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 1:00PM 12/13/02

As I just wrote on the board, "Here's the question. Are we in a pattern of rolling 5 hour waves, or is the 1 day cycle back? I don't know the answer, but the market will tell us this afternoon. The 5 hour cycle bottomed at 10 AM and is due to peak sometime before 1-1:30. The 1 day cycle, on the other hand, just bottomed and it would tend to be up until 3-3:30."

The 3 day cycle probably made a low this morning at 889. The cmaps for that cycle have revised up to that level. The 5 day cycle downside cmap looks like 880 , and the 8 day is possibly 872, but not if they move up too much this afternoon.

Maybe these juxtaposed cycles will fight it out and the thing will trade in a 1 point range all day. Either way, there's nothing to get excited about. The 5 hour cycle upside cmap is 896. If it gets there, the implied 1 day cycle cmap would be 897. Whoopdedoo. After that it would be all down hill. Probably see at least 895, maybe even 894 again.

Fasten your seatbelts for the wild ride.

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 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 9:15 AM 12/13/02

The fucutures are coming off an overnight session double bottom at 890 and are trading near 893.50 near the Globex close. Look for a 5 hour cycle low just after the open somewhere above 892, then a weak drift up into reaction high near 11 AM, before settling into a 1 day cycle low around mid-day. Maybe like the cycle map below.

Turdsday's Markets (12/12/02)

Intraday - The market opened Turdsday with wild fibrillations for about 20 minutes, before settling into a 5 hour cycle low at 10 AM. It then zipped back up to retest Wednesday's 1 day cycle high at 11 AM. None of that was unexpected. Over the last two days we've seen 1 day cycle highs have come in late morning and 1 day lows around 2 PM. We are starting to see big interrupting wavelets and wild uncertain trading in reaction to news noise. This happens when there is no directional thrust from larger waves. It's typical of tops, before downside forces assert themselves.

The one day cycle up wave that began in mid afternoon looked very tired, and was starting to roll over near the close. It probably will not make it to an 11 AM high like it has the past two days, although we should look for at least a reaction high around then. A 5 hour cycle low is due in the first hour. The preliminary cmap is 895. If it gets there, the cycle waves would be flatter than I've drawn them below. Nothing to get excited about yet, but maybe the fucutures will tell a different tale in the AM. Updated at 9:15 AM.

Yes We Have No Inflation (Wink Wink) 12/12/02

It's time for Doc's weekly review of the Fed's regular Turdsday releases. So, without further ado...

The adjusted monetary base (current) is showing the effects of the massive Feeding campaign that began in late October.

Here's the MoGauge from last night's report. We're expecting the drop in mortgage applications that began in October to show up as a slowing in broad money supply any day now.

Sho' 'nuff! MZM was beginning to flatten out as of 12/2, in spite of Al's best efforts.

Of course, the all the Feeding, along with massive, monetized Federal deficit spending has finally begun to impact M1. But consider that this massive increase in narrow money supply did not boost MZM. Money is getting flushed out of the system faster than the Fed is pumping, and they are pumping like sumbitches.

Check it out, money market fund assets have stopped growing and are declining longer term. Where's it going? Into the stock market? Look at the big drop from December 2001 to April 2002. Didn't help the stock market at all. The idea that "all the cash on the sidelines" is waiting to come into the market is another one of Wack Street's shibboleth's, promulgated by Ibbottson Associates, the packager of the greatest and longest running fraud of all time, the mutual fund industry.

Well, at long last, C&I loans upticked. The cost of funds is basically zero in real terms, and this is the best they can muster? How do you spell Weimar?

Department of Yes We Have No Inflation- Rumor has it that the Fed is deeply worried about the prospects for DEflation. Throughout history, the Fed has been fighting the last war. Its blunders are the stuff of legend, folklore, and revisionist history. Here we go again. Does this look like deflation to you? Perhaps Doc is missing something. Furthermore, we live in a service economy. Everyone knows the cost of services is exploding. Who are these morons kidding with this crap? The only thing deflating is technology.

The Feed added $7 billion in 28 day repos to roll over $5 billion in expiring 28 day repos. It then added $6.75 billion in overnight repos against $8.25 billion in expiring 2 day repos. The net effect was a $500 million add. $6.75 billion will expire Friday. We'd expect Al to start draining this overflowing swamp, with total Feed at the top of the recent 8% growth channel, but if he doesn't then it's clear that he intends to blow it all in a wild experiment in excessive reflatulation of a bloated unstable gas filled bubble.

Madness.

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 still upticking and the Fast Feedo is up against the top of the recent channel. Time to start draining, or is Al going to blow it all out? Periods of aggressive Feeding have been followed by time of a steady as she goes, or even mild draining. The market's reaction has been the same each time. It takes the pipe. This time is AL going to try and blow the roof off. If he does, the walls will come tumbling down..

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

Bond yields were little changed. The 4-7 week cycle downside cmap is 3.90. The short cycle indicator is in a bottoming zone, but the intermediate cycle is still in a down phase. The indicators continue to give mixed signals indicative of a continuing trading range.

The Inflatables were the weakest of the major averages flopping along jus above the red support line. The 8-13 day cycle is in a weak up phase. The 4-7 week and 10-13 week cycles are still down. Doc still has the 4-7 week cycle cmap at 8325. Time is now becoming a factor as this cycle low window is open. Notice the symmetry around the high.

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 remain in a weak up phase. On the hourly charts it appears to be on the verge of ending. The longer they can keep it going sideways, however, the less likely that we'll see a big down on the 4-7 week cycle. That cycle still has a cmap of 875-880, with a low due between 1 and 3 weeks from now.

10-13 Week Cycle

The 10-13 week cycle is in a sideways down phase. Normally a sideways down phase will break down for at least a few days toward the end of the cycle. If we start to see some slippage, the preliminary downside cmap is 860, with lows due from December 19 through January 9. The sooner and the sharper the initial break, the more the downside cmaps will drop. If we don't start seeing the downside soon, be prepared for a long wait. They could keep this baby range bound for months.

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 12/12/02

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/4-19	860p
4-7 Week*	Down/5-20	875-880
8,13 Day	Up/0-3	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 are weakly up with a cmap of only 1400. The up phase could already be over, although it could stretch out for a few days. The 4-7 week cycle now has a preliminary downside cmap of 1340, but the current pause would need to end quickly.

10-13 Week Cycle

The 10-13 week cycle indicator continues to accelerate down and the 29 day ROC remains in a downtrend despite the 2 day pause. The preliminary downside cmap is 1240, due between 12/19 and 1/9.

Long Term 12/6/02

Nasdaq Cycle Conditions as of 12/12/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	1490 Done
6 Month	Top/0	1490 Done
10-13 Week	Top-Down/5-20	1280p
4-7 Week*	Down/3-18	1340 prelim
8,13 Day	Up/0-4	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

Here are the revised cmaps resulting from HUI's breakout.

13 day cycle- 135 (done)
4 week cycle- 141
6-7 week cycle - 141
10-13 week cycle - 134 (done)

So we have a dilemma. How high is up, in the short run. It's a bull market, and ultimately it's going a lot higher. But, in the short run, a top and consolidation area should develop between here and the low 140's.

Uncle Buck's Illness

After challenging his long term cycle upper channel line two weeks ago, Uncle Buck began to accelerate away from it yesterday. He now has a short term cmap of 103.50 and a six month cycle cmap of 102.50 due within the next month. Of course, breaking 103.50 would mean he's going a lot lower over the long haul. He's trading at 104 this morning after briefly breaking into the 103s.

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