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9/3/02, 9/4/02, 9/5/02. 9/6/02, 9/9/02, 9/10/02, 9/11/02

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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Update 9/13/02 12:15 PM  Terms and methodology

The swup is still under way, with a high due now and at 2:15. This morning's low may have been a 5 day cycle low, but the 8 day cycle is still coming down, and the 5 day cycle up phase should not be a factor, unless this morning's highs are broken. Then we could see a couple days of swup. But for now look for that last high around 2:15, and lower lows late in the day and into Monday.

Update 9/13/02 9:15 AM  Terms and methodology

The fucutures are signaling a weak open, the late uptick just before 9:15 notwithstanding. The lows are due between10:15 and 11 AM. Should be choppy as the 5 hour cycle may exert upward pressure. After 11 AM, look for a sideways up phase with highs forming between noon and 2 PM, then down again. We should get a revision in the 8 day cycle cmaps. Will post in the PM outlook around 12:30.

Are The E-Wavers Right? (9/12/02) 

Is the market on the verge of a crash? Let's just say there are some warning signs, and any extension of the current weakness should be taken extremely seriously. 

Details below.

The Feed drained $2.75 billion. They rolled over only $3 billion of $4 billion in 28 day repos, and covered only $4.25 billion of $6 billion of expiring 2 day repos. $4.25 billion in overnight repos will expire Friday.

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 index is locked squarely in the center of the golden box, below the 10% growth line, and just above the bottom of the 8% growth channel. Al seems paralyzed by indecision as he braces for the monetary hurricane coming from the mortgage market. Or is it? (See below)

The Feedometer, which theoretically measures excess Feed available for bond or stock market jamming, remains in the lower portion of its 3 month range, and is either downtrending or neutral. This is not a picture of support for the markets. Rather it is one of caution and indecision. Nothing they have done has helped the stock market. It is a hopeless cause, and the inflationary forces from excess money printing are building. These guys are in a box, and there's no way out. 

MZM dipped slightly in the week ended September 2. The mortgage application bulge really began to explode 6 to 8 weeks before that, so the downtick in MZM this week is a minor surprise. We'd expect to see monetization of those mortgages in full swing by now. We need to wait to see next week's data before drawing any preliminary inferences. Certainly there are no signs of debt liquidation going on, so for now, we'll just consider this an anomaly. 

In another contradiction, while MZM dipped, its M1 component rose sharply for the third week in a row. Some of the refi money is finding its way into checking accounts.  Still the longer term trend remains flat, consistent with no growth in the economy. A new high next week would signal a possible inflationary breakout, while a downturn would be consistent with continuing sluggishness. 

Here's all that "cash on the sidelines". Well! It seems some of it is disappearing. Down the black hole of the stock market perhaps?

Business lending remains dead in the water.

But bank credit is mushrooming. The household sector is on the borrowing binge to end all binges. 

Where does all this lead? More debt and no growth. This is an economy where debt rises exponentially to absorb all positive  cash flow in the process. The economy has a debt service coverage ratio of 1.0.  Why do you think so many corpses report ebItda? BEFORE interest and all that other good stuff. Because AFTER interest, there's not a cent left. So let's pretend we need not pay interest. 

8 Minute Bar Charts 9/12/02  Dow Jokes Inflatables -201.76 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.  Wednesday was indeed a reversal day. Thursday left no doubt about that. The opening plunge eased into a 5 hour cycle low at 11 AM. That was followed by a weak sideways up phase, and a swoon in the last two hours into another five hour cycle low. The downturn in the 8 day cycle ozzies late on Wednesday was timely. That cycle should head lower into Monday or Tuesday.  The early going tomorrow is a tossup. The one day cycle will want to head lower until 11 AM, and that should carry the most weight, but the 5 day cycle may want to go up during that time. We'll need to see how the fucutures behave overnight. At 8:30 PM ET they are drifting lower. Regardless of what it does in the morning, the later afternoon should be weak again. Dow Jokes Inflatables The 13 day cycle cmap on the Dow Jokes is preliminary at 8000. That will not happen right away. We should see some bouncing around on the way. The 6-7 week cycle, which Doc thought had already turned up, may try for a double bottom at 8200. The 4-5 week cycle is probably a non-issue.  Portfolio Sphincters Index-SPX -22.55 Nasgap -35.81

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

The VIX rose to 40.72. The 30.96 reading on August 22 was the 10-13 week cycle high. The indicator is again in the middle of the Stool Band. It simply tracks price. Doc runs this on an inverted scale so that it is easier to see how this indicator simply mimics price changes. Basically it adds a needless additional layer of interpretation. The Stool Band on the VIX chart is almost identical to the 10 month cycle channel on the second SPX chart below. Traders used to get excited if the VIX hit 40. Clearly, that's a meaningless number at this stage of a bear market. By the time this thing is over, the VIX will be so high, we won't be able to see it.

The 17 day rate of change, a proxy for the 6-7 week cycle, BROKE DOWN today! That is one of the signs we have been looking for to signal a failure of the shorter cycles that should have been exerting a positive influence. If the 29 day rate of change follows suit, the market will be fully in gear to the downside, and could collapse in the weeks ahead. It looks like the E Wave crash  crowd may be right on this one. We should know for sure real soon.

The superimposed 6-7 week cycle oscillator (red line) dropped below last week's low. This is unheard of. This is a constrained indicator. It can't go much lower. As Doc mentioned yesterday, this could be a sign of extreme weakness, or it could simply mean a delay in the cycle low. If the SPX takes out 870 in the next couple days, this could be the Big One. If it bounces, it's just a bounce, that's all.

The 10-13 week cycle oscillator (dark blue) is unambiguous. The angle of descent is the steepest since April of 2000, in the midst of a violent crash. It should be at least 3 to 6 weeks before a low in this cycle. It may also be very significant that this is the first intermediate wave in this bear market which failed to surpass the long term central regression projection within 6 weeks. In spite of what the Street would have you believe, the market is getting sicker by the month. 

The 6 month cycle oscillator remains in a weak up phase. The slope of the up phase isn't even positive. Doc thinks this will lead to mind boggling damage when the cycle phase turns down. The fact that the cycle oscillator is still rising confirms that this is still the up phase. It is "up" in name only.

The trading stoolicator is heading down. As currently configured, it mimics the 10-13 week cycle. Its signal was timely.  The 10-13 week cycle oscillator topped out last week, and is making a double top. It can fall a long way, and this could turn into a historic decline. Still, an engineered jam, or several, are likely on the way down, in particular when the July lows are tested. 

The short cycle oscillator continues upward. The best short sales are usually when this indicator gets to 70 or higher, and the 10-13 week oscillator is declining. A failure to reach that level before turning down can be a sign of extreme weakness when the bigger cycles are negative. Once again, this is another possible precursor to a crash, that must be watched.

For now, it's clear only that the 13 day cycle is headed lower, along with the 10-13 week cycle. The preliminary downside cmap is 840 on the 13 day cycle and 750 on the 10-13 week cycle. Everything else is speculation. Even that 10-13 week cmap is.  

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 9/12/02

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

The Nas pooped out Wednesday and just pooped on Thursday. As with the SPX, the 17 day rate of change broke down  and the 29 day rate of change is oh so close. Once that goes, the rout will be on in earnest. 

The 10-13 week cycle is in a down phase that should last 3-6 weeks. The 6-7 and 10-12 month cycles are still headed up, but the slope of the up phase is flat, at best. The 4 and 6-7 week cycles were supposed to be in an up phase, but now it looks like the 6-7 week cycle is at least a couple days from a low. If it fails to bounce, or bounces only weakly off the 1240-50 level, Katy bar the door. The folks looking for an October crash just may be right.

Fiber Nacho Dump- Support levels and downside targets.

Fiber Nacho Reflux- Resistance levels and upside targets

Nasdaq Cycle Conditions as of 9/12/02

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!

Golden Stool 

Shorter term cmaps have been met, but there's still a 10-13 week cycle cmap of 150 out there. Time's running out on this cycle. Down phase should be sideways for a month or so, then blastoff.

Long Bong Hit

Downtrend still intact. Could make double bottom or may drive for long term cmaps of 3.70-3.80 before major low is in. No sustainable upturn until the 17 and 29 day R.O.C.'s turn up.

Uncle Buck's Illness

The 6 month, 10-13 week and short cycle oscillators are all in top areas. Time for Buck to go back to hospital.

Suctor Watch

Aerospace- Mechanical problems on take-off. Sudden altitude loss ahead.

Biodrech- 6 month cycle has peaked, but will bounce at 320 and 280 on the way down.

Bonkers- Break below 710 will confirm 6 month cycle top. Should bounce first.

Consumer- 10-13 week cycle turning down. 6-7 week cycle bounce due, but expected to fail.

Druggies- Same comment.

Retail- 10-13 week cycle topped out after returning to scene of crime twice. 

Housing Bubble- Massive hunchback with stooped right shoulder forming. The end of the end?

Energy- 10-13 week cycle heading down. Should bounce at 460.

Trannies- Check brakes. Use runaway truck lane.

Small Crap- Rolls downhill fast too.

Tech- Hold nose! These stinkers are coming down. Major bottom droppings.

Dirty SOX

Soft Where

Internuts

Telecommies

Stoolwethers

Citicorpse- Body is decomposing. Vultures circling.

JPMorgan- Rolling over in grave.

Fannie- Dropping the big one.

General Custer- In full retreat.

Wally- 10-13 week cycle top.

Market Maker Manipulation- Concurrent downturn in 10-13 week and shorter cycles.

PiG- Lipstick on. No place to go.

AhOL- When bears fall in love, it can be foreverrrrr!

AMZN- Rotten fruit falls from tree.

Mr. Bill will have bottom dropping when judge rules.

Tell- Market leader has bottom dropping.

DELL- Farmer still in, but confused where to go.

Crisco- Ready to skid again.

BM- Sure is.

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