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

PM Update 12/5/02 12:45 PM

The market is in a weak sideways up phase off a 5 hour- 1 day low at 11 AM. Highs are due at 1:30 and 3 PM. There's no upside cmap. The downside cmap of 900+/- on the 8day cycle is still out there, and we may see it by the end of the day. The cycle map below is sheer guesswork at this point., due to the market's trendlessness.

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

Pre-market Update 12/5/02 9:15 AM

Fucutures ramped on anticipation of an ECB rate cut, then on the fact of it. The up phase which began at 3 AM NY time is topping out as the opening bell approaches in Noo Yawk, Noo Yawk.

Did you know that the state of Noo Yawk is also home to the towns of Valatia and Coxsackie?

Yes, well...

Based on this morning fucutures the cmap for this move is 926. The high should come right after the open. Doc is surmising that there will still be a pullback into an 11 AM low, then another run up into the 2-3:30 PM highs. Perhaps it will look like this.

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

Wednesday's Markets (12/4/02)

Intraday - The market went into a 3 hour wavelet pattern after selling off on the open. The 5 hour and 1 day cycle lows were at 10 AM and 11:30, and the high came at 3:30. The long upleg confirmed that the 3 and 5 day cycles had gone into an up phase. It's a swup, so far, and shouldn't cause any big problems to the upside.

Look for 5 hour-1 day lows either side of 11 AM Turdsday. Based on the 3 hour wavelet the cmap would be 911 but the way the wave patterns shape up it might not get that low. We'll see how the fucutures act overnight. The highs would be due at 1:30 and 3PM. If they're earlier, the 5 day cycle up phase is petering out. The 8 day cycle should still be down, with a possible cmap of 900-905 in a couple of days. Update at 9:15 AM. The cycle maps are based on 8 minute bars.

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

The MoGauge (12/4/02)

Today is Wednesday, stoolies, and you know what that means, right? Aside from the fact that it means tomorrow is our favorite day of the week, Turdsday, it also means that today is MoGauge day. Yes, stoolies, today is the day we get our all important MoGauge data from that bastion of integrity and professionalism, the Mortgage Bonkers Ass., a group which makes stock borkers look like altar boys. Which is besides the point, but nevertheless worth mentioning.

Several of you new stoolies are probably wondering just what Doc is talking about, so here's a brief rehash of the theory.

Each week the Mortgage Bonkers Ass. blows out the weekly numbers on mortgage applications. Doc charts the data for you. The theory, based on the seminal work of Doug Noland, is that the GSE's like Fannie Mae (fondly known to stoolies as FatAss) and Freddie Mac create money when they fund mortgages and hold them in their portfolios. This money shows up in broader money supply measures like M3 and MZM. Since mortgage applications precede funding by four to eight weeks, typically, we get a heads up on what is going to happen to overall liquidity. We have seen that liquidity measures and the stock market tend to move together. When mortgage application activity explodes upward, within a few weeks, so does the money supply, the markets and the economy

Gee, I wonder why that is.

At any rate, here is the MoGauge for the week ended 11/29.

As you can see, the latest mortgage bubble is beginning to deflate. The surge of liquidity coming from all those new cash out refi's is about to abate.

On the next chart mortgage rates are plotted on an inverse scale so that you can see the direct relationship between rates and mortgage creation. Refi activity is dropping faster than rates are rising, because demand has been satisfied. Even if rates merely remain at current levels, the refi boom is over. It was the liquidity created by that boom which drove the markets and the economy over the past couple of months. The relationship between this chart and the direction of stock prices and lagging economic data could not be more clear. When refi activity booms, the some of the new money finds its way into the stock market while at the same time the economy heats up. Once the bulge ends, back in the crapper we go.

The Dow's 4-7 week cycle is rolling over, but slowly. There's no downside projection yet. The 10-13 week cycle is in what looks like a sideways down phase. The clock is ticking. There are between 2 and 5 weeks left in this cycle. The 4-7 week cycle should be in a down phase over the same time frame. That could be enough to get this cart started downhill. It may take an act of Congress to generate a sharp selloff. And those bums are on vacation.

The Feed did nothing, resulting in a net drain of $2.25 billion, the amount of expiring overnight repos. The only expiration Turdsday is the normal 28 day repo, in the amount of $5 billion. That was Al's first big dump after he cut one back in early November. Before that the 28 day repos were running $2-3 billion. They even skipped one week. As stoolie entre has pointed out, the 28 day repos are the Feed's version of Tim Allen's, "More Power!" It will be interesting to see if they maintain the $5 billion level on the 28 day repo. If they don't, you can bet there will be some selling of stocks as a result. Of course, they can play games with shorter term repos too, so we'll see.

Meanwhile, Total Feed sits on the 4 week moving average which lately is rising at about a 10% annualized rate. We'll watch what they do around that line for clues as to how hard they intend to push the string. Are they gonna stick within the 8% growth channel, or kick it up a notch?

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.

Meanwhile, the Feedometer has broken its 4 week moving average, but not enough to signal a clear break of the uptrend. It's normal for the Fast Feedo to fluctuate above and below the Slow Feedo.

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

Bond yields were lower after gapping down on the open. With conflicting cycle indicators, it looks like bonds are going to be rangebound for awhile. You can bet that Al doesn't want to see that double top broken, lest it precipitate a complete collapse in the mortgage and housing markets which underpin the bubbleconomy.

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 look like thy are headed down for 2-3 days, but not without a bump. The tentative cmap is 900-905. The 4-7 week cycle is now on the right side of its top, and should break down this week or next. Still no sell signal from the 17 day ROC, but the superimposed 4-7 week oscillator is starting to roll over. We won't see a sustained move until the indicators all get in gear.

10-13 Week Cycle

The 10-13 week cycle oscillator is heading down. The 29 day ROC is still suspended just above its November low point. Another downtick in that indicator would signal downside acceleration. The current holding action is normal and should not last more than a day or two. The 10-13 week cycle low is due between December 19 and January 9. It will be several days before it's possible to derive a reliable downside cmap.

VIX

On the inverted scale Stool Band chart, VIX is heading for the lower channel lines. Last week's blowout above the blue channel line was an indication of an overcooked, overconfident market, and a probable intermediate cycle top. But if the indicator corrects too quickly the market could rally. Look for a bounce if the VIX gets down to the lower channel limit.

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 11/29/02

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 12/4/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	940-970
6 Month	Top/0	940-970
10-13 Week	Top-Down/10-25	950 Done
4-7 Week*	Top-Down/11-21	945 Done
8,13 Day	Down/3?	900??

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

Short cycles have turned down and should continue lower for a few days. The tentative cmap is 1400. The 4-7 week cycle is beginning to head lower. We're just waiting for the 17 day ROC to break down as a signal that the floodgates have opened.

10-13 Week Cycle

The 10-13 week cycle indicator is dropping. Confirmation would come from the 29 day ROC dropping below its November low point. The 10-13 week cycle low is due from December 19 through January 9. It will take at least several days before we have a downside cmap for this cycle.

Long Term 11/29/02

Nasdaq Cycle Conditions as of 12/4/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	1490
6 Month	Top/0	1490
10-13 Week	Top-Down/11-26	1490 Done
4-7 Week*	Down/9-24	Too early
8,13 Day	Down/3?	1300p

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

It looks like the 4-7 week cycle launched, but did they. the 13 day cycle cmap is only 122. The 10-13 week cycle cmap was 124, and that was already hit several weeks ago. The area between 122 and 125 is resistance. This does not look like it will get legs. HUI and the gang should remain range bound for weeks or months. The time to re-evaluate will be on a break above 125.

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