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 1/10/03 12:30 PM - 5 hour cycle low is due in this half hour. 1 day cycle low due 2-2:30. Starting to see hints of a deeper pullback which could finally put a stake in the heart of this thing. Cmap may be 922 on SPX. Upside cmaps for all cycles up to 13 days have been hit. If the advance continues, would signal firm push from 10-13 week cycle. The speculative frenzy this morning suggests that this is the end, not the beginning. Follow Doc's intraday commentary and cycle charts on the hour and half hour during the trading day at the Stooltrading Beta Test.

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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 shown 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 1/10/03 9:15 AM - Was the stunning jobs data just a big boulder dropped in the pond, or the iceberg that sunk the Titanic? Based on the fucutures, the cmap for the opening downmove is 914. The 5 hour cycle low should be hit around 12:30. Follow Doc's intraday commentary and cycle charts on the hour and half hour during the trading day at the Stooltrading Beta Test.

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Turdsday's Markets

Intraday - The market had another one of those patented explosions out of the gate, continuing higher into a 1 day and 5 hour cycle high at 11 AM.. The down phase lasted until 2 PM, with a 5 hour high due at the close. It should continue higher tomorrow into the 1 day cmap expected at 11 AM at 930. Earlier than that means weakening. Later means strengthening. Update at 9 AM. Follow Doc's intraday commentary and cycle charts on the hour and half hour during the trading day at the Stooltrading Beta Test.

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

Funny Thing Happened on the Way to the Cmap 1/9/03

Today is Fed Turdsday. We call it that because it's the day Al releases his data on the expanding gases emanating from his huge fetid monetary dumps. Between those and the shrub's big package, which prior to Tuesday, nobody but the First Lady knew about, the market has been in a tizzy! Without fudder adoodoo, Doc will present his weekly review of the sitchiation. But first, a word about cmaps.

Cmaps or "centered moving average projections" use a method derived from Hurst cycles to project price targets. Very basic math, but it requires some judgment, and an unbiased eye (ahem, ahem, cough- cough). They are moving targets because moving averages change direction as time passes. They require some guesswork, because the averages are centered, and being an average, they lag the current day by 1/2 the period in the average. They have to be projected based on a best fit to current data. They can only be projected in the direction they are already headed with a little cheating allowed based on normal curves and a few other little tricks which Doc will keep to himself.

Unlike our friend Elliott, cmaps cannot see around corners and project the magnitude of a move in the opposite direction. Furthermore, after a big cycle turn such as the 10-13 week cycle turn we just went through, we can't make a projection until the moving averages have turned enough.

At a 10-13 week cycle turn that can take a couple of weeks. That's why we have indicators. They tell us, ok, this mother is turning. Take evasive action. But they do not tell us how far the move will go, and the cmaps aren't there yet either. We can make some guesses based on the condition of larger waves which envelope the one we are interested in, but it's tricky.

So now, we know it's an up phase, and we are not sure how high. Homing in a little to the 6-7 week cycle, we do have some upside projections. (See below) But there is still a lot of flux here. If the market stops in its tracks Friday and Monday, the moving averages that make the cmaps will flatten out. But if they go up tomorrow, then that scenario Doc mentioned earlier this week rears its ugly head. The fix will be in. The stage managers and the irresponsible institutional nut cases will take the averages through the highs, and set off a hysteria the likes of which we haven't seen around these parts in a long time.

That's hypothetical for now. But the next couple of days are critical. Let's hoep we don't have to suffer through that nonsense.

Fed Turdsday Monetary Review

Wednesday was MoGauge day. The Mortgage Bonkers Ass. released it's weekly Mortgage Applications Index, and it it left a big stink. Was it a seasonal adjustment thing? Won't know till next week. But if this holds, it will show up as a spike in broader money measures in 4-6 weeks.

It comes as no surprise to stoolies that broad money supply growth has begun to slow down after the big drop in the big drop in the MoGauge from the October blowoff through mid-December. That drawdown should continue for another couple of weeks. Then it gets dicey. Is last weeks uptick the beginning of another flatulation, or just a seasonal adjustment anomaly? Doc thinks the latter, because he suspects that rising mortgage rates will choke off the refi boom once and for all. Bond yields look like they are headed back to the November December highs, which will put a severe hurtin' on the refi market, the godmother of this credit bubble excuse of a financial system.

The funny thing is that these occasional strong economic reports for November get the institutional nutcases all in a dither. Just look at that mid November bulge in money! There's no reason for the market to be surprised that certain sectors of the economy were strong at that time. The MoGauge, leading by 4-8 weeks, because that's how long it takes to fund the loans, told us it would be. Then the stock market confirmed concurrently, and the money supply data confirmed with a lag of a week or so. All of which is ancient history by the time the news comes out. But the knee jerks are out in force when the "news" is released. What a joke.

M1 is still Neidermeyer, even after all the Feed pumping. This is where business is actually transacted. They are called "checking accounts." This is the true state of the economy. Barely alive.

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 added $3 billion in 28 day repos and $7.75 billion in overnight repos. This resulted in a net drain of $6 billion as $7 billion in 28 day repos expired, along with $3.5 billion in 3 day repos and $6.25 billion in overnight repos. The reduction in 28 day repos is particularly notable, as this money has more "staying power." Although the recent 1 month uptrend remains intact, Al is taking a breather. Action over the next couple of days will signal whether he intends to put the brakes on a bit. Normally a big up day in the markets will trigger some draining.

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 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.

The Feedometer's 6 recent uptrend is about to be tested. This uptrend has been sufficient only to keep the market in a range. If Al pulls back now, that will remove a leg from the 3 legged capital stool. Strong gains in the market usually make Al think he can afford to drain a bit. It also literally puts more moolah in the system though margin hypothecation. The stronger unemployment claims data will probably reinforce the idea in the old fart's mind that he can drain this putrid swamp a bit. Doc expects that tomorrow. It should be enough to pressure stocks, at least late in the day. Watch the Feed data in the AM for the signal.

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.

Bond yields exploded higher, as some investors fled risky US Treasury bonds for the safe haven of Nasgap tech stocks. The Gang of 22 continues to short bonds heavily, although not as much as a week ago right before the turn. Yes the markets certainly have been held back by deep pessimism and an overly cautious hesitancy, haven't they?

On the bond side, it looks like the 13 week cycle up phase is starting to move. The 4 week cycle cmap on bond yields looks to be around 4.35. Beyond that, we'll have to wait and see for a week or so until there's enough data for a 10-13 week cycle projection.

Meanwhile in the department of Yes We Have No Inflation, it's apparent that reflatulence is working all too well. The Fed is worried about deflation? As usual, they are looking the wrong way.

Bond Yield Long Term View

Dow Inflatables- On the Dow, the 13 day cycle projection is 8900. That's the good news. The bad news is that if it gets there and stays there for a couple days, the 6-7 week cycle cmap could rise to 9175 from 8925 where it is now. That means that Friday is critical. Bears must hold the line, or retreat up the hill and regroup at higher levels. On the chart, the lower dark blue cmap lines are the measuring points. The upper lines are the targets with corresponding numbers.

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

Hooboy, did Doc get whipsawed on the 8-13 day cycle or what! The cmap is up a little to 945. Friday is a key day. The 4 and 6-7 week cycles cmaps are back up to 945-960. These cycles should peak within 8 days. The short cycle oscillator is near a top zone, and could flash a sell signal in a day or two.

10-13 Week Cycle

The cycle oscillators are moving up but the 29 day rate of change remains stalled. It's possible that the up phase began in mid-December and that this is the blowoff. Doc isn't sure because it's still too early for upside cmaps. A stall here would signal a flat up phase, which would be consistent with the 6 month cycle heading down, and the 10-12 month cycle topping out. It's still an "if-then" thing. The up phase could last into mid February or end as soon as next week.

VIX

VIX was up. (Chart scale is inverted to show relationship with prices.) The indicator has blown the top of a 6 month channel that has marked previous intermediate highs and lows. However, it may be on a trend path toward the low 20s.

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.

The 29 Day Dickarms never reached an extreme on the last 10-13 week cycle down phase that would support a big move to the upside.

Long Term View

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 1/9/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7 M	??
6 Month	SWD/0-4W	??
10-13 Week	SWU/2-26	??
6-7 Week*	SWU/0-8	945-960
8,13 Day	Up-Top/0	945

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 are distinct but usually overlap. The dominant cycle is reported.

Nasgap Charts

The Nas is expected to behave more like the SPX with the continued de-weighting of tech. In the interest of publishing the Anals earlier in the evening Doc is presenting the charts and data without commentary, as it is largely redundant relative to the SPX commentary above.

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.

Long Term View

Nasdaq Cycle Conditions as of 1/9/03

Cycle	Phase/PTT	Target
10-12 Month	Top/0	1490 Done
6 Month	SWD/0-6W	??
10-13 Week	SWU/2-26	??
4-7 Week*	SWU/0-7	1475-1480
8,13 Day	Up/0-3	1435

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 Comments 1/10/03 7 AM

Gold is trading at 354 early this morning. The 4, 6-7 and 13 week cycles remain in sideways down phases. The six month cycle is beginning to top out, and this should also develop into a sideways down phase. Doc expects HUI and the pog to consolidate for two months, in a series of rallies and shallow pullbacks. The structure of long term waves will prevent a deep correction. Initial short cycle downside cmap is 140 on HUI. There is no downside cmap on gold yet. Its 13 day cycle is still up. Unmet 13 week cycle upside cmaps are 158 on HUI and 360 on gold. 6 month cycle cmaps are 175 on HUI and 375 on gold. Gold should have reached and HUI 200 by the third quarter.

Long Term View

Uncle Buck's Illness Comments1/10/03 7 AM

Uncle B reached a downside cmap of 101.75 on the 6-7 week cycle, but there's a possible cmap of 99 on the 10-13 week cycle. Although a 6 month cycle sideways up phase is due, the 1 year cycle is heading lower. Doc expects to see the mid 90's by the third quarter.

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Long Term View

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