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?

Mid Day Update 11/14/02 1 PM

The 1 day cycle high is overdue. The cmap is 905. 5 and 8 day cycle cmaps are closer to 910. They could be hit tomorrow, after some churning this afternoon. A 5 hour high is due around 3 PM. Perhaps it will look something like this. All a little higher than we'd like, but no reason to panic....yet.

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

Pre Market Outlook 11/14/02 9:15 AM

Here we go again. The revised cycle map guess based on the fucutures is below. They'll make a run at 900. The 5 hour high is due at 10:30, give or take an hour. Look for a pullback, then a retest or reaction high at the 1 day cycle high due at noon +/-. 8 Day cycle cmap based on fucutures is 895-905, due any time over 3 days. 3 day cycle cmap is 900, due today or tomorrow.

5-8 Day Cycle______ 2-3 Day Cycle_______ 9-13 Hr Cycle_______ 5 Hr- 1 Day Cycle

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The Really Big News (11/13/02)

The market gyrated wildly on Wednesday, with little change in the end. Greenspewman was on Crapitol Hill, Osama's back, and Sodamn Insane said OK. But the only news that really mattered came from the Mortgage Bonkers Ass., its weekly Mo Gauge Applications Index. This one indicator tells us more about future liquidity trends than everything else in the world put together, even the Feed. Mortgage applications turn into mortgages in four to eight weeks. When those mortgages are bought and held by the GSE's in their own portfolios, they magically turn into money that shows up in the broad money supply numbers through the intermediation of money market funds. Doc won't get into the dirty details of the process. We have Doug Noland for that. It's the results that matter.

In the beginning of October, MB II, the greatest mortgage bubble of all time, suddenly broke. If you don't think this had something to do with Al G's decision to cut the big one, think again. The mortgage bubble is the engine of the U.S. financial machine and the US economy. So long as it creates liquidity, the financial markets will keep their heads above water. The minute the machine stops, or even slows down, party over. Of course the markets themselves will tell us first when it's happening, but it sure helps to know what's going on with the two headed monster that creates the flatulence that keeps the bubble inflated. The mortgage machine is one of the heads. The other is Al's Feed. But the Feed may carry less weight.

Last week, in spite of mortgage rates dropping to their lowest levels since Adam and Eve, total mortgage applications dropped.

Even refi's, which should have been goosed by the drop in rates, were down a bit. Perhaps more importantly, purchase applications hit a 7 month low, breaking a year old uptrend line. Any uptick in rates will send the housing bubble down the toilet, and the entire financial house of cards may go with it. Is it any wonder that Fed officials are talking out of both sides of their mouths? One day all the governors are running around reporting that everything's peachy. The next day Al's on the Hill telling the gummit that things look like crap and we cut the big one to keep it from getting crappier. When the governors were out touting on Tuesday, the bond market started to sell off. So Al had to come out today and say, no, it really stinks, so that the bonds wouldn't be spooked. They simply cannot afford to see rates uptick. They cannot afford any sign of economic strength. Yes that seems counterintuitive. But it's clear that rising long term rates at this point would be a big problem with mortgage demand already weakening even as rates stay low.

How all this will affect the stock market, Doc doesn't want to speculate. We let the market tell the tale. But if the system can't keep creating mo' money at a breakneck pace, the next sound you hear will be the giant whoosh of monetary implosion.

And that's not a good thing.

The Feed added a net of $750 million. They did $ 7 billion in overnight repos with $6.25 billion in 5 day repos expiring. $12 billion in one and two day repos expire Thursday, along with two billion in 28 day repos. That's a helluva wad to roll over. But they gotta do it. The banking system has a $40 billion bill due on Friday for the Treasury notes. That is not an Oreck XL you hear. The important thing is that even if there is a truly humongous Feed tomorrow, it is unlikely to help the stock market.

In spite of the minor uptick, the Feed Index is not telling us that this is the start of a major reliquefaction. It's at the top of its neutral trend and maintains 8% growth over the last year. They're gonna have to do a lot more for a lot longer if they want to jam this market. There are just too many other claims on the money.

Three 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. Feed growth has recently been at or below the lower boundary of that trend. The blue channel going back to last December suggests that Al may now be targeting an 8% growth rate. Then there's the golden box which says he's stopped growing Feed altogether over the last five months.

The Feedometer has broken out of its short term downtrend, but not the intermediate one. With the giant rollover, and settlement on the notes due, what the Feed does Thursday could be the tell on their longer term intent.

The Feedometer theoretically measures excess Feed available for bond or stock market jamming.

Bond yields dropped slightly. Short cycles are trying to head up, while the 10-13 week cycle comes down. Cyclicality is mixed . Don't expect evidence of a new trend for several months longer term cycles complete the bottoming process.

Weekly Money Review

8 Minute Bar Charts 11/13/02
Dow Jokes Inflatables +12.49

The charts at left show the prior day's action in 8 minute bars with stochastics at %K 26, %D 18, a proxy for the 1 day cycle.

Intraday - It was a Crazy Eddie kind of day. The 1 day cycle low which looked like it was in, late Tuesday, extended for an hour Wednesday morning as the stage managers picked off sell stops. Then they ran them up in a huge arc into the 5 hour cycle high at midday. Doc was looking for a subsequent 1 day high around 2:30. It never showed as the 5 hour cycle players was in control. Boom! Right back down the poop chute into the cycle low at 3 PM. Then right back up again into the close.

That is a whole lot of work for going nowhere, but if you were a 5 hour cycle player today, you made out like a champ. The signals could not have been more clear. Of course, hindsight is always 20/20, and you never know during the day whether the 5 hour or the full day cycle, or something weird is going to be dominant. That's why it's important to be watching several time frames all the time. Still you gotta pick one and play it. Not so easy.

Dow Jokes Inflatables

The 10-13 week cycle is still in a top phase. The 13 day cycle is in a bottom to sideways up phase, while the 6-7 week cycle will remain in a sideways down phase for a few days. This is not a recipe for a dramatic move in either direction, as various cycles oppose each other. It would be nice to see a weak right shoulder forming the well-known Hunchback top pattern over the next week, but that may be expecting too much.

Portfolio Sphincters Index-SPX -.42

Nasgap +11.77

Intraday Outlook - Look for more of the same. Lots of motion with no sustained direction. The early going could be particularly choppy as both 1 day cycle low and a 5 hour cycle high are due within the first hour or so. The initial upside cmap for the 1 day high due at mid day looks like 886-888. The upside cmap on this 5 and 8 day day cycle swup is at about 891. At this point it looks unexceptional, but this week is more unpredictable than usual. Stay tuned for the pre market update around 9 AM.

5-8 Day Cycle______ 2-3 Day Cycle_______ 9-13 Hr Cycle_______ 5 Hr- 1 Day Cycle

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

Sentiment and Momentum Indicators

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 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.

Short Term Cycles

The 8-13 day cycles are in a weak up phase that should only last a couple of days. Normally, following an absolute high, we see a bounce or two to complete a distribution top. The 6-7 week cycle is in a sideways down phase that's due to end next week. It should limit the upside while in the down phase, but may allow for a pop of a few days when the cycle turns up next week or the week after. All in all, it should keep the market in this narrow range for a couple of weeks. By that time the charts should have a nice Hunchback formation with a weak right shoulder.

10-13 Week Cycle

The "top of the top" of the 10-13 week cycle is complete, but there is work to do on the right side of the top. The 29 day rate of change has confirmed the turn. Perhaps two 8-13 day cycles should complete the distribution phase (giving the Hunchback two humps - the infamous Camel top). The cycle low is due in late December or early January. The balance of November looks sideways, then down in December. That would be the camel's tail. He'd be facing left and dropping right.

VIX

The chart above uses a method for depicting the Stool Bands which results in a smoother curve with a longer lag than what Doc had been using. Based on this method, it appears that the top in progress is significant. It is important to keep in mind that sentiment extremes follow the market's trend. They are not predictive in and of themselves. They give context to the price indicators and vice versa.

Cycle Chart
The red channel is the idealized 2 year cycle. Dark blue is the 10-12, or 6 month cycle. Teal is the 10-13 week cycle. Purple is the 4 or 6-7 week cycle.

Long Term (11/8/02)

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 11/13/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	920 Done
6 Month	Top-Down/3 Mos.	High 920 Done
10-13 Week	Top/0-7	920 Done
6-7 Week	SWD/3-9	865 prelim
20-25 Days	NA/NA	NA
8,13 Day	Bottom-SWU/2-5	??

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

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

It's still not nice to fool with Mother Nasty. The 8-13 day cycle is in an up phase. The preliminary upside cmap for the shortest cycles is 1365, and that was hit already. There doesn't appear to be much upside here. The 6-7 week cycle is in a sideways down phase that should keep a lid on things for a week or so. After that the 10-13 week cycle down phase should take over. But the next week or so should see a lot of churn as the top is built.

10-13 Week Cycle

The 10-13 week cycle indicator is finally on a sell signal. Whipsaws happen, but this looks real promising. You are looking down from the top of a 350 point high descending major cycle channel. . 10-13 week cycle top phases can last for weeks, with breakdowns often delayed until the last 2-3 weeks in the cycle. They are marked by confusion, uncertainty, and lots of changes of direction. That may be the case here, but this is the time to start puttin' 'em on for the big sleigh ride into Xmas.

Long Term (11/8/02)

Nasdaq Cycle Conditions as of 11/13/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	1410 Done
6 Month	Top-Down/3 mos.	High1410 Done
10-13 Week	Top/0-7	1420 Done
6-7 Week	SWD/3-9	1300
20-25 Days	NA/NA	NA
8,13 Day	Bottom-Up/2-6	1360

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

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

The pullback picked up steam after hitting the shorter cycles' cmap of 122 for a second time. The 13 day cycle down phase has an outside cmap of 115 so far. At this rate, the short cycle oscillator will be down to the bottom zone in two or three days. 110 is long term support. Don't know if it will get there, but it would be a buying zone if the ozzies are configured right. Stay tuned.

Uncle Buck's Illness

Uncle B is in a short cycle recovery. It could last a few days or few weeks but the intermediate topping process will continue.

Suctor Watch and Stoolwethers- Now posted on separate page. Updated each morning between 8 AM and 9:30 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