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?

Sign of Things to Come (11/11/02)

The market makers giveth and the market makers taketh away. But after the beating they've been taking in big sinkholes whose bottoms drop out without warning, you have to wonder how much they will be giving in the weeks ahead. Last week it was THC. Today it was HCA. The week before, the energy merchants and utilities. Enormous amounts of capital are being wiped from the books of those whose primary function is to maintain orderly markets. The process didn't just begin yesterday. It's been going on for 30 months. How many $85 stocks will it take to go to zero, or hundred dollar stocks to go to a dollar, or $200 stocks to go to $10 before the system finally falls apart from lack of sufficient capital to absorb even small increases in institutional selling. And how long will it be until the stage managers' institutional co-conspirators are no longer able to assist in the game of propping things up to make them look good.

Looking at the cycle charts, it appears that the day is approaching. It may be here sooner than we think. Anyone who thinks the specialists and market makers can continually absorb the waves of lopsided selling that sweep through the market for weeks at a time, or drop a single stock by 40% on a hundred million shares, without serous damage to the normal functioning of markets is kidding themselves. These guys carry inventory based on a tiny percentage capital reserve. When their inventory's value gets slashed, they take a tremendous hit. Sure they're short, and sure they're hedged, but illiquid markets only become more illiquid without a massive injection of capital from somewhere. And that injection is nowhere on the horizon.

For the first time in recent memory, the market went down on light holiday volume. The shorts did not step in and dominate the market with their short covering this time. It's scam week, so things will get crazy for the rest of the week as positions are unwound. But Monday's trading was a sign of things to come.

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.

The Feed had the day off. There were no expirations and there are none on Tuesday. After the market's stellar performance on Monday, watch for Al to dump the big smelly one. Be ready to hold your nose and run like hell, if necessary. But let the market be your guide.

So far, this is not the massive Feeding that would have been indicated by the half point rate cut. The cut looks like an empty gesture. That could change a bit on Tuesday, but if we are in for a massive 1998 style reliquefaction wouldn't they have started already? They are not acting like there's any crisis. Furthermore, they did say that they were moving from an "accommodative" to a "neutral" posture. That does not suggest additional Feeding, but we all know they are damned liars. So we'll just have to wait and see what they actually do, rather than pay any attention to what they say.

Three 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. 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 five months.

The Feedometer is within recent downtrend channels, but looks ready to break the shorter term downtrend. The 4 week moving average has turned up. Most of the added Feed is going to be needed to help absorb the $40 billion in new Treasury notes. The bill must be paid on November 15. The cash will go into the Treasury's account at the Fed, representing a short term drain on the financial system, at least until the funds are spent or deposited back into commercial banks. Digesting large offerings involves more than just the time leading up to the auction. The giant sucking sound you hear after the auction is the Treasury temporarily sucking all that cash out of the system.

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

The bond market was closed. See the weak end Anals for latest comment.

Weekly Money Review

8 Minute Bar Charts 11/11/02
Dow Jokes Inflatables -178.18

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.

Intraday - Down. What more can you say? The previous 1 day cycle high was on Friday at 3:30. The cycle low came Monday at 12:30. The up phase was nasty brutish, short, solitary and poor, and it ended at 1:30. The downtrend then resumed and carried into the closing bell. The next 5 hour low is due at 11 AM, with the 1 day low to follow between 12 and 1 PM

Dow Jokes Inflatables

With most of the Gang of 22 having the day off, the stage managers who were working were unable to stave off a Dow plunge. Even the shorts showed no interest in covering. The 8-13 day cycle low is due over the next 2-3 days. The preliminary downside cmap for the 6-7 week cycle is 8230, but that could still drop. The 6-7 week cycle low isn't due for 7 to 12 trading days. Looks like the down phase of the 10-13 week cycle is off to an auspicious start, as we anxiously await the first guess at a cmap for that cycle.

Portfolio Sphincters Index-SPX -18.55

Nasgap -40.07

Intraday Outlook - The 8 day cycle cmap is 856, and the market could approach that tomorrow. Look for lows from 11 AM to 1 PM, with cmaps of 866-870. Nothing dramatic. The map points to another PM recovery attempt, then a late move down. The 8 day cmap probably won't be reached until Wednesday. The picture can change overnight. Stay tuned for your pre-market update around 9-9:15AM.

5 Day Cycle______ 2-3 Day Cycle_______ 9-10 Hr Cycle_______ 5 Hr- 1 Day Cycle

All of Doc's cycle charts below 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

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 13 day cycle is headed down. The up phase in the 8 day cycle never materialized, suggesting that the market may already be trending. Normally, following an absolute high, we see a bounce or two to complete a distribution top. There's no sign of a bounce yet, although the 13 day cycle low could come at any time in the next 3 days at a cmap of 855-865. The 6-7 week cycle is also down hard. The initial preliminary cmap is 855. That could go lower. There's plenty of time, with 7 to 12 days left in the down phase.

10-13 Week Cycle

The "top of the top" of the 10-13 week cycle is complete, but there may be more work to do on the right side of the top. The 29 day rate of change has confirmed the turn. The next 8-13 day cycle up phase will complete the distribution phase. It could take up to ten days. The cycle low is due in late December or early January. Plenty of time for tremendous damage. It's too early for a cmap, but the October low should be broken by a wide margin.

VIX

The chart above uses a method for depicting the Stool Bands which results in a smoother curve with a longer lag than what Doc had been using. Based on this method, it appears that the top in progress is significant. It is important to keep in mind that sentiment extremes follow the market's trend. They are not predictive in and of themselves. They give context to the price indicators and vice versa.

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.

Long Term (11/8/02)

Virtually everyone was expecting a 4 year low around now. But bubbles are peculiar. The tsunami wave spawns atypical wave responses. The November 1929 low was at a 3 year anniversary. The next important low was in July 1932. At other times we have seen cycles run 4.5 years, or 3 years. Focusing on a 4 year low is a bad idea, especially when the whole world expects it. Cycles vary in duration, and the long term indicators at the top of the chart do not suggest that the this was the bear market low.

The most obvious long term wave this time has been approximately two years in duration, and the last low was in mid 2001. So we should look for the next one around mid-year next year, give or take 3 months either way. That would also correspond with the 10-12 month cycle which bottomed in July. It's now in the midst of a sideways up phase which is probably ending. Significantly lower lows look like they will be delayed until well into next year. Some time around the second quarter or a few months either side, we should see a very significant low which will lead to a big rally, one that may be classified as a cyclical bull market within a secular bear market.

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 11/11/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	920 Done
6 Month	Top-Down/3 Mos.	High 920 Done
10-13 Week	Top/0-9	920 Done
6-7 Week	Down/7-12	855 prelim
20-25 Days	NA/NA	NA
8,13 Day	Down/0-3	865

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

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

At 40 points a day, this won't take long. The 13 day cycle still has a couple of down days to go. The initial target of 1300 should be easily surpassed. The 6-7 week cycle is breaking down hard, with a lot of time left, 7-12 days, and a preliminary cmap of 1260.

10-13 Week Cycle

The 10-13 week cycle indicator is rolling over. It has a normal lag of a couple of days at the top. The turnaround resulted in a massive WHOPsaw which has trapped all the portfolio sphincters at the top. The Nasgap is now 100 points off the high in 3 days. The WHOPsaw is a tool of the stage managers to suck everybody in, and exhaust potential demand. Now that the market is down 7%, Doc wonders what all those guys waiting for a pullback to get long are going to do now. They might be good for a puny bounce to complete the top.

Long Term (11/8/02)

The "4 Year Cycle" looks like it bottomed last year, lasting only 3 years as a result of the influence of the tsunami bubble wave. The Nasty may actually have been in a 3-4 year cycle up phase since then, with the current move being the rigor mortis rally before the Nas heads for its ultimate price objective of negative 400. Note that as the 10-12 month cycle oscillator has moved up, the market has moved sideways in a range of 1400 to 1100. The top could form in that cycle at any time over the next month or two. By 2007, when a 12 year low is due, the Nas will be the National Toilet Paper Exchange. There is massive resistance above current levels. The going will get a lot tougher from here.

Nasdaq Cycle Conditions as of 11/11/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	1410 Done
6 Month	Top-Down/3 mos.	High1410 Done
10-13 Week	Top/0-8	1420 Done
6-7 Week	Down/7-12	1260 prelim
20-25 Days	NA/NA	NA
8,13 Day	Down/0-3	1300 prelim

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

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

Uncle Buck's Illness

Suctor Watch and Stoolwethers- Now posted on separate page. Updated each morning between 8 AM and 9:30 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