The Anals of Stock Proctology

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Mid-day Outlook 11/5/02 12:30PM

The market is drifting. Doc expects it to remain in a narrow range for the rest of the day. probably with a downward bias as the 1 day cycle heads lower until the last half hour. Short covering could lead to a bounce into the close. There's a chance this could go in reverse with an upward drift until late, then some selling. Either way, not enough movement to trade. Still looking like an 8 day cycle top on hourly charts. The cycle map below is Doc's best guess.

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

Pre Market Outlook 11/5/02 9:15AM

Fucutures are flat. No change in forecast.

Doc does not make trading recommendations. This update reports intraday time cycle estimates and centered moving average projections based on the Hurst cycle analysis method. Doc assumes no responsibility for the accuracy or inaccuracy of these estimates and projections. The market may or may not meet these projections. New stoolies should thoroughly familiarize themselves with the methodology before trading based on this method. There is no free lunch. 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.

Beandigestion (11/4/02)

This is what you get when Wack Street eats too many baked beans. What a blowoff! The only question now is will they do it again Tuesday and Wednesday. These Wack Street guys cain't control demsevs, and if dey is any mo beans out dey, dey's gonna eat dem and blows some mo gas!

The 10-13 week cycle players have about exhausted their resources, and they are the key movers in this market. But if there are any more beans out there, they'll eat 'em and we'll get another day of digestive disorder.

Wack Street seems to have developed a broad consensus that we are in the midst of at least a long running bear market rally, or the beginning of a bull market. Even veteran bears have pulled in their fangs and gone into hibernation. Well Doc is sorry, but he refuses to join the crowd.

Yeah sure it's a rally, so what. Unless it takes out 960, it's just a garden variety bear market rally. And today, it couldn't even get past trend resistance at 925. It may or may not have a few more points it in, but from here it will be mostly churning and burning. Suck in the last of the suckers, exhaust all the buying power, and then begin the long march back to oblivion. Because dey just ain't enough beans to keep this thing firing.

Around 12:30 Monday, Doc mentioned here that it looked like a good point to maybe scalp a short because the upside risk looked small. Doc thinks it is important at this stage, prior to the rollover in the 10-13 week cycle oscillators, to grab profits when he can, and continue to trade them on an intraday basis. Once that rollover occurs, if he got a good entry during the day and held over, then he might hunker down and add more shorts. But he's not at that point yet. He thinks he'll grab what he can, bob and weave, and play some rope-a-dope until the 10-13 week cycle Smokin' Joe goes down.

The Feed drained $5.25 billion by adding $2 billion in overnight repos while $7.25 billion expired. The only expirations Tuesday will be Monday's $2 billion.

Doc said Friday he thought the stock rally would dissuade Al from cutting one. That goes double after today. No cut. Unless of course the Democrats take Congress and the market tanks. Fat chance.

Total Feed is back to the center of the 5 month long flat range, and at the longer term 8% growth lower channel line. Doc suspects Al will hold to that 8% growth line. It won't be enough.

The 5 and 10 year note auctions are coming up on November 5 and 6. They will be selling $38 billion in new paper. If the Feed doesn't print that much, it's going to be a real burden.

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 three months.

The Feedometer is still in a downtrend over the last 5 months. Last week's spike looks like a temporary measure to ease settlement of the 2 Year Note auction. One thing is certain. This rally was not driven by Feed. It was related to the mortgage bulge, and that has ended.

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

Bond yields gapped higher then drifted down to close up slightly but at the low of the day. The 10-13 week cycle is topping but short cycles are bottoming. The 6 month and 10-12 month cycles are heading up. If bond yields hold near current levels and begin to move up again in the days ahead, a longer term upside reversal would be confirmed. The $38 billion in new paper coming to market this week should put upward pressure on yields, especially with the Feed more or less on the sidelines.

Weekly Money Review

8 Minute Bar Charts 11/1/02
Dow Jokes Inflatables +53.96

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 - The Wack Street Mob's celebration of the victory of its leader over the forces of law, order, and free and fair competition, kicked off the day on Monday. 1 day cycle cmaps based on the futures, of around 915, got blown out and the party continued until lunch time, by which time the engorged and drunken players were beginning to develop a little indigestion. The 1 day cycle high came on schedule, but the down phase continued beyond the expected 2:30 low, indicating that a 9-10 hour cycle may be at work. The downside cmap for the 5 hour cycle was hit at 905.

Originally the 3, 5, and 8 day cycle upside cmaps looked like 930. But after the rally topped out at 925 and paused, it began to look like those projections would come down. The 3, 5and 8 day oscillators began to turn down in the PM, suggesting that the top is in for at least the next 3-4 days, with the exception of a possible attempted retest early Tuesday.

Dow Jokes Inflatables

The 10-13 week cycle cmap is still unmet at 8800. Cycle indicators are mixed, but the 6-7 week indicator is unusually weak considering the strength in prices. This cycle should have a downside break any day now.

The 10-13 week cycle indicator appears to be slowing. If the 13 day cycle oscillator rolls over at this level, we could see a surprisingly sharp selloff. Could Monday's action be the infamous Finger formation? We'll know soon.

Portfolio Sphincters Index-SPX +7.39

Nasgap +35.84

Intraday Outlook - 5 hour and 1 day cycle low time frames were overshot on the afternoon decline. The next likely time frame for a low is on the 9-10 hour mark, or around 10:30 AM Tuesday. The downside cmap of 905 was hit near the close Monday. The 5 hour cycle indicator was starting to turn up at the bell. After some basing in the 900-908 area, the up phase should take hold. Below is Doc's guess for the AM cycle map. The lower high is based on the likelihood that the 3, 5, and 8 day cycles topped out on the big MA move up. Look for the 1 day cycle high around mid-day again. The 1, 3, and 5 day cycles should be down in the PM, leading prices to move lower. This forecast is subject to the AM fucutures action. Check back around 9 AM NY time for the AM update.

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 8 and 13 day cycles "apparently" topped out. (Having been burned a couple times, Doc is now using weasel words.) The 4 week cycle is not a factor. The 6-7 week cycle is still in a top, with a cmap of 920 which was hit today. The overlaid cycle indicator is headed down. The indicator has a history of leading turns, at times. The lead time depends on the condition of the 10-13 week cycle.

10-13 Week Cycle

This cycle is closing in on its cmap of 930-940. The top is due at any time over the next 14 days. Tops on this cycle are often marked by a couple weeks of churning following a blowoff day. The cycle indicators are in position to confirm a top within a day or two.

VIX

The VIX touched the upper blue band on the inverted scale Stool Bands. This is very close to a sell signal, now requiring only a break of the trend for a sell signal confirmation.

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 (11/1/02)

Virtually everyone was expecting a 4 year low in the current time frame. 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 in a 4 year low is a bad idea, especially when the whole world expects it. Cycles vary in duration, and long term indicators 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 and is now in the midst of a sideways up phase in the range of 780 to 950. A retest of the August high is possible, but it's more likely that the current rally will fall short.

The rally is part of a 6 month cycle top within the 10-12 month cycle up phase. Significantly lower lows look like they will be delayed until well into next year. 925 and 960 are areas of heavy resistance.

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 11/4/02

Cycle	Phase/PTT	Target
10-12 Month	Up/0-2 mos.	930-950
6 Month	Top-SWD/3-4 Mos.	940-960
10-13 Week	Up/0-14	930-940
6-7 Week	Top/0-2	920
20-25 Days	NA/NA	NA
8,13 Day	Top/0	916

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

The 8 and 13 day cycles are a little shy of the cmap, but, based on the action of hourly cycle oscillators, may have topped out . We'll need to see what happens Tuesday to be more certain. The 4 week cycle is uncertain and probably not important. The 6-7 week cycle cmap rose to 1390. It's not much help because it has been following the market up. The 17 day rate of change finally stopped going up. That's step one. A double top or negative divergence normally precedes the price turn. The signal is still going to take a few days.

10-13 Week Cycle

The 10-13 week cycle cmap rose to 1380-1400 from 1375. Price has blown the top of the major trend channel. That's usually what happens at an overextended top. It looks like an exhaustion move, but we won't know for sure until it turns and the indicators confirm. That could take up to a week during which time prices would first churn , then start to head down. Until then we won't know for sure if this is over.

Long Term (11/1/02)

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 11/4/02

Cycle	Phase/PTT	Target
10-12 Month	Up/0-2 mos.	1380-1400
6 Month	Top-SWD/3-4 mos.	1380-1400
10-13 Week	Up-Top/0-14	1375
6-7 Week	Top/0	1390
20-25 Days	NA/NA	NA
8,13 Day	Top/0-2	1420-1450

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

Yesterday Doc told you that HUI's upside cmaps for all the short cycles were 118. Wow! Got there quick. The 8 day cycle cmap is now 120.

Other short cycle cmaps are also pointing to 120-121. The 10-13 week cycle is just beginning to come out of its trough, and it also looks like the 10-12 month cycle should be making a bottom. A retest of 135 over the next couple of months looks to be in the cards.

Uncle Buck's Illness

Buck is looking sick again. Trading at 105.70 here at 7 AM NY time. This is a support area and the short cycle ozzie is ion the trampoline. A bounce is due, but this sideways up phase is will break down after the bounce. As goes Buck, so goes the stock market.

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