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 - Chart Below

12:30 PM The swup is under way in the 1 day cycle. The 3-8 day cycles are either in a bottoming process or in the beginning of a swup that should last only a day or two. Initial preliminary upside cmaps for the 1 day cycle are posted on the charts.

9:15 AM The fucutures turned up off an overnight 1 day cycle low at 901 just before 9 AM and were moving up strongly in the final moments of the pre-market. Doc thinks the expected carry-over move into the 1 day cycle high will come near the open. For the first hour or two today we'll see the resetting of positions resulting from Friday's expirations, which normally results in pretty wild non-cyclical gyrations. As a result, Doc's forecast for the first hour or two today has a low level of confidence. For now, let's stick with the forecast posted after Friday's close (below). Follow Doc's intraday commentary and cycle charts on the hour and half hour during the trading day at the Stooltrading Beta Test.

Intraday Friday - The market took a dump on the open, and kept right on dripping for the rest of the day. A very weak swup formed off lows at 11:30 and 2 PM and the market flatlined for the rest of the day. A 1 day cycle high was due at 4 PM. It may carry over Tuesday morning, but after that the next 1 day and 5 hour cycle lows are due at 11:30 and 12:30. Based on the 3 day cycle cmap, Doc expects a low of 895. That's also the cmap for the 8 day cycle low due Tuesday or Wednesday.

Pre Market Update at 9:15 AM.

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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. 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

Friday's Markets

Cook Cooked Books Firesale - 1/17/03

And now the only news that really mattered Friday.

Seattle, Jan. 17 (Bloomberg) -- Wade Cook Financial Corp. was ordered liquidated by U.S. Bankruptcy Judge Thomas Glover after the money-losing stock-market seminar company's chief executive failed to provide testimony requested by creditors.

The creditors of Seattle-based Wade Cook Financial asked the court Dec. 19 to force the company and its subsidiary, Stock Market Institute of Learning Inc., into bankruptcy, alleging employees hadn't been paid back wages and that their health insurance was canceled after the company collected and pocketed premiums....

...The company had $16,000 in the bank on Sept. 30, according to an SEC filing. The filing showed liabilities of $11.5 million and assets of $5.7 million, leaving a working capital deficit of $5.8 million...

...In October 2000, the company, which charges $6,295 for its 16- hour ``Wall Street Workshop,'' settled Federal Trade Commission charges that it misrepresented its stock trading success to attract customers. The company disclosed that it lost 89 percent of its stock portfolio's value in 2000 and 60 percent in 2001.

The rest of the story.

You can get Wade Cook's all time great classic, Bear Market Baloney, today at Doc's Bookstore in the Firesale Department. Doc heard that the bookstore will actually pay you if you come and pick up the entire inventory of unsold Cook books. Or in this case, cooked books.

Then there was the market. It was another atrocious day, but beautiful if you are a stoolie. Doc reminds you to stay focused on short term indicators, because the 10-13 week cycle oscillators will lag when a market tops out early. It's also important to stay focused on the short term stuff because the market can still be choppy this close to a high, especially when the top comes early in the 10-13 week cycle. It's not necessary yet to chase the market down. Dip buyers will be there to run the shorts at times, causing mini-squeezes and pops. 8 and 13 day cycle lows are due Tuesday. That could lead to another good shorting opportunity within a few days.

The market will work its way lower over the next few months. The pace will be irregular at first, but it will gather momentum as time goes on. We are likely to see new lows, if not by March, then in the second and third quarters. Until further notice, sell all rallies. At the tops of course!

Fed Turdsday Monetary Review

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 6 day repos, resulting in a net drain of $3 billion as $6 billion overnight repos expire. There are no expirations scheduled for Tuesday or Wednesday. Turdsday will be the next big day for refunding when these 6 day repos, and a round of 9 day repos and the usual 28 day repos come due. In view of today's lousy market, and the lousy Michigan sentiment numbers, if the fucutures are weak Tuesday morning you can bet Al will be pumping it up. Then again, he has to be worried about Uncle Buck's descent into paper hell. Every time Al debases, Buck drops as capital flees US markets.

The 4 week moving average of total Feed has begun heading down and the Feed Index is below that line. Because of the problem of capital flight reflected in Uncle Buck's illness, Al no longer has the luxury of pumping wildly. You are probably getting tired of hearing this, but if Al doesn't Feed, stocks will die of starvation.

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 Slowmo Feedo is downticking. Is Al willing to let the Feedometer drop more in hopes of stemming capital flight and supporting Uncle B? My guess is that we will see some gradual Feeding here, but that it won't be enough to keep stocks from sliding.

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 (Slowmo Feedometer). A break above the orange trendline might indicate a more aggressive jamming policy.

Bond yields were down Friday. Cycle juxtaposition is likely to keep yields locked in a range of 4.0 to 4.30 for the foreseeable future. The current short cycle down phase has a cmap of 4.0. We're there. The Gang of 22 abruptly stopped borrowing securities to short. I guess they think yields are going to fall farther. The indicators are so mixed, there may be no way out of this current narrow trading range for the forseeable future as different factions fight a tug of war.

Long Term View

The long term downside cmap of 3.50-3.75 was hit last year. 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.

Doc's Pooper Scooper.

Dow Inflatables- Friday was dump day for the Dow. The 13 day cycle cmap is 8500 to 8550 due now. Look out for Quasimodo to grow a right shoulder, lower than the left of course!

The preliminary cmap for the 4 week cycle is 8350. That's not due for at least a wee, maybe two. The 6-7 week cycle is also headed down. That down phase should last at least 3 weeks. With the 10-13 week cycle yet to complete its up phase, it will be choppy, but the price high is in.

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 short cycle oscillator fell sharply again and the 6-7 week cycle oscillator also declined. (chart below) The 8-13 day cycle is due for a low now, with the cmap now around 895-900. That should lead to a weak up phase lasting from 2 to 7 days. Stay focused on the shorter term signals. Look to the 17 day rate of change for confirmation that the Big One is here. No signal on that yet.

10-13 Week Cycle

We want to key on shorter term indicators because 10-13 week cycle signals are late when the down phase starts early. The 10-13 week cycle oscillators are beginning to flatten. A breakdown in the 29 day rate of change from a flat in the neutral zone would signal a severe decline.

The upside cmap for this cycle has been met at 935. If the market stays flat or weak for the next few days, the up phase is over in terms of price, although perhaps not in time. A choppy trading range with a downward bias may continue for 4-6 weeks.

Sentiment

VIX was up a point. Complacency still rules. The indicator has turned down from the top of a 6 month channel that has marked previous intermediate highs and lows. This is normally a reliable intermediate sell signal. A move to 30 or more will confirm the reversal. For now, we'll consider it still part of a top.

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 View

Linear Regression Analysis- 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 down slope as sharp as it is now. If the SPX fails to break this 1 year regression channel, the market is about to enter a period of extended and accelerated decline. The last line of defense is the long term central regression projection. When SPX falls below that, the bottom will drop out.

Long term cycle configurations are 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, during the recent 3 month trading range and the overwhelming trend of increasing bullishness on the part of the institutional nutcase portfolio sphincters, is consistent with a major 4 year cycle top. Either that, or they're all a bunch of damned liars. Or both.

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 even an 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 may 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, with brief interruptions, is high throughout the first half of this year.

The SPX continues to hug the top of 18 month cycle channel. This process may now be complete, although there may be one more attack in March-April, if it hasn't already completely fallen apart by then. The index should move at least half way, if not all the way, to the bottom of the channel on the current 13 week cycle down phase, which is expected to last into 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 1/17/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7 M	??
6 Month	SWD/0-3W	??
10-13 Week	Top-Down/35-50	??
4-7 Week*	Top-Down/16-21	??
8,13 Day	Down-Bottom/0	895-900

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 cycle is forming a top. If the 13 week cycle down phase now starting does not break the lows, the next one will. 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 1/16/03

Cycle	Phase/PTT	Target
10-12 Month	Top/0	1490 Done
6 Month	SWD/0-3W	??
10-13 Week	Top-Down/38-53	??
4-7 Week*	Top-Down/9-23	1325 p
8,13 Day	Down-Bottom/0	1360-1370

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.

Golden Stool Comments 1/16/03

The 13 week cycle remains in a down phase, the low of which is due within a week or two. Shorter cycles are mixed and there are a couple of longer term signs that are worrisome, in particular the slowing of the 1 year cycle oscillator below the zero line. This kind of thing is not uncommon in an uptrend, but the negative divergence is so large, that if it resolves to the downside, it would be a real problem for the bull case, as some stoolies have already positioned themselves. For now, let's just watch this day by day, because it is equally likely that this will resolve to the upside after a shallow price correction. . After some backing and filling through the end of the month, an extended move up should ensue. For now, the short cycle downside cmap on HUI remains 139. There's no downside cmap on the price of gold yet. While there's no reason for alarm, it may be good idea to wait for the ambiguity to be resolved before adding to long positions. Doc doesn't like the idea of shorting the precious metals, but he knows that those of you who are doing so are big boys and girls, and you know what you are doing.

Charts as of 1/16/03 Close

On the longer term view, things don't look so worrisome, gold still has a 1 year cycle cmap of 380 to 400, and HUI 180 to 200, both due in the second quarter.

Uncle Buck's Illness Comments1/17/03 7:40 PM.

Uncle Buck got slammed again. When will the beatings end you ask? He closed Friday at 100.55. The 10-13 week cycle cmap is now 98.50 give or take, but the 6 month cycle cmap has dropped to 93.50. The 13 day cycle low is due now. The cmap is 99.25. Although a 6 month cycle sideways up phase is due, the 1 year cycle is heading lower. Chart as of 1/17/03

The 1 year cycle cmap is 94.50 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