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 11/11/02 1 PM

Look for a quiet afternoon with a narrow trading range. The 1 day cycle should head into a sideways up phase for most of the afternoon, with a high toward the end of the day. If it comes early enough, we may see a little dip into the close. There's still an 8 day cmap due in a couple of days that looks like 866+/-. This is the way it looks at this point. As always, vee zhall zee, hmm?

5 Day Cycle______ 2-3 Day Cycle_______ 9-10 Hr Cycle_______ 5 Hr- 1 Day Cycle

Pre Market Outlook 11/11/02

With very little change in the fucutures, and the bond market closed, it should be a quiet morning. It is scam week, however, so bizarre things may happen. For now, Doc will stick with the outlook posted below.

A Stool Pictorial (11/8/02)

In the words of the immortal Native American chieftain, Manhattan, "We're the Facawi." The answer, as Doc sees it, is below.

We'll find out soon enough if these are worth the paper they're printed on. On the SPX in particular, if they can string out the top over more than a couple of days, the longer term downtrend begins to flatten out. That would mean the chances of a substantial break below the recent lows any time in the next 6-9 months becomes unlikely. On the other hand, if the market drops quickly from current levels, the probability of another major bear market downleg in the immediate future is substantially increased. So far Doc believes that the market is off to an auspicious start in that direction, but the reversal to the downside must be completed immediately for that scenario to remain valid.

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.

The Feed added $6.25 billion in 5 day repos for the semi holiday weekend. That was a near wash, as $6.5 billion in repo paper expired. This is not the massive Feeding that would have been indicated by the half point rate cut. In that context the cut looks like an empty gesture so far. What they do next week will tell us if the cut is part of a more aggressive Feeding policy. If we are in for a massive 1998 style reliquefaction the pumping should start immediately. Total Feed has been flat for more than 5 months. So far they are not acting like there's any crisis.

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 is likewise still within recent downtrend channels. The 4 week moving average has turned up, but not enough to juice the stock market yet. Most of the added Feed is going to be needed to help absorb the $40 billion in new Treasury notes. The bill must be paid on November 15. The cash will go into the Treasury's account at the Fed, representing a short term drain on the financial system, at least until the funds are spent or deposited back into commercial banks. Digesting large offerings involves more than just the time leading up to the auction. The giant sucking sound you hear after the auction is the Treasury temporarily sucking all that cash out of the system.

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

Bond yields were down a hair, after being down large at the open. This is a short cycle low, and they're due to bounce. The 10-13 week cycle is going into a down phase. A retest of the lows may be in the cards. That should complete the long term bottom. Of course, maybe this is Japan II, and they go to zero. Keep in mind that stock prices are still moving in near lockstep. A 10-13 week cycle down phase in bond yields, regardless of whether its direction is flat or down, will coincide with a down phase in stock prices.

Weekly Money Review

8 Minute Bar Charts 11/8/02
Dow Jokes Inflatables -49.11

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 - Following a pop at the open, the cycles became irregular. The 1 day cycle low apparently came around 1:30 with actual price lows on either side of that. The up phase went sideways. A 1 day cycle high is due in the first hour Monday. Given that the up phase was sideways, the down side of the wave could drop sharply.

Dow Jokes Inflatables

Doc has mentioned that in bear markets the averages often fail to reach upside cmaps, due to the skewing effect of longer term waves. One way to adjust for that effect is to look back and see what is the typical differential between the peak of the half span moving average (the red one) and the actual price high. In the Dow's case, in recent years it has been approximately 400 points. If we use that differential as the adjusted price trough, the high cmap is 8750, as opposed to the unadjusted reading of 8850. Voila, we're done. The 10-13 week cycle flashed a sell signal Friday. Now let's see how long it takes to complete the top. It could be one day or eleven.

Portfolio Sphincters Index-SPX -3.16

Nasgap -17.43

Intraday Outlook - The 1 day cycle up phase should end in the first hour. The 3, 5, and 8 day cycles should have had nested concurrent lows on Friday. Normally that would generate a good pop, but it didn't happen. The 8 and 13 day cycle hourly indicators suggest a cmap of 875-880, and maybe lower within a few days. Doc projects Monday morning to look something like the cycle map below. Stay tuned for the Pre-Market update around 9:15 AM.

5 Day Cycle______ 2-3 Day Cycle_______ 9-10 Hr Cycle_______ 5 Hr- 1 Day Cycle

All of Doc's cycle charts below are powered by METASTOCK. (Sorry about the bull.) You've seen the software advertised on TV. Buy it now at Doc's bookstore! Best price anywhere!

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 13 day cycle is headed down. The up phase in the 8 day cycle hasn't materialized. Assuming it doesn't, completion of the 13 day cycle down phase could take up to 4 days. The tentative preliminary cmap is 876. The 6-7 week cycle also turned down. Now the question becomes one of whether the down phase goes sideways or down. With the 10-13 week cycle up phase apparently finished, the 6-7 week cycle could slope down for 8-13 days.

10-13 Week Cycle

Indicators for this cycle are topping out. The top phase could last from one to ten days. The quicker it dies, the better for bears. If it hangs on up here for a few days, we'll still see a pretty good selloff in a couple of weeks, but it may not break the recent lows by much. Once the cycle oscillators and the 29 day rate of change roll over, price should begin to drop consistently for a couple of weeks, leading to a low in late December or early January.

VIX

The VIX Stool Bands are trending up on the inverted scale chart and the index has moved back within the upper sell signal band. VIX didn't quite make it to the blue projection line, but moved in that direction Friday, in spite of the market's weakness. This suggests building complacency, which is typical of tops.

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)

Virtually everyone was expecting a 4 year low around now. But bubbles are peculiar. The tsunami wave spawns atypical wave responses. The November 1929 low was at a 3 year anniversary. The next important low was in July 1932. At other times we have seen cycles run 4.5 years, or 3 years. Focusing on a 4 year low is a bad idea, especially when the whole world expects it. Cycles vary in duration, and the long term indicators at the top of the chart do not suggest that the this was the bear market low.

The most obvious long term wave this time has been approximately two years in duration, and the last low was in mid 2001. So we should look for the next one around mid-year next year, give or take 3 months either way. That would also correspond with the 10-12 month cycle which bottomed in July. It's now in the midst of a sideways up phase which is probably ending. Significantly lower lows look like they will be delayed until well into next year. Some time around the second quarter or a few months either side, we should see a very significant low which will lead to a big rally, one that may be classified as a cyclical bull market within a secular bear market.

Long term linear regression analysis indicates the market may actually be weakening, as prices are unable to get past the central regression projections drawn between earlier lows highs.

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 11/8/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	920
6 Month	Top-Down/3 Mos.	High 920
10-13 Week	Top/0-10	920
6-7 Week	Down/8-13	Too early
20-25 Days	NA/NA	NA
8,13 Day	Down/0-4	865-885 prelim

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

The 8 - 13 day cycles turned down. The down phase may last up to 4 days. It's too early to project price targets. The 6-7 week cycle also turned down. How far and how fast is an open question at the moment. We need to see a few days of data to get an idea of where the down phase may head.

10-13 Week Cycle

The 10-13 week cycle indicator is topping out but hasn't flashed a sell signal yet. The cmap adjusted down to 1420. A signal concurrent with this WHOPsaw through the upper long term cycle channel and back could lead to a doozy of a down phase. The best moves usually follow WHOPsaws. The WHOPsaw is a tool of the stage managers to suck everybody in, and exhaust potential demand. WHOPsaw days are the days market makers get loaded up with shorts.

Long Term (11/8/02)

The "4 Year Cycle" looks like it bottomed last year, lasting only 3 years as a result of the influence of the tsunami bubble wave. The Nasty may actually have been in a 3-4 year cycle up phase since then, with the current move being the rigor mortis rally before the Nas heads for its ultimate price objective of negative 400. Note that as the 10-12 month cycle oscillator has moved up, the market has moved sideways in a range of 1400 to 1100. The top could form in that cycle at any time over the next month or two. By 2007, when a 12 year low is due, the Nas will be the National Toilet Paper Exchange. There is massive resistance above current levels. The going will get a lot tougher from here.

Nasdaq Cycle Conditions as of 11/8/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	1410-1430
6 Month	Top-Down/3 mos.	High1410-1430
10-13 Week	Top/0-10	1420
6-7 Week	Down/9-13	1260 prelim
20-25 Days	NA/NA	NA
8,13 Day	Down/0-4	Too early

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

Short cycles are due for a pause or slowing, but the 10-13 week cycle up phase is young. Importantly, the 10-12 month cycle oscillator is bottoming. The six month cycle will be in a sideways down phase for a couple more months. The real upside fireworks may come next year when a breakout above 150 becomes increasingly likely. In the short run, the upside cmap for most cycles was 122. That's been met, another reason for looking for a short term pullback.

Uncle Buck's Illness

Buck broke down last week and is headed for a retest of the low of 103.50. That should be good for a short term bounce, but the 6 month cycle is heading down for 2 more months, by which time the 1 year cycle will be in a confirmed downtrend. As goes Buck, so goes the stick market.

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