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?

Intraday Updates 1/23/03

12:30 PM The 1 day cycle sideways up phase should be nearing an end over the next hour. Upside cmaps are posted on the chart. It's not clear how weak the PM will be, but the SPX could carry toward and 8 day cycle cmap of 865-70 by the close. Chart below.

9:15 AM The swup we've been expecting for two days is in full swing. The after hours jam gained strength through the night, but has flattened out in the last couple of hours. The upside cmap on the fucutures is 887 and on the QQQ is 24.45, which has already been hit in the pre-market. After a brief post opening gap and pullback prices should move higher into the 1 day cycle high around mid-day. The 3 day cmap on the SPX, based on the fucutures, is 889, and on the QQQ is 24.70. Those should be hit today, probably at the 5 hour and 1 day cycle highs due around 11 AM to 1 PM. After that we'll see.

Intraday Turdsday - Follow Doc's intraday commentary and cycle charts on the hour and half hour during the trading day at the Stooltrading Beta Test.

Pre Market Update at 9:15 AM.

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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 shown 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. Times and prices are the projected cycle highs and lows with cmaps.

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

Wednesday's Markets

Blame It On the Bossa Nova 1/22/03

The MoGauge Bonkers Ass. reported its weekly MoGauge applications index. Both purchase and refi applications were down last week, in spite of lower mortgage rates. While they still remain at high levels, mortgage volume must grow, or the bubble will die, and take the entire US financial system with it. For more on the credit bubble, see Doug Noland's Credit Bubble Bulletin, published every Friday.

Mortgage applications get funded about 4-8 weeks after the application is taken. When the GSE's hold those loans in their portfolios, they then turn into money through the magic of money market fund intermediation. Broad money supply grows, and that flows into the markets and economic activity. Likewise, when mortgage activity declines, money growth slows or even goes negative. In effect, the MoGauge has the potential of telling us to what degree money will be added to the system in a month or so. Big jumps in the MoGauge tend to be followed by big stock market rallies along with big jumps in money supply. When these bulges subside, the market follows a month or two later.

This week, 77% of all new mortgages were refi's. Refi's have been consistently at this level for months. In spite of a downtick in mortgage rates, refi volume fell. Demand has clearly been satisfied at these interest rate levels. A minor uptick in bond yields will be enough to cause the refi bubble to collapse, with disastrous effects for the financial markets and the economy. Purchase applications have been downtrending for 7 months in spite of declining and record low mortgage rates. Purchase applications are likely to break down as well on any increase in mortgage rates.

The Fed is between a rock and a hard place. They are pumping like mad to avoid deflation and keep the economy on life support. But that pumping is weakening the dollar. Foreign investors are fleeing as they are hit with the triple whammy of a falling dollar, falling stock prices, and low yields on bond holdings. The collapse of the dollar is inflationary, as is all the Fed's money printing. The two are of course interrelated. Inflation is showing up in gold and commodities. So far the bond market hasn't yet begun to be driven by inflation fears, but it may only be a matter of time.

The Department of Yes We Have No Inflation looks like this.

Doc thinks the Fed has a perceptual problem. They are looking at the wrong data. What else is new

Fed Turdsday Monetary Review

Meanwhile, the stock market was a disaster. What should have developed as an 8 day cycle swup didn't. As Doc is always fond of saying, if this was the up phase, I can't wait to see the down. But the swup is coming. Details below.

The poodits are blaming war fears for the market's miseries. Anything to avoid admitting that we are still in a bear market and the trend is down down down down scooby dooby doo. These are the same people who have been saying, and will continue to say, "no one could have foreseen this that or the other thing" all the way down. These are the same people who say that no one can time the market. These are the same people who, even though they are clueless about the market, tell small investors that they must turn their money over to them because it's so tough in this market that small investors don't stand a chance.

Well, guess what! It's not so tough. We bears have had it right all along, and we will continue to get it right. Let's face it, we're smarter. We're more honest. We're better looking. We're better dancers.

Hell, we're just more fun than they are! So what if we can't get on TV!

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 drained $1.5 billion by refunding only $14.5 billion of Tuesday's mammoth $16 billion in overnight repos. $14 billion is approximately the amount of today's auction of 4 week bills by the Treasury. That strikes me as more than a coincidence. Could the Fed have been tipped off that the holder of the bills would not roll them? Speculation on my part. We'll see what the Feed's balance sheet looks like after the close, Turdsday. Turdsday will be a big day for refunding when $7.25 billion in 6 and 9 day repos, and $5 billion in 28 day repos come due.

While the big Feed looks scary on the chart, let's withhold judgment until after we see that balance sheet.

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 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.

Ditto for the Feedometer. Until we see the Fed's books on Turdsday it won't be clear how much money was actually put out in Feed. Obviously the Gang wasn't buying stocks with it. They have been buying bonds though.

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 (Slowmo Feedometer). A break above the orange trendline might indicate a more aggressive jamming policy.

Bond yields fell, approaching the short cycle cmaps of 3.80 to 3.85. Indicators remain mixed. There's no sign that the trading range will be broken in either direction any time soon. This will not help the refi market. To reflate the refi bubble, rates most drop substantially.

Long Term View

Doc's Pooper Scooper.

Dow Inflatables- The Dow tanked again. The 13 day cycle cmap dipped to around 8280. That low is overdue and we should see a brief swup imminently. It should last only a couple of days. The 6-7 week cycle cmap is tentatively looking like 7800. The 10-13 week cycle down phase has barely started. It will last into March.

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 short cycle oscillator above is now in the bottom zone. A bounce or swup should start immediately. The 6-7 week cycle oscillator (chart below), declined. The 8-13 day cycle is overdue for a low, with the cmap now at 875, which was almost hit Wednesday. We should see at least a weak up phase lasting from 1 to 6 days. The 17 day rate of change is now very close to confirming the downturn. Mo has lagged price on the downside because the turn came very early in the cycles. The preliminary downside cmap on the 6-7 week cycle is 830. It will change in the days ahead and is likely to move lower.

10-13 Week Cycle

The 10-13 week cycle oscillator has finally turned down, and the 29 day rate of change is close as well. When a cycle reverses early, it's normal for the sell signals on these indicators to be late. However, the down phase can last for up to 9 or 10 weeks here. It's now possible to project an preliminary initial cmap. It's 820, but this could drop substantially in the weeks ahead.

Sentiment

VIX rose sharply again and is now back in neutral territory. The indicator has turned down from the top of a 6 month channel that has marked previous intermediate highs and lows. This is normally a reliable intermediate sell signal. The breakdown from the upper band on the chart confirms the reversal. It will take a number near 40 to signal an intermediate low.

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.

The 17 and 29 day moving averages of the putzcall are at the same trend level which has marked past intermediate tops in the bear market.

Long Term View

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 1/22/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7 M	??
6 Month	Down/2-11W	820p
10-13 Week	Top-Down/33-48	820p
4-7 Week*	Down/14-19	830p
8,13 Day	Bottom-Up/2	875

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 are distinct but usually overlap. The dominant cycle is reported.

Nasgap Charts

The Nas is expected to behave more like the SPX with the continued de-weighting of tech. In the interest of publishing the Anals earlier in the evening Doc is presenting the charts and data without commentary, as it is largely redundant relative to the SPX commentary above.

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.

Long Term View

Nasdaq Cycle Conditions as of 1/22/03

Cycle	Phase/PTT	Target
10-12 Month	Top/0	1490 Done
6 Month	SWD/2-11W	1280p
10-13 Week	Top-Down/36-51	1280p
4-7 Week*	Down/7-21	1240-1330p
8,13 Day	Bottom-Up/2	1340-1360

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.

Golden Stool Comments 1/22/03 PM

HUI and Gold remain in a sideways down phase for cycles up to 13 weeks. A 6-7 week cycle low is due now and short cycle oscillators are turning up. Downside cmaps were hit at last weeks lows. Gold has a 10-13 week cycle cmap of 375 and HUI has a 6 month cycle cmap of 170. The recent congestion areas may mark the midpoint of the move off the November lows. Because of the strong slope of the longer term cycles, shorter cycle down phases are only visible in their respective oscillators.

Charts as of 1/22/03 Close

Long Term View

Uncle Buck's Illness Comments1/22/03 6:30 AM

Uncle Buck continues to stumble, with the 10-13 week cycle cmap now possibly as low as 97.25 and the 6 month cycle cmap at 95.50 After dipping as low as 100.06, he's back to 100.41 this morning. The 13 day cycle low is due now, at a cmap of 100. Although a 6 month cycle sideways up phase is due now, the 1 year cycle looks lower. Chart as of 1/22/03

Long Term View

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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.

About centered moving average projections.

ABBREVIATIONS:

cma: centered moving average
cmap: centered moving average projection
os or ozzie: oscillator
sto: stochastic
swup: sideways up phase
swdp: sideways down phase