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 12:30 PM

The 1 day cycle broke. Looks like we are working on that rare animal the 8-10 hour cycle. And is should be at or near the low. On the other hand the 3 and 5 day cycles aborted early, as did the 8 day, although it could be a double bottom on that. We watch the afternoon with a little concern because of the huge Feed this morning. Right now the cmap on this 9-10 hour thing is 893. Here's the cycle map guesstimate as to what the afternoon may look like.

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

Pre Market Update 12/9/02 9:15 AM

The market looks a lot crappier than it did at Friday's close. Fucutures are weak and the cmap for the 1 day cycle low due in the first hour is 902, based on the fucutures. Here is the revised cycle map.

Friday's Markets (12/6/02)

Intraday - The market sold off sharply at the open into a 5 hour cycle low, then ground slowly higher into the 5 hour- 1 day high at 2 PM. A quick selloff led to a low at 3:30. There may be a pullback Monday morning soon after the open to complete the 1 day cycle low. The downside cmap looks no lower than 905. The 8 day cycle is in a swup. The upside cmap is probably not more than 920, but its too early to tell for sure.

Weak End Anals (12/6/02)

Here they are. Just the facts ma'm, just the facts, with particular attention to the longer term view.

The Dow is being buffeted by conflicting trend and cycle forces, and is range bound as a result. The 8-13 day cycles have turned up, but the 4-7 and 10-13 week cycles are down. Residual mo from the 10-12 month cycle up phase is holding things up. The Dow may creep along the lower regression channel line for a few days before breaking down.

The Feed added reserves by allowing the $2 billion in matched sale purchases from Turdsday to expire. There were no other actions. Nothing expires Monday.

Total Feed remains in the center of the 8% growth channel dating back to last April. In spite of threats of massive reflation, so far, there is no notable change in the Feed's behavior. Last week's upsurge has been reversed. The question remains whether it was the first step up in a more aggressive Feeding policy or a false alarm.

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 appears close to turning its 4 week moving average lower. Meanwhile the SPX is back to riding its downtrend line after the prior breakout. If it trends below the line next week, everybody who bought on the "breakout" will have been stranded, and the big Whopsaw is in.

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

Wild and extreme intraday volatility left the bond higher and yields down. We still see too many mixed indications to conclude anything other than that yields will stay locked in a range. For now, the 10-13 week cycle appears to be in a down phase that's going sideways.

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 apparently bottomed after hitting the cmap of 895. The up phase should be short and weak. The 4-7 week cycle is turning down, but will not break down until the shorter cycles are finished their up phase. Could be later next week. Doc switched to a 15 day ROC on the chart. It's a little more in synch with the 4-7 week merged cycle. A formation like this with lower highs near the zero line has extremely bearish implications once it crosses below the line.

10-13 Week Cycle

The 10-13 week cycle is in a down phase, but still a sideways one. It may not break down until near the end of the cycle. The 29 day ROC remains just above its November low point. Another downtick would confirm downside acceleration. It probably won't come until after an attempted holding action next week. The 10-13 week cycle low is due between December 19 and January 9. Still too early now to derive a reliable downside cmap.

VIX

On the inverted scale Stool Band chart, VIX bounced. The channel is probably flattening out. If the indicator gets close to 40, look for a bounce in the market. Last week's blowout above the blue channel line was an indication of an overcooked, overconfident market, and a probable intermediate cycle top. If the indicator corrects too quickly the market could rally. If the indicator moves quickly back toward the low 30's, then complacency is back, and the market could be ready to tank.

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

Those who are looking for the 4 year cycle low are going to either be disappointed, fooled, or both. We already had it, between the April and September lows in 2001. Cycles vary, and a 3 year wave has happened in the past, in particular in association with deflating bubbles. There's no reason a nominal 4 year cycle may not be 3 years or 5 years in duration. Some would like cycles to be like clockwork. They're not. The current 3-4 year wave topped out in the second quarter of 2002. The next low is due no sooner than mid year of 2004, and as late as 2005 or 2006.

The nominal 18 month cycle varies in length from one to two years. It bottomed in September 2001, peaked in March 2002, and bottomed again this October. It's now in a sideways up phase, which will probably end in the second quarter of 2003. The wave band is 100 points wide, and the top of the band looks like it's at 950. A slightly more positive slope cannot be ruled out but both the six month and 10-12 month cycle indicators are now in a top zone, making it unlikely that the SPX will make a higher high than 940. This picture suggests that the market will not have the big collapse any time soon, and will not make lower lows until well into 2003. That does not mean that there will not be air pockets in the meantime. There may be, but they probably won't carry below 820+/-. The best place to short is near the top of the channel, with stops just above.

Here's our favorite long term linear regression projection chart. Once again, the Sphincters find themselves riding the electrified middle rail down the channel. This is the power of regression to the trend mean at work. Four different regressions, over four different time periods, all with exactly the same slope. The only thing different this time is that the market has been unable to reach the top of the channels more than four months after reaching the bottom. To those who would argue the market is stronger, this picture would argue exactly the opposite. It's my guess that for the next month or three the market will bump along down the center lines, and then head for the lower channel extremes around mid year.

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 12/6/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	940-970 Done
6 Month	Top/0	940-970 Done
10-13 Week	Top-Down/8-23	Too early
4-7 Week*	Top-Down/9-24	885 prelim
8,13 Day	Bottom-Up/2	??

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 bottomed, but the up phase should be short, with limited upside. The 4-7 week cycle is beginning to head lower but will have to wait until the 8 day cycle up phase runs its course.

10-13 Week Cycle

The 10-13 week cycle indicator is dropping and the 29 day ROC looks like it is confirming. 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

The same basic cycle patterns described for the SPX apply to the Nas, except that the 3-4 year cycle high will be next year, only at a lower point in the long term secular down trend coincident with the 18 month cycle high. The second quarter looks like the best bet. The break down to new lows will probably not happen until the second half. In the meantime, it could be a roller coaster. The 18 month cycle channel is 500 points wide, and it's still sloping down.

Nasdaq Cycle Conditions as of 12/6/02

Cycle	Phase/PTT	Target
10-12 Month	Top/0-2 mos.	1490 Done
6 Month	Top/0	1490 Done
10-13 Week	Top-Down/9-24	Too early
4-7 Week*	Down/7-22	1330 prelim
8,13 Day	Bottom-Up/3	??

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

Doc has seen some advice floating around that traders should sell some of their gold and gold stocks. Doc does not agree. He thinks the triangle breakout is for real, and that gold and gold stocks should be held through thick or thin. Why? Why, because it's a bull market, as the long term view plainly shows.

The 10-13 week cycle cmap has moved up to 128. That will move again, or there could be a consolidation at that level. Once HUI gets through 128, the 6-7 week cmap will indicate 141. Cycle indicators are getting in gear to the upside again. Because of the volatility, gold stock traders need to have a high pain threshold, and keep leverage limited. But it's important not to get shaken out because the big breakout may come sooner than Doc though previously. If the picture changes, it will be reported here.

Uncle Buck's Illness

The longer term vie shows bug riding the long term uptrend line. But his days appear numbered. The 10-12 month cycle is topping out. There's a six month cycle cmap of 101. The 10-12 month cycle low will be lower.

Uncle B's breakdown is clear on the daily chart as well. He's trading between 105.10 and 105.20 this morning, after hitting 105 over night. On this chart it looks like he can fall a long way. We'll probably see a short cycle bounce from 104.

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