The Anals of Stock Proctology

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Doc will be traveling until October 23, God willing. The Anals will be published in a scaled down format, whenever possible. Pre-market and Mid-day updates will be published irregularly. There will be no mid-day update Thursday or Friday. I will try to do pre-market updates both days. Publication notices will be posted on the message board during this period. Since we are nearing a short term turning point, I'll do my best to report to you regularly on how the charts look.

Suctors and Stoolwethers will not be updated today.

Road Apples For Friday 10/11/02

So much for the retest. Once again, the 10-13 week cycle oscillator gave a timely signal. Typically, there's a retest or at least a big pullback within a couple days of the rocket launch. Given the extent of the buying panic, this may not be a typical. They may continue straight up until the exhaustion point, then simply run out of gas and collapse.

If you want a guide book on what to expect, go back to the Dow charts of late 1973 through mid 1974, when the Dow was coming down and testing 800. It had several sharp rallies before breaking down. Obviously the volatility is greater today, given these derivatives melt-ups, but the quick changes of direction and general nervousness on both sides of the market are the same.

Doug Noland made a point today about the effect of companies no longer being willing to write puts on their own stocks. This forces the options market makers to do the writing, which they do fully hedged. Heavy customer put demand causes them to write put options heavily, which they hedge by shorting the stocks, or futures in the case of indexes. Any customer stock buying or selling of puts then triggers a meltup because the market makers must simultaneously cover their short positions to unwind the hedges.

This is unsustainable, but that doesn't mean it can't last long enough to destroy every bear with shorts still on, especially at this rate. It will end, and it will collapse, but the question is whether it takes a day, days, or weeks. I don't have the answer to that.

The 8 and 13 day cycles should peak Monday. The cmap of 835 was already hit. It's scam week. Anything goes. With the 4 through 10-13 week cycles turning up, we could see a couple weeks of this kind of wild action, including sharp pullbacks.

This is not a new bull market, but it is a 10-13 week cycle up phase within a 6 month cycle top. In theory it could get all the way back up to the August highs without changing the cycle configurations.

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.

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.

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 10/11/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/3-4 Mos.	680
10-13 Week	Bottom-Up/14-29	Too Early
6-7 Week	Uo/3-12	??
20-25 Days	Up/3-8	835
8,13 Day	Up/1-2	835

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

Golden Stool-

HUI bounced off the lower long term cycle channel projection, but only the short cycle oscillators have turned up. The low end of the cmaps was touched briefly on Thursday. Although there are no clear intermediate buy signals yet. The cycles appear to be getting in position for a good rally.

Suctor Watch and Stoolwethers- Now posted on separate page. Updated each morning between 8 AM and 9:30 AM NY time. Suctors and Stoolwethers will not be updated Thursday (10/10/02) or Friday.

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