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 1/27/03

12:30 PM With the market trending, intraday cyclicality is unclear, but will be biased to the downside until a trigger for an 8 or 13 day cycle bounce. The low cmaps posted appear to correspond with the cmaps for those longer cycles. If you are shorting larger swing cycles, there are no worries here. Day traders and scalpers should consider taking advantage of further weakness this afternoon to book profits if the market shows signs of turning from the vicinity of the cmaps. That's what Doc will focus on as the day unfolds. Chart below.

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

9:15 AM Fucutures sold off overnight, stabilized in the last few hours, then weakened near the close of pre-market fucutures trading. The late weakening means that the 1 day cycle low cmap may be as low as 840. On the high side it would be 847. Last minute jam clouds the picture.

Friday at the close we had an expected 1 day cycle low coming up at 11 AM. Let's stick with that for now. Doc was also projecting a 24.40 low on the QQQ around the same time. That has dropped to 24.35 which was already hit in the pre-market. Look for it again around 11 AM.

Intraday Friday - A straight down open was followed by a relentless decline into 1 day cycle lows at 11 AM and 1 PM. Then came a weak swup which retested the lows at 3PM and tried to rally into the close, but failed. The 1 day cycle high came at 3:45. Look for a weak morning and another drop into mid day Monday. Pre Market Update at 9:15 AM Monday.

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

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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

Friday's Markets

Only The Beginning 1/24/03

The handwriting is on the wall, and it is written in crimson. The market tanked when it should have bounced for a day. Key shport levels (no such thing as support in a bear market) crumbled like a dried out sand castle on a windy day. Most importantly, it's still very early in a 10-13 week cycle down phase that topped out early and could run for 8-10 weeks with but minor interruptions along the way. We are going down and going down big. The extremely early start of the 13 week cycle down phase is an ominous sign.

Meanwhile, Uncle Buck is reeling while the Golden Stool is flung toward the moon. (Of course leading to the question of who flung the dung.) Dollar weakness is merely a symptom of the underlying disease -- too much credit and too many dollars around the world. (Doug Noland's Credit Bubble Bulletin, required weekly reading.) Foreign holders, burned again and again, want out of the crumbling US pyramid credit scheme with its skyrocketing defaults and burgeoning bankruptcies. The credit bubble has begun its collapse. Much of it has been and will be hidden from view in the murky world of derivatives and counterparty obligations. But the effects will not be. They will show up in destabilized financial markets.

Fed Releases Turdsday

What about all those housing starts and building permits? Signs of speculative blowoff. As the MoGauge showed in Wednesday's Anals mortgage purchase applications have been in decline for a year. How is it then that builders are starting record numbers of housing units? They are doing it on spec, borrow, build, and steal. No need to ever repay. But demand is on the wane. Ever lower mortgage rates have not been able to stimulate greater demand. So the developers continue to develop more on spec and latent oversupply builds. Current levels of demand are unsustainable. When the first uptick in bond yields comes, housing demand, and prices, will collapse. The acquisition, development, and construction loans won't be repaid. The credit tightening begins. Rates rise in spite of a weak economy.

What can Al do? The more he prints, the greater the signs of inflation, the faster commodity prices rise, the more big investors will shy away from the bond market, the more foreign investors will dump dollars. At some point, long bond yields begin to head inexorably higher. So what has Al done for us lately. He has tightened up! He has reigned in the panic level growth of Feed, hoping to stop, or at least slow, the collapse of the dollar, and the inevitable rise in bond yields. The question is whether he will be forced to raise short term interest rates in hopes of defending the dollar and slowing capital flight.

In truth, there is nothing they can do. The forces that have been set in motion have built up over 20 years of speculation, culminating in an explosion of free money and credit creation, and the accompanying moral hazard. Until now, there has been no penalty for wanton high risk credit creation. The addiction to cheap and easy money, with no penalty for the endless creation of ever more risky credits, has caused a growing chain reaction explosion of bad debt. The GSE's, enabled by the Fed, have expanded money supply at an exponential rate, while the generation of real profits and real investment lagged farther and farther behind, finally going in reverse. The piper must be paid. The value of the US dollar and dollar denominated financial assets are in the process of correcting the flagrantly wanton excesses of the past 20 years. Money backed by worthless debt and the inflated real estate values, whose growth has been driven by free, unfettered, and wanton credit creation is on the verge of being swept away as fast as it can be printed.

The process of collapse is only beginning.

Doc's Pooper Scooper.

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The Feed drained $3 billion by adding $4.5 billion in weekend repos, while $7.5 billion expired. The weekend repos are the only expirations on Monday. It's increasingly looking like Al is in draining mode. Total Feed is now back below the center of the 8% growth channel. Doc is wondering if Al has his eye on Uncle Buck. What to do, what to do. The conventional wisdom is that they must tighten and raise rates to stop the collapse of the dollar and halt capital flight out of the US. He couldn't possibly be thinking that.

Could he?

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.

The Feedometer is in a short term downtrend. As Doc has noticed and pointed out many times, aggressive Feeding doesn't help the markets any more, but one thing is for sure, draining always kills it. Without excess Feed. one of the legs of the three legged capital stool is removed. Kerplunk. Without inrushing foreign capital, there goes another leg. Crash! With the institutional nutcases tapped out, goodbye!

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 dipped. The short cycle is still heading lower, but overall indications remain mixed, and yields are getting close to the short cycle cmaps of 3.85.

Long Term- Long term downside cmaps of around 3.60 were hit last year, but the lows could be retested before the final upturn. Rates typically head higher in the second quarter, although they did not in 2002, in what looked like the final blowoff of the bull market in bonds. The 6 and 12 month cycles are juxtaposed, keeping yields locked in a range. Long term cycle indicators are making troughs at higher levels, indicating a slowing in long term downside mo and possible secular trend upturn on the next up cycle.

Dow Inflatables- What a day! Note that the 8-13 day cycles are supposedly in an UP phase. No match for the crashing 4 and 6-7 week cycles and the failing 10-13 week cycle. The cmap on the 6-7 week cycle is now 7750. The 13 day cycle cmap is 8050. Short cycle downside cmaps have been repeatedly broken on this decline.

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 in the bottom zone. The 13 day cycle low that looked in on Turdsday, wasn't. The new cmap is now 845. Will it bounce from there? Don't know. The 6-7 week cycle oscillator (chart below), declined. The 17 day rate of change is completing a top. The preliminary downside cmap on the 4-7 week cycles is 830. That should drop in the days ahead.

10-13 Week Cycle

The 10-13 week cycle oscillator is moving down. The 29 day rate of change is beginning to scream Sell Mortimer, Sell! The down phase can last 8 to 10 weeks. The preliminary cmap is 820, but expect that to go lower.

Sentiment

VIX fell out of bed. Normally we'd look for a bounce if it goes to 40 or above. We'll see.

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 View

Linear Regression Analysis- The rally off the July-October lows is the first to fail to reach the upper regression projections within 4 months of breaking the lower channel in the bear market. 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 down slope as sharp as it is now. Having failed to break this 1 year regression channel, the market is about to enter a period of extended and accelerated decline. The last line of defense is the long term central regression projection. Now that the SPX has fallen below that, the bottom will drop out.

Long term cycle configurations are 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 nominal 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. Hurst called them "nominal" cycles because cycles vary in length. Looking at charts going back 100 years or more you can see that a 1 year variance is not uncommon for the 4 year cycle.

The 4 year cycle low was between the April and September 2001 lows. The 4 year cycle actual price high was in January 2002. The rally from the September lows to the final high in March 2002 was, in essence, a 4 year cycle bull market within a long term secular bear market. As opposed to the price high, the wave high is where the upper edgeband of the wave envelope contacts the upper band of the next longer wave. That was probably last November, when speculative fever was at its peak. The degree of speculative mania during the 3 month trading range in the fourth quarter is consistent with a major 4 year cycle top.

The July-October double bottom looks like a nominal 18 month cycle low. The 18 month cycle wave high is ideally due around mid-year but the price high was probably in December. The wave high looks like it was in early January again coinciding with a wave of speculative mania. The 18 month and 4 year cycles should be in gear to the downside into at least the first half of 2004. At the current secular trend rate of decline, the mid year 2004 low extrapolates to between 585 and 676. In the event of a panic low an extreme of 525 is possible. For 2003, the low will probably be near 650 late in the third quarter or early in the fourth. That would be followed by a tepid year end rally of 10% or so.

Currently the 10-12 month cycle is forming a top. The 6 month cycle is uncertain. The low may occur within a few weeks or it could extend into late March. The 6 month cycle may have resynchronized from the October 18 month cycle low. The variance in this cycle is a month to 6 weeks. Cycle lengths of 5-7 months are common. In this case the 12 month cycle starting down will limit any upside on the 6 month cycle. The probability of extended periods of decline, with brief interruptions, is high throughout the first half of this year.

The current breakdown suggests the index will move to the bottom of the 18 month channel on the current 13 week cycle down phase, which is expected to last into March. Then after one or more weak rallies following "successful retests" of the lows, there will be another 20% killer wave down in the second half of 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.)

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 1/24/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7 M	750p
6 Month	Down/2-11W	820p
10-13 Week	Top-Down/31-46	820p
4-7 Week*	Down/12-17	830p
8,13 Day	Down/0-2	845

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

The cycle configurations are similar to those of the SPX. The 12 month cycle is forming a top. If the 13 week cycle down phase now starting does not break the lows, the next one will. The low for the year will be in the third quarter and may approach 700. The 3-4 year cycle low would be due no earlier than mid 2004. Ultimately the 3-4 year cycle low should be around 400, 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 1/24/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7M	1000p
6 Month	SWD/2-11W	1180p
10-13 Week	Top-Down/34-49	1280p
4-7 Week*	Down/5-19	1230-1290p
8,13 Day	Down/0	1310-1340

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.

Suctor Watch and Stoolwethers- Now posted on separate page. Updated each morning between 8 AM and 9:00 AM NY time.

Long Bong Hit - See top of page.

Golden Stool Comments 1/24/03 PM

HUI and Gold remain in a sideways down phase for the 13 week cycle. A 6-7 week cycle low is due now and short cycle oscillators are turning up. The 13 day cycle cmap is 158 for HUI and 375 for gold. Gold has a 10-13 week cycle cmap of 380 and HUI has a 6 month cycle cmap of 175. 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 1/24/03 Close

Long Term- Is gold in a final blowoff or just beginning a parabolic rise. Actually, the move appears relatively young. It has just broken out of a 5 year long base with a minimum measuring implication of 400-415. All of the long term indicators are pointing up and a 1 year cycle high isn't due until the second or third quarter. None of which mitigates against occasionally violent short term correctins.

HUI has a 3-4 year cycle cmap of 225. The current position of the 10-12 month cycle suggests an imminent breakout.

Uncle Buck's Illness Comments1/24/03 6:30 AM

Uncle Buck took another dump breaking 100. The 10-13 week cycle cmap is pointing toward 97.25. He dipped as low as 99.55 overnight. A 6 month cycle sideways up phase is due now. Chart as of 1/24/03 close

Long term- There is no sign of respite from this new major secular bear market. The next 10-12 month cycle low is due in the second or third quarter. Looks like it will be in the mid to low 90's by then and possibly worse on a panic selloff. The flight of capital out of dollar denominated assets will continue to destabilize all US markets.

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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