The Anals of Stock Proctology

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The Anals of Stock Proctology

Published weeknights by 8:30PM Happy Acres, Florida Time
Weak End Edition Saturday Afternoon

The American Academy of Stock Proctology and
the American Society of Shortsellers
Dr. Stepan N. Stool, A.S.S. Chair

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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?

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

Tuesday's Markets (12/10/02)

Intraday - The market came out of 5 hour cycle low on Monday's close and retested within the first hour after opening strong. It then worked its way higher into an apparent 5 hour cycle high at 2:30. That looked like the one day cycle high as well, but after pulling back into the second 5 hour cycle low at 3:15, she took off to the upside.

The 3, 5 and 8 day cycles bottomed. These cycles now have a positive bias, but that could end as soon as Wednesday. The upside cmap on the SPX 3 day cycle is 912. There's not enough data on the 5 and 8 day cycles for a reliable projection but they are so far not pointing that high.

The next 5 hour cycle high is due at 10:30 AM. The 1 day high should follow around noon. So far the cmaps for those cycles are only 906+/-. They got very close to that at the bell. The charts below were drawn immediately thereafter, before a minor selloff ensued in the futures, the SPY's and Q's. These charts may already be moot, but Doc will wait to see the futures action in the AM before updating. If the after-market downtick holds, it may be necessary to flatten the blue and red channels. Update at 9:15 AM ET.

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

Bearly Patient 12/10/02

The market bounced off minor support Tuesday, as the shortest daily cycles firmed up. Al sat on his hands as far as rates were concerned, but he was pumping like hell in the morning, and it now looks like he is reflatulating Feed at a 10% rate. Most of the Feeding went into bonds, but there was some spillover in stocks as well. For a change, bond yields fell and stocks rose. Not the direction of change we want, and probably a random occurrence. One of these days, the polarity will reverse for real, and higher yields will begin to drive stock prices down. For now, they will probably continue to trade in the same direction most of the time, and since it sure looks like bond yields are heading lower for the next few weeks, stock prices should do the same.

Stocks have been stubbornly resilient however, as the ever willing mental institutional money managers continue to throw everything they have at the market to keep the year from being a complete wipeout. It's hard to watch these lying freaks on crapvision, all smiling at the cameras while spewing the same well memorized Ibbotson canned lies. The word that comes to mind is smarmy.

Bears have no choice but to be patient. Tops always last longer than bottoms. Especially when the money machine is printing the way it is. Hope, as they say, springs eternal. So, unfortunately does cash. Eventually, they will simply run out of greater fools, and the end will be swift and painful.

In the short run however, each day they can hold at this level raises the probability that a really big selloff can be delayed until the next quarterly cycle, or the one after that. Sure, we will see some kind of selloff as the current 10-13 week cycle nears its end between December 19 and January 9. But it looks more and more like it won't be the big one. There just isn't enough time.

Of course, markets are always full of surprises, and our job as traders is to do what the indicators tell us to do, whether minute to minute, hour to hour, or day to day. What is true today may not be tomorrow. Stoolies must have their swingers hats on and be ever vigilant.

The Feed added $1.25 billion by rolling over $7 billion in overnight repos with $8.25 billion in 2 day repos. There are no expirations on Wednesday. Any Feed, especially if of longer than overnight duration may give the market another shot in the arm early. The 2 day repos will expire Thursday along with $5 billion in 28 day repos. With Feed at the top of the channel, they'll probably start draining on Thursday, and the Gang of 22 may begin to start pulling in their horns late Wednesday in anticipation of that.

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. Feed growth has recently been 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.

The Feedometer is trending gradually above its 4 week moving average. Since the aggressive Feeding began, the markets have gone nowhere. Does the Gang of 22 lack the confidence to jam the market? We'll find out very soon. They have to believe that their customers will be there to buy that inventory. Just like any other retail business, if you think business will be weak, or prices will head down, what will you do? Keep your inventory as lean as possible. A $7 billion jam doesn't buy what it used to. The Gang is playing it close to the vest.

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

Bond yields dipped a bit, and the 4-7 week and 10-13 week cycles are now in gear to the downside. This still should be in the context of longer term bottom formation. Initial preliminary cmap is around 3.90 on this move. That could change.

The stage managers generated some buying in the Dow off the red trendline just below 8500. The 8-13 day cycles turned up, but the up phase should be short lived with a high due as soon as Wednesday. The 4-7 week cycle now has a downside cmap of 8350.

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

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 bottomed, bouncing off the lower regression channel line. It's not clear whether the up phase will have a flat or positive slope. Cycle counts suggest the up phase could be short, ending as soon as Wednesday. At the outside they could last a week. If they do, time for a big down on the 4-7 week cycle may run out. Wednesday is therefore a pivotal day. If it's weak, especially if it closes weak, the shortest cycle up phases are aborting, and a sustained push to the downside may be under way. If the day is strong and ends that way, bears will need to be patient.

10-13 Week Cycle

The 10-13 week cycle is in a down phase, but it's still sideways. The clock is ticking. If the bottom doesn't drop out within the next few days, it may not happen on this wave. Tick tick.

VIX

VIX downticked but stayed near center channel on the inverted scale Stool Band chart. A move back to 30 or below would signal enough complacency to indicate another short term top.

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 12/6/02

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 12/10/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	940-970 Done
6 Month	Top/0	940-970 Done
10-13 Week	Down/6-21	??
4-7 Week*	Down/7-22	880
8,13 Day	Up/0-5	??

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 appear to have merged into one.

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 Nas bounced off an 8-13 day cycle low. It's too early to know how strong the up phase will be, but cycle counts indicate that it could end as soon as Wednesday, or last a week. If that long, the 4-7 week cycle would also turn up. It probably won't but, tick tick.

10-13 Week Cycle

The 10-13 week cycle indicator is accelerating in its decline. The 29 day ROC paused but is in a well defined downtrend. These indications suggest that the short cycle up phase will be transitory. A bounce that lasts longer than a day or two may begin to change the picture.

Long Term 12/6/02

Nasdaq Cycle Conditions as of 12/9/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	1490 Done
6 Month	Top/0	1490 Done
10-13 Week	Top-Down/7-22	??
4-7 Week*	Down/5-20	1340 prelim
8,13 Day	Bottom-Up/1-6	??

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.

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 9:00 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.

ABBREVIATIONS:

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