Cycle Conditions as of 1/3/03

Cycle	Phase/PTT	Target
10-12 Month	Top/0	1490 Done
6 Month	Down/0-6W	??
10-13 Week	Bottom/0-6	??
4-7 Week*	Up/0-10	1395-1435
8,13 Day	Up/0-3	1405-35

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 Weak End Edition.

Golden Stool

Gold is in a short term sideways down phase, but it's obvious that gold is trending in the big picture. The slope of the uptrend is such that the 13 week cycle down phase will not even go negative in real terms, at least so far. The cmap is now around 363 for both the 13 week and 6 month cycles, and 396 for the 10-12 month cycle.

The long term view.

HUI may have just completed a short cycle down phase without actually having pulled back. The 210-13 week cycle cmap now looks like 155, and the 6 month cmap 163. the 1 year cycle cmap is 202. Looking at teh short term the 13 day cycle cmap is 156.

Looking at the long term chart and the position of th e10-12 month cycle oscillator, it's clear we have a breakout coming.

Uncle Buck's Illness

Thursday's pop has fizzled and Buck is trading sharply lower again this morning, at 101.81 as of 7:15 AM NY time. That's near the 13 week cycle cmap of 101.75 and the 6 month cycle cmap of 101.50. Uncle Buck's cycles are irregular. The 6-7 week cycle appears dominant. It's cmap also looks like 101.50. Until the indicators turn up, the downtrend is assumed to still be in force.

On a longer term basis, looks like Uncle B still has a long way to fall toward a 10-12 month cycle low due in the second quarter.

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