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?

Mid Day 11/8/02 1 PM

The market got right where the cycle map said it would, although it did take a more circuitous route. The outcome should be the same. This looks like a 1 day cycle low, along with a 3-5 and 8 day low. A second low may come in around 2 PM, with a possible cmap of 885-890. The short cycle lining up normally would give the market some juice to the upside. But with the 13 day and 6 week cycle topped out, and a 10-13 week cycle top in process, Doc thinks the up phase will be uninspired. Might look something like this.

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

Pre Market 11/8/02 9:15 AM

The fucutures gyrated wildly, ending up right where they started. The alternative scenarios posted last night are still valid. Doc continues to lean toward the first, because the futures are starting to weaken, Uncle Buck broke down overnight, and bond yields gapped down on the open, all of which point to early weakness. However, scenario 2 still has a chance. Regardless, there's little sign of a big move in either direction, with a likely range of 890 to 905 for the first half of the day.

Hump Day (11/7/02)

So it turned right on schedule, it did, but it's way too early to gloat, or even feel comfortable, no sir! So far all we have is a short cycle high. The 10-13 week cycle top that we've been waiting for may be in, but until that cycle's indicators turn down, we won't know for sure.

The 10-13 week cycle bond yield indicators have turned down. There's no reason to believe that stock prices have decoupled from their inverse relationship with bond prices. The downturn in bond yields should still be a good leading indicator for stock prices. Uncle Buck is also looking sick again, and that too has been a reliable leading indicator for the direction of stock prices.

But it will be few more days until we know for sure whazzup, and what isn't.

The Feed opened the floodgates with $5 billion in 28 day and $6.5 billion in overnight repos, for a net addition of $5.5 billion. $4 billion in two day repos and $2 billion in 28 day repos expired. Turdsday's overnight repos will expire Friday.

The rate cut may not be purely symbolic, after all. We need to watch their actions over the next few days to know for sure if the cut is part of a more aggressive Feeding policy. The surmise that all of us, and the market, are making is that something must be terribly wrong out there that they are not telling us about. Are we in for a massive 1998 style reliquefaction? We are about to find out just how hard they intend to pump, and what kind of further destabilization will result.

Normally the market breaks down on Cut Day, and The Feed pumps the next morning. Sure enough, they came with the $5.5 billion. But is that really so much? Will thy keep adding day after day? On November 15 the banking system must pay for $40 billion in new Treasury notes. New stock offerings are suddenly coming out of the woodwork. Suck suck. Al's going to have to really strain to keep the reflatulation going.

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 rose sharply. However, an excess of another $5 billion every single day until November 15 will only be just enough to offset the sale of the Treasury bonds. Gargantuan feed which might otherwise go into stocks, and be very scary for stock market bears, should be viewed in this context. As always, big Feed, little Feed, or no Feed, let the market do the talking. In the current circumstances, a big Feed may not spell j-a-m. And if the Feed isn't really big, and I mean really, really big, the stock market is going to get crushed.

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

Bond yields fell sharply, in spite of upturns in the short cycle oscillator. So it looks like we know where the Feed is going. The 10-13 week cycle is topping out, and it should go sideways for the next month or two, but in a lower range than Doc suggested yesterday, perhaps 3.60 to 4.0%. A retest of the lows may be in the cards. That should complete the long term bottom. Of course, maybe this is Japan II, and they go to zero. Keep in mind that stock prices are still moving in near lockstep. But Doc doubts that will happen.

Weekly Money Review Last Week

The Mortgage Bonkers Ass. weekly mortgage applications index bounced back a bit last week. Although the trend has reversed, liquidity continues to pour into the system as the loans are funded and purchased by the GSE's. The bulge in money growth that was expected as a result was partially offset by the Feed's stinginess.

Looking at broad money measures you can see that growth exploded from April to July when the Feed was pumping like mad. Then the mortgage bulge took off in June, and the new credit flowed into money creation beginning in July. But money supply growth actually slowed because Al slammed on the brakes starting in June.

The results of the Fed's tightness showed up as no growth in M1. If they really pump like crazy, M1 and checking accounts should begin growing. But there's no way of knowing where the excess liquidity will flow. Furthermore if the mortgage bubble subsides, there won't be any excess.

Bank credit growth has been slowing. Commercial and industrial loans continue in a steady downtrend. (See following chart)

The commercial paper market continues to shrivel.

All in all it's a picture of a Fed still pushing on a string. The market's response to the policy shift is going to be mighty interesting.

8 Minute Bar Charts 11/7/02
Dow Jokes Inflatables -184.77

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 - It was down from the gitgo Turdsday, and they kept sliding gradually right into the 1 day cycle low at noon. The up phase was weak and tentative and ended at the 5 hour cycle high at 2:30 PM. They churned lower into the close. Whether the 5 hour cycle low is in, or will be delayed until tomorrow morning, we'll have to wait and see.

Dow Jokes Inflatables

The 10-13 week cycle cmap remained at 8850. Hate to beat a dead horse, but cmaps are only approximate guide posts. When they get to within 2-3 %, that's good enough. Watch the cycle indicators for confirmation of a top. This downturn was right on schedule with the 13 day cycle schedule, and it is very close to breaking a best fit linear regression channel for the 10-13 week cycle. The 10-13 week cycle oscillator is close to a sell signal and the 6-7 week cycle still has a couple weeks of downside potential.

Portfolio Sphincters Index-SPX -21.11

Nasgap -42.48

Intraday Outlook - A 5 hour low is due at 10:30 AM followed by a 1 day cycle low around noon. A 3 day and 5 day cycle low is also due, with a cmap around 890. The cycle map looks like the chart below. An alternative would have Turdsday's late lows as the 5 hour low, followed by a sideways churn with a low no lower than 895, and a high around mid-day. Doc will re-evaluate and post an update by 9:15 AM.

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 8-13 day cycles turned. The down phase should last up to 5 days. The tentative preliminary cmap is 876. The 6-7 week cycle also turned down, although it may still have some work to do at the top as the cycle rolls over. The overlaid cycle indicator and the 17 day rate of change worked beautifully, giving a couple of days of advance warning. The indicators were not swayed by all of the consternation, all of the gnashing of teeth that accompanied the rally and the news. The indicators are not emotional. They just do their job of filtering out the noise. We only need to learn how to read them, and then follow. Over the next couple of months Doc expects we will see again just how good these indicators are.

10-13 Week Cycle

Still no sell signals here. It is entirely normal for the indicators for this cycle to lag the turn by 4 or 5 days. Patience pays. All we want to do is capture the meat of the move. This sometimes requires staying on the sidelines for weeks. The top is due at any time over the next 11 days. Monday and Wednesday look like those were the days, but there will be reaction rallies and possibly retests. Once the cycle oscillators and the 29 day rate of change roll over, we can feel confident that the top is behind us.

VIX

The VIX Stool Bands are trending up on the inverted scale chart and the index has dropped out of the upper sell signal band. That's frequently good indication of a turn. VIX didn't quite make it to the blue projection line, but if it hovers, or moves back toward 40, that would bring the line down to touch the index, confirming the sell signal. A break of the trend is all that's needed now to confirm a turn.

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 11/7/02

Cycle	Phase/PTT	Target
10-12 Month	Up/0-2 mos.	930-950
6 Month	Top-SWD/3 Mos.	940-960
10-13 Week	Up-Top/0-11	930
6-7 Week	Down/9-14	Too early
20-25 Days	NA/NA	NA
8,13 Day	Down/0-5	876 prelim

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 - 13 day cycles turned down. The down phase may last up to 5 days. It's too early to project price targets. The 6-7 week cycle also turned lower, with a sell signal from the 17 day rate of change. That does not rule out that there could be more work to do at the top.

10-13 Week Cycle

The 10-13 week cycle indicator has reached the topping zone, but in spite of the market's sharp decline, there are no confirming sell signals. The cmap adjusted down to 1420. We should see sell signals Friday or Monday, confirming that the top phase is under way. A signal concurrent with this WHOPsaw through the upper long term cycle channel and back could lead to a doozy of a down phase. The best moves usually follow WHOPsaws. The WHOPsaw is a tool of the stage managers to suck everybody in, and exhaust potential demand. WHOPsaw days are the days market makers get loaded up with shorts. They are now ready to pull their bids and let this sucker drop in great big chunks.

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 11/7/02

Cycle	Phase/PTT	Target
10-12 Month	Up/0-2 mos.	1410-1430
6 Month	Top-SWD/3 mos.	1425-1450
10-13 Week	Up-Top/0-11	1420
6-7 Week	Down/9-14	Too early
20-25 Days	NA/NA	NA
8,13 Day	Down/0-5	Too early

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

The 13 day and 4 week cycle cmaps are now pointing at 130. The 10-13 week cycle is early in its up phase and the 10-12 month cycle is bottoming. The short cycle oscillator has stayed up in the extended zone for a couple of weeks. That's bull market action folks, but we will see a minor pullback one of these days. Nothing goes straight up.

Uncle Buck's Illness

Even if he is due for an eentsy teensy bounce, Buck sure looks like he's on the verge of a breakdown again.

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