The Anals of Stock Proctology

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Update 10/1/02 12 Noon Terms and methodology

It does appear that the 5 day cycle low is in, but the 8 day should still be down. The shortest cycles are fibrillating. Two and 3 day waves may hold the key here. They have already hit their upside cmaps. Watch them on 15 and 24 minute bar charts with 26/18 stochastics. When they turn lower, the market should break.

The Feed was a drain. That should put pressure on late in the day. Bond market is a shambles today. The selling appears to be helping the short end, more than the stock market.

Cycle	Phase	Target	Due
2, 3 Day Cycles
Nas	Up/Top	High 1183	Today
SPX	Up/Top	High 825	Today
NDX	Up/Top	High 843	Today
8 Day
Nas	Down/Bottom	1150	Thursday
SPX	Down/Bottom	785	Thursday
NDX	Down/Bottom	805	Thursday

Update 10/1/02 9:15 AM Terms and methodology

The jam is on. Manipulation, plain and simple. It can't be sustained, and it won't be. But it will definitely screw things up this morning. Doc expects the highs to be made on the open at 823 SP, 1185-90 on the Nasty, and 845 on the 100 Nads. The pullback from the high should last until around 10-10:30. Then they'll try again. From a cycle standpoint, Doc can't project where the low will be, but is guessing they'll get back at least to unchanged. The 5 day cycle low cmaps still point a bit lower. If the AM pullback is mild, the 5 day lows may be in. 8 day low is due Thursday. Doc will have to wait to see how the first hour plays out to get a better handle on cmaps and cycle timings.

Cycle	Phase	Target	Due
5 Hour- 1 Day
Nas	Down	High 1185-90	Low 10:30 AM
SPX	Down	High 823	Low 10:30 AM
NDX	Down	High 845	Low 10:30 AM
5 Day, 8 Day
Nas	Bottom	1155	Today-Thursday
SPX	Bottom	785	Today-Thursday
NDX	Bottom	820	Today-Thursday

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.

Termites! (9/30/02)

The market's stage managers threw everything they had at it. And still the foundations shook. Not even a big Feed, not end of quarter manipulations, not even the usual enema of the shorts, which is themselves panicking, was enough to stop the heaving and shaking. So tomorrow, expect more of the same, and the day after, and the day after, and so on.

When will it end? How will it end? We're supposed to be in that time window in which this cycle of the great secular bear market can end at any time. The window can stay open for a long time. The actual price low of a four year cycle can be many months before or after the anniversary of the last 4 year low, particularly with the secular trend channel sloping down. This is something new. Something we have never experienced. Every single 4 year cycle low since the 1940s has been in the context of a secular uptrend. When prices came down before, it was as if they hit an upward inclined pane and bounced off it.

Not this time. This time, the inclined plane is headed down. When sharply descending prices hit do they bounce up? No they shoot out at the angel of attack. leading to short up phases that lose their upward momentum quickly. The last time this condition existed was in the 1930s. The most analogous situation is the unwinding of the 1920's bubble. The "four year cycle" encompassing the last phase of the bubble and its ultimate collapse lasted 6.5 years. There have also been times in history when the "Four Year Cycle " lasted only three years.

So for those of us looking for a four year cycle low, and that includes Doc, we may have a long wait.

Or hey! What if last September was it? Maybe the bulls were right. Maybe that was the bottom! Maybe December to March was the top. And maybe this isn't even the old bear market anymore. Maybe it's a brand new cyclical bear cub.

Doc will leave you with that thought.

The Feed added $5.75 billion in overnight repos with no rollovers. There are no rollovers oterh than the $5.75 billion, Tuesday.

The big Feed sent the Feed Index rocketing back toward the 10% long term growth channel and to the top of the no growth channel. Once again Al is panicking in reaction to the market meltdown on Friday and this morning, as well as the Chicago Purchasing Managers Index. This is so predictable. What isn't predictable is where that Feed will go, back into bonds, or into stocks.

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 Feeding brought the fast Feedometer back to the center of its recent downtrend. Other than the mid-day rally, it didn't help enough to turn the market. Unless they come with something much much bigger, it's not going to make a difference. It didn't help the long end of the bond market either, but rates dropped sharply in the short end. The Gang of 22 is playing it real safe.

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

Bond yields gapped down, and hung around the lows all day, hitting 3.57 and closing at 3.61. Intermediate cmaps look like 3.40-3.50. 3.50 is also a long term support level. If they break that, this is Japan redux. 90 day bill yields dropped through the day, falling from 1.59 at the open to 1.53 at the close. That's a breakdown through the recent lows, also ticking through the low of 1.54, last January. Your Feed dollars at work.

Financial and Economic Indicators (September 26)

8 Minute Bar Charts 9/30/02 -109.07
Dow Jokes Inflatables

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.

The market fell apart in the first hour, made a 1 day cycle low around 10:30, and then clawed its way back until 2:30. That's when the jam started. Excess Feed, short covering panic, and end of quarter window dressing drove the market almost back to unch by 3:30, before going out in a sinking spell. The long 1 day cycle upleg was consistent with the 3 day cycle upturn, but even at the peak of the rally, 5 day cycle indicators did not confirm a low in that cycle.

The 1 day cycle turned down at 3:30. That should carry into the first half hour this morning. Doc is not going to guess where the AM low will be. The futures will be our best indication. The 3 day cycle up phase may still have some gas. It's due to top out tomorrow, if it hasn't already.

Dow Jokes Inflatables

The stage managers had to open the Dow on a gap down, and continued to pull bids for the first hour until the index reached its lower channel boundary. It bounced from there, and closed in the lower quarter of the channel. Then 10-13 week cycle cmap remains at 6950 for now. The low is due from the first through third weeks of October. The cmap for the 5 day cycle low due Tuesday remains 7400. The 4 week cycle low is due within 5 days. The cmap is 7200-7400.

Portfolio Sphincters Index-SPX -12.11

Nasgap - 27.23

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

The six month cycle oscillator continues to rise. This cycle either remains in a sideways up phase as it moves across the 18-month 2 year cycle channel, or it is just topping out. We should know in a few days, if not Tuesday. The weakness of the up phase and the amount of time left in the cycle suggest devastating losses through January. Obviously, 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.

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 touched the lower regression channel in the AM, leading to a snapback rally. It closed in the lower quarter of the channel. That kind of action only weakens the market. The channel's bottom line is just below 800. The 8 and 13 day cycles appear to have 4 to 9 days to go on the downside. Watch the hourly indicators to monitor this cycle. The up phase of the 6-7 week cycle remains a dead issue. It's been swept down by the cascading 10-13 week cycle wave. A four week cycle low is due within 5 days around 780, but the 6-7 week cycle should be accelerating down at that point. They will fight like hell to hold 800. Once it fails, we could see a waterfall decline.

10-13 Week Cycle

The 10-13 week cycle should continue to govern. The cycle indicators continue lower with the 29 day rate of change nose-diving farther into negative territory, and the superimposed cycle indicator reaching the level normally seen at intermediate lows. Since the time isn't right yet, the implication could be that the market is about to get much much weaker. The low could be as little as 2 days away, and as much as 18 days, the latter being more likely. The cmap is 680, subject to daily adjustment as the appointed time approaches.

VIX

The VIX rose to 44.57. It moved to the middle of the inverted scale 6 month cycle Stool Band. A move through the lower blue channel band followed by a reversal would confirm an important low. At this point the indicator is simply trending right along with the market, and is telling us nothing we don't already know. Fear levels are not extreme enough to signal any kind of low. In any event, do not get sidetracked attempting to interpret sentiment indicators. They'll follow price. We already know the market is Dover Sole by conventional measures.

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 9/30/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/4 Mos.	670p
10-13 Week	Down/2-17	680
6-7 Week	SWU/3-8	Kneecapped
20-25 Days	Down-Bottom/0-5	780
8,13 Day	Top-Down/4-9	765p

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

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

Monday's down-up-down, along with the action of the last few days, is the picture of a slow motion breakdown. This market doesn't even merit the honorable appellation of Bear Market any more. It has now entered the termite stage. Welcome to the great Termite Market of 2002. The 4 week cycle down phase has 3 to 8 days remaining. The cmap is 1075-1125. The 8 and 13 day cycles appear to have 3 to 8 days of downside as well, with a cmap of 1125. The 6-7 week cycle up is a non issue at the moment.

10-13 Week Cycle

Two to 17 days remain in the down phase. The cycle indicators are headed down hard. The cmap remains 1025.

Fiber Nacho Dump- Support levels and downside targets.

Fiber Nacho Reflux- Resistance levels and upside targets

Nasdaq Cycle Conditions as of 9/30/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/4 mos.	925
10-13 Week	Down/2-17	1025
6-7 Week	SWU/3-8	Kneecapped
20-25 Days	Down-Bottom/3-8	1075-1125
8,13 Day	Top-Down/4-9	1125

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

The 6-7 week cycle should be entering a bottom phase. The downside cmap of 122 has been reached. Just a reminder that this is believed to be part of a long period of consolidation as some longer cycles enter a sideways down phase that could last well into 2003.

Uncle Buck's Illness

Uncle Buck's 6 month cycle sideways up phase is nearing an end. One more bounce. Then down at least to test the 104 area, maybe more.

Suctor Watch - Looks at 10-13 week cycle cmaps.

Bonkers - Looking like 600.

Biodrech- Cmap is 270.

Housing Bubble- Heading for 295.

Consumer- Looks like 185.

Retail- Now that WalMart has started cutting 'em, looking for 230.

Energy- Would you believe 380

Small Craps- Assuming this "support" breaks, you're looking at 300.

Dow Transvestites- 2100 is key. If it breaks, they'll roll downhill to 1750.

Dirty SOX- Next stop 190.

Soft Where- Soft to 65. Must break current level.

Nutworkers- Packing it to 75.

Telecommies- Will ring 290.

Stoolwethers - Doc takes a look at 10-13 week cycle cmaps.

Citicorpse- Did you see the flick, Night of the Living Dead? This is the remake. Not sure how long it will be in theaters. See it before it leaves.

JPM- Another in that genre.

FatAss- Doing the breakdance. Ugly. Cmap looks like 57. But free falls can get out of hand.

General Custer- Will make stand at 22.50.

General McClellan - Marching toward 35+/-.

Wally- Big markdowns in store. Cutting prices to 45 again. Check out those signals on the 29 day ROC and 10-13 week cycle ozzie. The amazing Karnak.

Market Maker Management- Bounce at 100, but cmap is 103.

Amazin - Finally be ready to drop on multiple sell signals.

AhOL- Holding it in. Another distribution phase.

Mr Bill - Has lots of friends at current levels. But cmap says 37. Will need to happen quick. Cycle low is due.

Crisco Skid may be taking a break. Cmap of 10 is near, and lots of friends are here.

Tell- Getting close to cmap of 13.

Farmer Not In- Makes run for 22.

BM- Gets flushed to 53.

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