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?

Intraday Updates 1/13/03

The 5 hour cycle may be ruling. No sign of pullback into expected 1 PM 1 day cycle low. Tentative upside cmap of 27.15 on Q's and 932 on SPX around 2:30.

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. Times and prices are the projected cycle highs and lows with cmaps.

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

9:15 AM The jam is on this morning. The Q's have an upside cmap of 27.45 on this move. That's been hit. The fucutures have a cmap of 936. The 5 hour cycle high is due on the open. Still expecting the 1 day cycle high at 11 AM.

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Friday's Markets

Intraday - The market fell apart on the worse than expected employment data. That left a huge wake, and the backwash reversed to a strong recovery and a date with the 11 AM cycle high at exactly the cmap projected the night before. After the initial brouhaha, they spent the rest of the day in the same narrow range they were in all day Turdsday. A 5 hour cycle low at 12:45 led to an upturn into the 5 hour cycle high at 4 PM. The 1 day cycle high is due Monday at 11 AM and the 5 hour low is due at 11:30. these cycles are fully juxtaposed and should keep trading in a tight range again. The 3 day cycle is headed down. The 5 and 8 day cycles have probably peaked as well, but there's no sell signal on the 8 day oscillator yet..

Pre Market 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

Cycles Rule 1/10/03

The market reminded us today once again that news is noise, and cycles rule. At Thursday's close the cycles pointed to a 1 day high on Friday at 11 AM, around 930 on the SPX. Then the surprise noise came that the labor market suffered a big job loss. The futures tanked and stocks gapped down.

But it was too early for the market to accept that and turn down for a sustained move. All cycles from 8-13 days up to 10-13 weeks are pointing up. All of those cohorts were still in a mood to buy the dips. Worried shorts took the chance to cover. Institutional nutcases put their seasonal cash flow to work. It is, after all, their job to buy. But Uncle Buck was weak again as foreign investors flea US markets. And Uncle Al has been stingy since the beginning of the month. He is rapidly taking back what he gave in December, and Total Feed is now back with the 8% growth channel. Al does not want to smoke the long bong on which his giant methane gas bubble depends.

In the period that Feed has been growing at that rate on an annualized basis, since May 2002, the stock market has lost 14% of its value, or nearly 24% annualized. In other words, the Fed has been pumping at 8%, and the stock market is losing at the rate of 24%. In the year prior to that the Feed rate was around 10%, and the market lost 15%. In November-December Feed went up at an annual rate of nearly 35%, and the stock market was flat. Al can pump, and the poodits can spin, and shortsellers can panic until the cows come home.

The market will follow its trend.

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The Feed drained $5.75 billion by adding $2 billion in weekend repos while $7.75 billion in overnight repos expired. The weekend repos are the only expirations Monday.

This draining was in spite of the bad jobs data, and suggests that the Fed may be worried about inflation fears causing the bond market to tank. It's also obvious that as long as they keep pumping Uncle Buck will keep falling on his face. That would only exacerbate capital flight and put upward pressure on bond yields. They cannot afford to let that happen, but they're probably powerless to do anything about it.

The draining has broken the trend of the recent Feeding frenzy. With the market holding up in spite of the bad jobs data, Al is likely to suck up some excess swamp gas again on Monday.

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 recent uptrend was broken. The uptrend was sufficient only to keep the market in a range. Strong market gains usually make Al think he can afford to drain a bit, saving it for a rainy day. Up markets also put more moolah in the system though margin hypothecation. The fact the averages held up in spite of the weak jobs data from November will give Al an excuse to drain again on Monday. Watch the Feed data in the AM for the signal. More draining should now be big enough to start putting serious pressure on stock prices.

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 were virtually unchanged. Shorting by the Gang of 22 returned to normal levels after more than a week of massive borrowing of bonds from the Fed. The short cycle up phase continues, with a cmap of 4.33. The 13 week cycle up phase is sideways so far, but could still strengthen. The 6 month and 1 year cycles remain juxtaposed, however the 6 month cycle could begin to turn up at any time. If it turns up from the zero line or above this would signal a strong sustained move up in yields with a breakout in bond yields later in the first quarter or early in the second. If that happens, we'll see 5.25% before the year is out. The refi boom will turn to bust, and the financial system will begin to collapse. The credit bubble economy must grow or die.

Long Term View

The long term downside cmap of 3.50-3.75 was hit, and Doc believes successfully retested. The previous instances where the lower channel line of the long term regression channel were broken were major cycle bottoms. This time should be no exception. Even if the secular downtrend remains intact, a move to the top of the linear regression channel is likely.

Fed Turdsday Monetary Review

Dow Inflatables- Big tops are built from a series of little tops. Friday looked like a 13 day cycle top although it could go a bit higher on Monday. If this high holds, the cmaps for longer cycles will begin to come down.

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 8-13 day cycles are due to top out now, with cmaps at 935-940. Bears held the line Friday as they needed to. The 4 and 6-7 week cycles cmaps also dropped to 935. These cycles should peak within 7 days, if they didn't on Friday. The short cycle oscillator is near a top zone, and could flash a sell signal at any time. If they can't break out and hold on Friday, The rally is over.

10-13 Week Cycle

The cycle oscillators are moving up but the rise is weak and the 29 day rate of change remains stalled. It's possible that the up phase began in mid-December and that this was the blowoff. It's still too early for upside cmaps. Flat action in the 29 day rate of change around the neutral line during an up phase, is frequently the precursor to a huge decline.

Several stoolies have asked how long an up phase has to be. There is no rule. It can end in one day, or it can last for the entire cycle. The earlier it ends, the longer and weaker is the down phase. The current up phase could peak in price any time beginning Monday, although one or more vicious rally attempts are likely from lower levels into mid February. The cycle could actually make a price high now, but the wave crest could continue to pound against the upper edge of the downtrend until then. After February, it should be mostly downhill through the second quarter and into the third. .

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. Doc now thinks this marks the cycle high.

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

Below is our trusty long term linear regression series chart. The rally off the July-October lows is the first to fail to reach the upper regression projections within 4 months of breaking the lower channel in the bear market. The 1 year regression is sloping down more sharply than at any time throughout this bear. Through the magic of METASTOCK, Doc took the 12 month regression channel with the time span fixed at one year, and moved it across the entire chart. In no prior 12 month period was the slope down as sharply as now. If the SPX fails to break the the market may be about to enter a period of extended and accelerated decline.

That thesis is consistent with the long term cycle configurations shown on the chart below. Keep in mind that the longer the nominal cycle length the greater the variance in the actual length of the cycle. The 18 month cycle can range from 12 to 24 months. The nominal 4 year cycle can be 3 years. It can be five years. Four years, give or take a few months has been most typical, especially in the latter half of the twentieth century, but a 3 year cycle is not uncommon. In the first half of the century, cycles frequently lasted 3 or 5 years. Hurst called them "nominal" cycles because cycles vary in length. Looking at charts going back 100 years or more you can see that a 1 year variance is not uncommon for the 4 year cycle.

The 4 year cycle low was between the April and September 2001 lows. The 4 year cycle actual price high was probably in January 2002. The rally from the September lows to the final high in March 2002, was, in essence, a 4 year cycle bull market within a long term secular bear market. However, the wave high is where the upper edgeband of the wave envelope contacts the upper band of the next longer wave. That is probably now, as shown on the chart below. The degree of speculative mania, and the overwhelming and increasing trend of increasing bullishness on the part of the institutional nutcase portfolio sphincters while the market has gone sideways for three months supports the thesis that this is a major 4 year cycle top.

The July-October double bottom looks like a nominal 18 month cycle low. The 18 month cycle wave high is ideally due around mid-year but the price high was probably in December. The wave high will be well below current levels because the secular trend will continue to decline at a constant or possibly slightly accelerated rate. The 18 month and 4 year cycles should be in gear to the downside into at least the first half of 2004. At the current secular trend rate of decline, the mid year 2004 low extrapolates to between 585 and 676. In the event of a panic low an extreme of 525 is possible. For 2003, the low will probably be just below 700 late in the third quarter or early in the fourth. that would be followed by a tepid year end rally of 10% or so.

Currently the 10-12 month cycle is forming a top, but the 6 month cycle may or may not be near a low over the next few weeks. The 6 month cycle should have resynchronized from the October 18 month cycle low and could head down into March-April, instead of making a low in February. The variance in this cycle is a month to 6 weeks. Cycle lengths of 5-7 months are common. In this case the 12 month cycle starting down will limit any upside on the 6 month cycle. The probability of extended periods of decline, is high throughout the first half of this year.

The SPX continues to hug the top of 18 month cycle channel. This process should be complete by mid February at the latest. It should move to test the bottom of the channel, on the next 10-13 week cycle down phase due in February-March. Then after one or more weak rallies following "successful retests" of the lows, there will be another 20% killer wave down in the second half of 2003.

(Subject to change without notice. Dealer title, tax, and tags not included. Consult your local directory for prices in your area. Past performance is not necessary to be a Wall Street analcyst.)

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 1/10/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7 M	??
6 Month	SWD/0-4W	??
10-13 Week	Up/1-25	??
6-7 Week*	Up-Top/0-7	935
8,13 Day	Top/0	935-940

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

The cycle configurations are similar to those of the SPX. The 12 month cycles is forming a top now. After the 10-13 week cycle up phase now under way, the market will turn down again, and the lows will be broken in the second quarter. The 3-4 year cycle low would be due no earlier than mid 2004. Ultimately the 3-4 year cycle low should be around 500, or below on a selling panic. After the following bull phase, the next bear phase will end with the Nasdaq folding, and the bigger stocks going over to the NYSE, perhaps in 2008 or 2009. This years low should be in the third quarter, just below 800.

Nasdaq Cycle Conditions as of 1/10/03

Cycle	Phase/PTT	Target
10-12 Month	Top/0	1490 Done
6 Month	SWD/0-6W	??
10-13 Week	SWU/1-25	??
4-7 Week*	SWU/0-6	1445-1465
8,13 Day	Up/0-2	1445

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

Golden Stool Comments 1/13/03 7:30 AM Updated in AM edition

Gold is trading at 352 at 7 AM NY time, after spiking to 356 overnight. 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 370 on gold. 6 month cycle cmaps are 167 on HUI and 368 on gold.

The long term charts reveal a powerful new secular uptrend. The double top will be broken to the upside within weeks, as the 1 year cycle is early in an up phase. The 1 and 4 year cycle cmaps are 195-215 on HUI and 395 +/- on gold. They should be reached by the end of 2003.

Uncle Buck's Illness Comments1/13/03 7:30 AM. Updated in AM edition

Uncle Buck recovered from 101.25 to 101.50 overnight. He has 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, and the cmap on the13 day cycle is 100 due within 6 trading days. 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.

The 1 year cycle cmap is 104.50 due late in the second or early in the third quarter.

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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.

About centered moving average projections.

ABBREVIATIONS:

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