The Anals of Stock Proctology

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The Anals of Stock Proctology

Published weeknights by 8:30PM Happy Acres, Florida Time
Weak End Edition Saturday Afternoon

The American Academy of Stock Proctology and
the American Society of Shortsellers
Dr. Stepan N. Stool, A.S.S. Chair

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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?

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

PM Update 12/12/02 1 PM

They don't come much better than last night's cycle map. The pressure is on now.

The next 5 hour cycle low is due around 1 PM (always allow an hour either way). The 1 day cycle low is due anywhere from 2:30 PM to 10 AM tomorrow. The cmaps are 890 to 892 for both. The 3 day cycle cmap is 888, concurrent with the 1 day cycle low. The 5 day cycle is rolling over, but the 8 day cycle is still nominally hanging on to its sideways up phase. Here's the cycle map guess for this afternoon.

The cycle map below is an 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 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 12/12/02 9:15 AM

Fucutures have been up and down like a yo yo this morning, now trading at 905.50, up about 8 points from where they were an hour ago, but within yesterday's range, and less than a point off the NY cash close. During periods when cycles go flat at tops, the market is more subject to ultra short term news noise that usual. Ultimately the cycles will play out, however. So let's ignore them today and stick with last night's forecast below. No change.

Wednesday's Markets (12/11/02)

Intraday - The market surprised with a counter cyclical selloff at the open. It didn't last long however, and it marked a 5 hour cycle low. Prices then got back in gear with the cycle map, moving higher into a 5 hour cycle high just before noon. That cycle dominated and moved down into its second low of the day near 3 PM. It was moving up toward the close, but faltered in the last few minutes. The 3:45 high may have been a five hour cycle high off a short upleg, but let's look for a retest of the high in the first hour Turdsday, just in case. If the 1 day cycle comes back, we'll see another high between 11:30 and Noon. The 5 hour cycle cmap for the high looks like 909.

Infarction Point 12/11/02

OK stoolies, what day is it? That's right, it's _______. (Fill in the appropriate day. Be sure to use removable ink if you are writing on your computer screen.) And what day is that? Right you are again. It's MoGauge day! That august group, the Mogauge Bonkers Ass. of America released their weekly MoGauge applications index for last week and guess what? Down again! That in spite of a down tick in mortgage rates. Lower interest rates are no longer stimulating mortgage applications. The bubble is beginning to implode. In a few weeks time we will begin to see the impact of the shrinkage in mortgage originations in broad money supply measures, and in the stock market.

The refi bubble is deflating at a breakneck pace. The Feed is pumping like mad to make up for the liquidity that's disappearing from the GSE credit and money bubble. Stay tuned tomorrow night for the regular Turdsday monetary review.

The Feed added $4.5 billion in overnight repos. There were no expirations. $8.25 billion in 2 day repos will expire Turdsday along with $5 billion in 28 day repos. With Feed at the top of the channel, they'll probably start 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. Feed growth has recently been 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.

The Slow Feedometer (4 week moving average) is beginning to flatten out. The period of sustained aggressive feeding has lasted a month. We've seen this before, and each time the market went in the tank soon after, as the Fed started draining soon after, or the players opted to put the cash someplace else, or both.

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

We can see where all the massive Feeding went in the last few days. Bonds were strong and yields dropped again. The 10-13 week and short cycles are coming down hard. The 6 month cycle indicator is confirming a top. The 4-7 week cycle cmap looks like 3.85. Some of the Feed is supporting stocks. They haven't moved down in lockstep with yields for the last two days.

The Dow's 8-13 day cycles are still up, but the top is due at any time this week and the slope of the up phase is barely positive coming off support around 8500. The 4-7 and 10-13 week cycles are still in down phases. The cmap on the 4-7 week cycle is 8325.

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 and 13 day cycles are in an up phase, although a weak one, so far. The up phase could end now or last into next week. While it looks like it won't go much higher than it did today, the longer they can keep it going sideways, the less likely that we'll see a big down on the 4-7 week cycle. Wednesday's action didn't tell us much, other than that the portfolio sphincters are determined to do just enough buying to try and hold this thing together as long as possible.

10-13 Week Cycle

The 10-13 week cycle is in a down phase, but like the 4-7 week cycle, still sideways. The clock is ticking. If the bottom doesn't drop out within the next few days, it may not happen on this wave. If we start to see some slippage, the preliminary downside cmap is 860, with lows due from December 19 through January 9. If we don't start seeing that slippage within a day or two, we need to start thinking of a possible retest of 950 by the end of the year. In that sense these next couple of days are what they call an infarction point. No matter what happens, it's gonna give somebody a heart attack.

VIX

VIX downticked again, moving a little closer to the 30 level on the inverted scale Stool Band chart. A move back to 30 or below would signal enough complacency to indicate another short term top.

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 12/6/02

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 12/11/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	940-970 Done
6 Month	Top/0	940-970 Done
10-13 Week	Down/5-20	860p
4-7 Week*	Down/6-21	875-880
8,13 Day	Up/0-4	910-920

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 appear to have merged into one.

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 Nas shortest cycles have turned up but the cmaps are only 1400 at this point. The up phase could already be over, or it could last for a week. If that long, the 4-7 week cycle would also turn up. The 4-7 week cycle still has a preliminary downside cmap of 1350, but the current pause would need to end quickly.

10-13 Week Cycle

The 10-13 week cycle indicator continues to accelerate down. The 29 day ROC is still in a well defined downtrend. These indications suggest that the short cycle up phase will be transitory but that would change if the pause lasts longer than another day or two.

Long Term 12/6/02

Nasdaq Cycle Conditions as of 12/11/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	1490 Done
6 Month	Top/0	1490 Done
10-13 Week	Top-Down/6-21	??
4-7 Week*	Down/4-19	1350 prelim
8,13 Day	Up/0-5	1400

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 Saturday Weak End Edition, published, uh, let's see, Saturday!

Golden Stool

A couple of days ago I wrote that if the HUI gets above 128 on this move, the 10-13 week cmap would rise to around 141. Wednesday it looked like the 13 day cycle was ready to pause, then yesterday, BOOM. The big move has caused the 10-13 week cycle cmap to move up to 142. Time is running out on the up phase. It is already 13 weeks since the last high. However, in the case of the gold stocks we have seen the cycle run as long as 16 weeks. The cyclicality in this group seems to vary somewhat from other markets.

Based on a crybaby email I got yesterday, it seems necessary that I constantly remind some individuals that this is a bull market, and that although it looks like the consolidation phase will last for months, I could be wrong about that, and the upside breakout could come at any time. Monday morning's longer term charts showed that very clearly.

A person who is trading these stocks, rather than holding them for the longer term runs the risk of being left behind. As experienced gold stock traders know, trading these babies is not a game for the weak minded or faint of heart. The volatility can kill you, especially if you over leverage. I turned bullish on this group in April of 2001. I bought a gold fund in December 2001. I continue to hold it, and expect to continue holding it for a long time. It's a core holding, I don't trade it.

Meanwhile, I probably shouldn't even make short term forecasts on this, but the fact is that the 13 day cycle cmap is 127 and the 4 week cycle cmap is 125. If HUI gets through this congestion area in the next day or so, the 6-7 week cycle cmap would be 135, and as mentioned above, the 10-13 week cmap now looks like 142. .

Uncle Buck's Illness

Uncle Buck's 10-13 week cycle cmap is 104 and the 6 month cmap is 101.50. The 1 year cycle is in a top, but the 10-13 week cycle is in a sideways up phase. That could push the long term downtrend sideways causing the wave to flatten.

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