The Anals of Stock Proctology

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Update 10/4/02 12:15 PM Terms and methodology

A bottoming process in the 1 day cycle is under way as of noon. Revised downside cmaps posted at 10 AM were hit. Looking for no more than a weak swup in the afternoon which should end between 2 and 3 PM. Upside is expected to be minimal, if any. Market should be in full retreat toward 5 day cmaps by the end of day.

Cycle	Phase	Target	Due
5 Hour- 1 Day
Nas	Bottoming	1145	11:30-1:30
SPX	Bottoming	802	11:30-1:30
NDX	Bottoming	824	11:30-1:30
5 Day
Nas	Down	1108-1113	Monday
SPX	Down	770-775	Monday
NDX	Down	790	Monday

Update 10/4/02 10:00 AM Terms and methodology

Rut ro. Scenario 1 it is! Downside 1 day cycle cmaps are SPX 808, Nasty 1145, and 100 Nads 824.11:30 now looks like a 5 hour cycle low, instead of 3 hour wave high. Wouldn't put too much faith in any timings, given the nervousness. 5 day cmaps are also going to be significantly lower. Will update at mid day.

Update 10/4/02 9:15 AM Terms and methodology

Big jump in the fucutures on the unemployment data confusion. Last night Doc wrote, "If they are still cycling at 3 hours, that might have been the low, at the bell, which could lead to another little bounce in the AM. But if the 1 day cycle resynched at that low, then we will see relentless selling into mid day tomorrow." Doc voted for scenario 2, but we're going to get scenario 1. Let's look for a pop to 828-30 on the SPX, 846-50 on the 100 Nads, and 1178 to 1185 on the Nasgap. Expect lots of churning around, with a high right after the open, a pullback then another push that lasts until 11:30.

If the morning plays out this way, it changes the outlook for the next few days as well. Instead of a big drop, the market looks more likely to churn in a narrow range, still with a mild downward bias. This is likely to be extremely tough to trade. There's a good chance that the SPX and 100 Nads will finally meet.

Cycle	Phase	Target	Due
5 Hour- 1 Day
Nas	Up	1180	Open, 11:30
SPX	Up	830	Open, 11:30
NDX	Up	850	Open, 11:30
5 Day
Nas	Down	1140-45	Monday
SPX	Down	815	Monday
NDX	Top-Down	815	Monday

Doc does not make trading recommendations. This update reports intraday time cycle estimates and centered moving average projections based on the Hurst cycle analysis method. Doc assumes no responsibility for the accuracy or inaccuracy of these estimates and projections. The market may or may not meet these projections. New stoolies should thoroughly familiarize themselves with the methodology before trading based on this method. There is no free lunch. 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.

Tick Tick (10/3/02)

Only time for limited commentary tonight, so here we go! (Sorry, this is unproofed and unedited.)

The Feed drained $6.25 billion. The massive drain resulted from the fact that Al did not roll over the $ 3 billion in 28 day repos, nor the $2.5 billion in 2 day repos. They added $3 billion in overnight repos, only partially replacing yesterdays $3.75 billion. The only expirations coming up Friday are the $3.75 billion in overnight repos.

The Feed Index is in danger of falling out of bed. Look for the big one Friday morning. They have to know the market will collapse without it.

Three trends are evident on the Feed Index. 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 three months.

The fast Feedometer fell below it's recent range. The downtrend in Feeding is accelerating. Their modus operandi of late has been to add as little as necessary to stop a meltdown, but after the fact. I t will be interesting to see if they ride to the rescue Friday, or wait until crisis is upon us.

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

10 Year Bond yields were down a hair at 3.68. The 10-13 week cycle cmap remains 3.60, which has already been hit. The 10-12 month cycle cmap is 3.50, which is also a long term resistance level. A low is not confirmed yet, but the conditions look right. The intermediate cycle oscillator is ever so close to indicating an upturn. That would be extremely bearish for the bond market, and would signal the closing of the refi window which has been keeping the financial system on life support.

Refis were up big again last week, but purchases were again flat. The total mortgage app index blew out to another new high.

Refis were up big again last week, but purchases were again flat, a bad sign for the housing bubble, considering where mortgage rates are the precarious position of the ate trend. The chart below shows rates inverted, in order to show the relationship between rates, refi volume, and purchase mortgage volume.

Instead of the expected explosion in broad money supply, growth was moderating as of September 23. The system is leaking badly, partly from the stock market, and where else?

Slowing growth in the adjusted monetary base is related to the slowing Feed.

Flat M1 is an indicator of the weak economy.

The commercial paper market remains a shambles and is getting worse.

Likewise commercial lending.

Even total bank credit has moderated a bit.

The bottom line is that the mortgage market is the sole generator of money and credit growth, and it is at a very dangerous infartion point. The stock market becomes a source of desperately funds from both the corporate, financial, and household sectors, under the circumstance. We are staring at the potential for a tidal wave of liquidation.

Financial and Economic Indicators Last week (September 26)

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

8 Minute Bar Charts 10/3/02
Dow Jokes Inflatables -38.42

Portfolio Sphincters Index-SPX -8.96

Nasgap -21.74

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.

Thursday was another bass-o-matic day, Of course, the bulls got the worst of it. The lows came in on schedule at 10 AM. Shorts did their worst enema thing on the ISM services index. This was an obvious gift to bears to add to shorts. The emergency managers put the paddles on the patient who was in cardiac arrest, and the body convulsed. Then they got a pulse off a 3 hour wave double bottom at 1:30. If they are still cycling at 3 hours, that might have been the low, at the bell, which could lead to another little bounce in the AM. But if the 1 day cycle resynched at that low, then we will see relentless selling into mid day tomorrow. Doc votes for scenario 2, but his vote doesn't count. Only the futures gamers' vote counts. We'll have to see what they can muster up overnight.

Not that it matters.

Downside cmaps for the 1 day cycle lows look like 815 on the SPX, 7650 on the Jokes, and 1155 on the Nasty. 5 day cycle lows are due Friday or Monday at 7450 Jokes, Nasty 1130, and 795 on the SPX. All this could change depending on how trading fares as it races around the globe and back toward NY in the AM.

Dow Jokes Inflatables

The came back to the center of its trend channel. As wild as things have been lately, here we are closing exactly on the projection of a linear regression connecting the first two highs in this downtrend. Pretty unimpressive. A one day wonder rally is not enough for them to get heavily short. If they're not heavily short, this market will have zero support once it goes through 7500. No wonder Art Cashin looks like hell.

The 10-13 week cycle cmap remains 6950. However, an alternative projection which looks almost reasonable at this point would take it down to 6500. The low can come at any time in the next 3 weeks. The pathetic 6-7 week cycle up phase still has a few days to go, and the 4 week cycle wants to swup if it can, so perhaps they can muster one last defense of 7500. The 8 and 13 day cycles probably topped out. We're about to find out how powerful the down wave of the 10-13 week cycle is. If they take out 7500, three days will be a long time, let alone three weeks.

All of Doc's cycle charts 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

Long Term

(10/2/02) The six month cycle oscillator started flashing a sell signal. This cycle is topping out a sideways up phase as it moves across the 18-month 2 year cycle channel. The weakness of the up phase and the amount of time left in the cycle suggest devastating losses through January.

Given the 4 year cycle low in October 1998, over the next few months we need to be on the lookout for conditions indicating a four year cycle low, which would be followed by a ferocious rally finally convincing everyone the bear market is over. We also need to be aware that we may have already seen it. The up and down phase of the 1920's bubble lasted more than 6 years, with an interim low after the crash in November of 1929, a little more than 3 years after the onset of the bubble. The September 2001 low was at a similar point relative to the 1998 low. Think of the bubble wave like a tsunami. It is bigger and lasts longer than the typical 4 year cycle.

They'll be wrong.

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 index stayed bolted to the center of the downtrend channel. The 8 and 13 day cycles started down. The tentative cmap is 760-790 over the next few days.

The unpredictable sideways up phase of the 6-7 week cycle also appears to have ended, with a downturn due within 4 days. The 4 week cycle is in a sideways up phase, at best. The power of the descent of the 10-13 week wave will probably suppress it.

10-13 Week Cycle

The 10-13 week cycle indicator fell to a new bear market low. It could bottom any time over the next three weeks. Some indicators look Dover Sole, but the final phase of the decline is usually the sharpest. Because of this uncertainty, the cmap range of 700 to 760 is unusually broad. A sharp down day Friday would aim the cmap at the low end of the range or lower.

The cycle indicators have not flashed a turn signal. Until hey do, the downtrend has the potential to steepen.

VIX

The VIX rose to 44.96, back in the middle of the inverted scale 6 month cycle Stool Band. This indicator, like the market, is trending, near neither a high nor a low.

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.

Fiber Nacho Dump- Support levels and downside targets.

Fiber Nacho Reflux- Resistance levels and upside targets

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 10/3/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/4 Mos.	690p
10-13 Week	Down-Bottom/0-14	700-760
6-7 Week	SWU-Top/0-4	??
20-25 Days	SWU/4-9	??
8,13 Day	Down/1-6	765-790

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

Long Term

(9/30/02) Confirmation of the 6 month cycle sell signal will come when the smoother line (red), which is a time series of the indicator line (navy), begins to flatten. Late signals are usually a sign of a much bigger move to come. They happen when one phase of a cycle is much shorter than typical, under the influence of larger downtrending waves. The down phase of this cycle should last into next year and carry well below 1000. Then we could see a big rally of the 4 year cycle low, which might bring the Nasty all the way back up to the level of the breakdown currently in progress. In the long term, we are looking at a situation like Germany's Neuermarkt, which shut down last week. The handful of large companies which remain will have no choice but to move to the NYSE. The 100 Nads will be reduced to 10.

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 Nasty looks ready to do a big bottom dropping. The 8 day and 13 day cycles topped out. The preliminary downside cmap is 1100-1140 over the next few days. The 4 week cycle is in a sideways up phase, a non-issue given the strength of the 10-13 week cycle down phase. The 6-7 week cycle is finishing its sideways up phase. Short cycles are not going to give the Nas any help as it fights the plummeting 10-13 week cycle.

10-13 Week Cycle

The 10-13 week cycle is in its weakest zone. The cycle indicators remain in sharp downtrends. The cmap is now 1000 to 1050, due any time over the next three weeks.

Fiber Nacho Dump- Support levels and downside targets.

Fiber Nacho Reflux- Resistance levels and upside targets

Nasdaq Cycle Conditions as of 10/3/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/4 mos.	900-1000
10-13 Week	Down-Bottom/0-14	1000-1050
6-7 Week	SWU-Top/0-4	Kneecapped
20-25 Days	SWU-Top/4-9	Kneecapped
8,13 Day	Down/1-6	1100-1140

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

AM Edition Features (Previous) These features are in morning edition, published around 9 AM ET US, or the Saturday Weak End Edition, published, uh, let's see, Saturday!

Long Bong Hit - See top of page.

Golden Stool- Published daily by 7:30 AM NY time

The down phase of the 6-7 week cycle should end within a week. The cmap is 118. The 13 day cycle cmap points to 116. If those levels do not hold, there's a chance the HUI could drop to it's long term channel line around 105 before this down phase ends. This is part of a long consolidation process that should continue well into 2003.

Uncle Buck's Illness- Published daily by 7:30 AM NY time]

Buck is in his last short cycle up phase before breaking down to test the lows.

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