The Anals of Stock Proctology

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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?

PM Update 1/2/03 12:30 PM

Typical first day of the year. no big deal. Heh heh. Doc had pegged the upside cmaps for the 1 day cycle at around 903- 905 between 12:30 and 2 PM. The 3-8 day cmaps are aimed at approximately 910. Longer cycle channels remain flat. So there should not be much more upside, at least for the next couple of days. Then we'll see. With the 1 day high in, look for a sideways down phase in the PM. A 5 hour cycle low is due around 3 PM. The 5 hour and 1 day cycles should be down concurrently from 1:30 or 2 Pm to 3 PM. No downside cmaps. Doc doesn't expect much.

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 1/2/03 9:15 AM

Fucutures are higher, as the 3 through 8 day cycles move up. The cmaps for these cycles have moved to 890-892, again based on the fucutures, which can be misleading. The 3 and 5 day cycle highs are due today. It's probably a bit early for the 8 day high, but not impossible. Keep a close watch on the oscillators around mid day for signs of a shortable high. The 1 day cycle high, due at 12:30 - 2 PM, only projects to 887, so far. Here is the revised cycle map, based on the pre market action.

5-8 Day Cycle______ 2-3 Day Cycle_______ 5 Hr-1 Day Cycle

Tuesday's Markets

Intraday - The surprisingly bad Consumer Confidence numbers on Tuesday were what Doc likes to call a rock in the pond. They disrupt normal wave action and create waves of their own which dissipate over time. The impact of this rock was relatively small. Things were back to normal by the end of the day. When a counter cyclical rock hits the water, it can be traded by waiting for the impulse to die out, then trade in the direction of the movement back to the normal cycle path. With a 3 and 5 day cycle up phase under way at the time of the news, when the impulse ran out of gas coincident with the expected 1 day cycle low at 11 AM, that was, (hindsight being 20-20) a good time for day traders to cover shorts, and for the bravest among us, scalp a dong position.

After the AM low, they spent the remainder of the day squeezing the shorts back to unchanged and then some, into a 5 hour cycle high at 2 PM. That was followed by a little selloff, into what was probably the five hour cycle low at 3:30. This pattern leads Doc to suspect the down phase will complete on a 1 day cycle low around 11 AM. That would be followed by a move up into a 5 hour cycle high around 12:30 and a second high around 2 PM.

The upside cmap on the 1 day cycle was 882. That was met. The 3 and 5 day waves still have unmet cmaps of about 884-885. That is the tentative target for the upswing on the 1 day cycle into mid-day. Of course, all of this could change depending on the rest of the world. It is after all really one market that just rolls around the globe in a continuous wave. So as always, we will revisit this at 9:15 AM.

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5-8 Day Cycle______ 2-3 Day Cycle_______ 5 Hr-1 Day Cycle

Happy New Year 1/1/03

Doc had a nice holiday with family and hopes you did too. Many tanks to stoolie Contrarian for taking Doc to lunch today in Palm Beach. A good time was had by all!

By the way, did you hear the Mummers strut was postponed in Philly? Looks like they won't be struttin' in the New Year on Wall Street either.

Now on to a brief rundown of Tuesday's charts, along with a repeat of last weekend's long term work.

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

The Feed gave us $2.5 billion in 3 day repos Tuesday, against $2 billion expiring for a $ 500 million net add. $7.5 billion in 7 day repos will expire Thursday, along with $5 billion in 28 day repos. Another $3.5 billion in 7 day repos and the $2.5 billion in 3 day repos will expire Friday. Al better be Feeding big time or the market is going to have one hell of a hangover.

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. The blue channel going back to last December suggests that Al may now be targeting an 8% growth rate. Look at the 4 week moving average (brown line) and compare it with the slope of the tow larger channels for an indication for whether the slope of short term growth is slower or faster than the 2 longer term trends.

The Great Flatulation Experiment (GFE) has not helped stock prices. The Gang of 22 (Fed's primary dealers) have been putting the money right back into T-Bills, and bonds, as well. Those markets have rallied sharply in the past few days. But that huge buildup of long positions in bonds could become a powder keg if there are no takers. Remember, The Gang of 22 is in the distribution business, not the investment business. Meanwhile, The Gang has dramatically increased their shorting as the T-Bond rally got increasingly hysterical. They borrowed $4 billion in securities from the Fed in the last 3 days. This is way, way above the recent norm, which has typically been, zero. Doc has tracked this data informally for a year or so. Whenever the dealers started to increase their borrowing of securities from the Fed, a downturn in the bond market (upturn in yield) has followed within days. We'll see if that works this time.

The Feedometer is now beyond the upper channel line that resulted in Al pulling in his horns in the past. Things are getting very dicey out there, as the maniacal pumping has failed to generate any movement in stocks, and doesn't seem to be stimulating demand in the economy either as both retail and housing demand softens, and consumer confidence craters. As always, the next chapter in the story will be told first by the market.

The Feedometer theoretically measures excess Feed available for bond or stock market jamming. Al selects a trend level he feels is needed to reflatulate the economy. The Feedometer measures the difference between the apparent trend target, and actual day to day Feeding (Fastow Feedometer), as well as a four week moving average (Snowmo Feedometer). A break above the orange trendline might indicate a more aggressive jamming policy.

Feed Turdsday Review (12/19/02) No charts last week. The Fed charts will return next week.

Is the heavy shorting by the dealers an omen? Bond yields upticked on Tuesday. The 10-13 week cycle cmap now looks like it's in the 3.65 area, still a few ticks lower. With the short and intermediate cycle indicators getting into position to signal a low, if they turn up, that would be good enough. But we'll wait for the turn before jumping to any conclusions. For now, the trend is still assumed to be down.

(12/27/03) Here's the long term view. It looks like the low will be retested. That should establish a long term double bottom, but Doc will wait to make that call again until after the first rally. Doc doesn't want to start sounding like Big Dick Hooey of Dreckfuss, and Al Goldbrick of Aged Wards. The long term cycle cmaps remain at 3.50-3.60, so from a cycle standpoint the assumption must be that it's a bottoming environment.

Has the Down Injustice Average reached it's 10-13 week cycle low? Doc still has the cmap at near 8150 using both a 50 and 59 day moving average as a basis, along with the half span averages. The chart below shows the 50 and 25 day centered moving averages. The cycle low could come at any time over the next 8 trading days. An upturn in the 10-13 week cycle indicator would confirm the beginning of the up phase. Until then, Doc assumes the trend is still down.

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

Cycle Chart
The red channel is the idealized 18 month-2 year cycle. Dark blue is the 10-12, or 6 month cycle. Teal is the 10-13 week cycle.

Short Term Cycles

The 8-13 day cycle low may be in. It's hard to tell with so little wave action. The 6-7 week cycle low may also be in the process of forming. The cmap is at 865. There is no sign that the market will do anything other than drift in a narrow range, even if the cycles turn up. The good ship Wall Street is becalmed. Now all we can do is sit and wait for the wind to blow.

10-13 Week Cycle

The 10-13 week cycle is still in a down phase, due to end within 7 trading days. The cmap now looks like it's 865, but still subject to change. The cycle indicators continue to point down. The 29 day rate of change remains on a cusp. We remain day to day insofar as the turning point for this cycle. Until the indicators turn up, the down phase is still assumed to be in force.

VIX

VIX declined a bit. (Chart scale is inverted to show relationship with prices.) The indicator is neutral. Sentiment indicators are most useful at extremes, and the late November period was a clear extreme, indicative of an intermediate price peak. It appears now that a move to or through the 40 level would be sufficient to indicate that the 10-13 week cycle low would be imminent.

The 15 day rate of change is a proxy for the 4-7 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.

Long Term

Below is our trusty long term linear regression series chart. This week Doc added a 1 year regression channel to the end of the chart. We all know about the Sphincters' failure to hold above the long term regression line for the first time in this bear market. As a result of the weakness of the recent rally the 1 year regression is sloping down more sharply than at any time throughout this bear. Through the magic of METASTOCK, Doc took the 12 month regression channel with the time span fixed at one year, and moved it across the entire chart. In no prior 12 month period was the slope down as sharply as now. This implies that the market may be about to enter a period of extended and accelerated decline. The give-up phase may finally be here.

That thesis is consistent with the long term cycle configurations shown on the chart below. Keep in mind that the longer the nominal cycle length the greater the variance in the actual length of the cycle. The 18 month cycle can range from 12 to 24 months. The 4 year cycle can be 3 years. It can be five years. Four years, give or take a few months has been most typical, especially in the latter half of the twentieth century, but a 3 year cycle is not uncommon. In the first half of the century, cycles frequently lasted 3 or 5 years.

The 3-4 year cycle low was between the April and September 2001 lows. The 3-4 year cycle actual price high was probably in January 2002. The rally from the September lows to the final high in March 2002, was, in essence, a 3-4 year cycle bull market within a long term secular bear market. The wave high, however, where the upper edgeband of the wave envelope contacts the upper band of the next longer wave, is probably now, as represented on the chart below.

The July-October double bottom looks like a nominal 18 month cycle low. The 18 month cycle high is ideally due in the second half of next year but could come earlier. The peak should be well below current levels. After that, the 18 month cycle and the 3-4 year cycle should be in gear to the downside into at least the first half of 2004. At the secular trend rate of decline the mid year 2004 low will be between 585 and 676. In the event of a panic low an extreme of 525 is possible. For 2003, the low will probably be around 700+/-.

Currently both the 10-12 month cycle and the 6 month cycle are topping out. The 6 month cycle probably resynchronized from the October low and could head down into March. Or it could make a low in January. It doesn't matter. The SPX is beginning to fall away from the top of the 18 month cycle channel. It should move to test the bottom of the channel, if not within the next 10 days, then on the next 10-13 week cycle down phase. Then after one or more weak rallies following "successful retests" of the lows, there will be another 20% killer wave in the second half of 2003.

There you have it, Doc's forecast for 2003. (Subject to change without notice. Dealer title, tax, and tags not included. Consult your local directory for prices in your area. Past performance is not necessary to be a Wall Street analcyst.)

This chart shows the 18 month, 3-4 year and 12 year cycles. These are nominal cycle lengths. The 18 month cycle may be from 1 year to 2 years. The 3-4 year cycle may last less than 3 years or more than 4 years. The lows and highs of each are marked with color coordinated labels.

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 12/31/02

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7 M	650 WAG
6 Month	Top-Down/0-7W	??
10-13 Week	SWD-Bottom/0-7	865
6-7 Week*	Mixed/0-4	L870
8,13 Day	Bottom-SWU/0-3	??

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 have split again. The dominant cycle is reported.

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 8 and 13 day cycles are down with a bottom imminent. The cmap appears to be 1320-1330. The 6-7 week cycle has a couple days to go and its cmap looks like it could be as low as 1320. The short cycles are day to day. The low could come at any time. The 17 day rate of change is on the cusp of an upturn.

10-13 Week Cycle

All indicators for this cycle continue down. The 29 day ROC has whipsawed and would be in an extremely negative configuration if it breaks the double bottom. The cycle low is due within 8 days. There is still time for some damage over the next 5-8 day cycle loop. The cmap looks like 1285 to 1315.

Long Term

The cycle configurations are similar to those of the SPX. Look for the 18 month and 3-4 year cycle waves to peak in the first half. The 6 and 12 month cycles just topped out. After a brief 10-13 week cycle up phase in January, the market will turn down again, and the lows will be broken later in the Spring. The 3-4 year cycle low would be due no earlier than mid 2004. Ultimately the 3-4 year cycle low should be around 500, or below on a selling panic. After the following bull phase, the next bear phase will end with the Nasdaq folding, and the bigger stocks going over to the NYSE, perhaps in 2008 or 2009.

Nasdaq Cycle Conditions as of 12/31/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0	1490 Done
6 Month	Top-Down/0-7W	??
10-13 Week	SWD-Bottom/0-8	1285-1315
4-7 Week*	Bottom/0-3	1320
8,13 Day	Bottom/0-1	1320-1330

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 -

The 10-13 week cycle upside cmap on gold is either 350 or 359. Take your pick. Given the typical margin of error, the recent highs are close enough. The 10-13 week cycle oscillator has turned down, indicating that a top phase is under way. The 6-7 week cycle upside cmap was 350. There's no sign of a deep correction. With longer cycles trending strongly higher, the down phase should result in nothing much worse than a trading range.

The 6-7 week cycle has entered a sideways down phase that should last about two weeks. The 10-13 week cycle is at the tail end of its up phase, with a cmap of 151.

Long Term- This is a teenage secular bull, and Doc thinks that it's about to go parabolic. The 1 year cycle target is around 400. After than, who knows?

But the stocks may be ready to go parabolic too. If HUI breaks out above 154, 200 should be a given.

Uncle Buck's Illness Current chart. Comment in the AM edition.

Long Term- The longer term view gives us perspective. Buck has broken an uptrend line going back to 1995. The 1 year cycle is just topping out. The next low on that cycle, somewhere toward the middle of 2003, is likely to be a 4 year cycle low in the 93-95 area. That should generate a sizable rally but the secular trend will still be down.

Happy New Year! Suctor Watch and Stoolwethers will be posted later this weak end.

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