The Anals of Stock Proctology

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Big Fine Print Doc does not make trading recommendations. This update reports time cycle estimates and centered moving average projections based on the Hurst cycle analysis method, and other techniques. 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? More disclaimers at the bottom of the page.

Doc welcomes the many new junior stock proctologists who have joined the American Society of Shortsellers in the past week. If you are not an experienced chartist or trader, ok, even if you are, you may find the Anals just a bit confusing for a little while. But Fear Not! You will get it after a few days, at most a couple of weeks. Questions can always be posted on the Stool Pigeons Wire message boards, where Doc and/or your fellow stoolies will respond. Explanations of abbreviations and terms are at the bottom of the page. The complete list of links to the entire archive is in the left column menu. Now it's time to sit back, relax, and enjoy the show.

Many tanks!

Doc

Pre Market Updates 2/5/03

12:45 PM The market has extended beyond the originally expected time for the 1 day cycle high, but the window remains until 2 PM. The SPX continues to blow through and push cmaps higher driven by a stronger than expected 3 day cycle up phase. Nothing changes in the bigger picture yet however, and the market should turn lower later in the afternoon.

Chart below.

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9:15 AM Fucutures are ramping big time heading into the open. The upside cmap is 856. QQQ are trading at 24.40 and have an upside cmap of 24.40. This looks more like monkey business than normal cycles at work. Should get a pullback immediately after the opening pop. Cycles are fuzzy here, because of the distortion caused by manipulation, but ideally the 1 day cycle should start to top out around 12:00.

Intraday Tuesday - The market opened lower and kept going, making 1 day cycle lows around 11 AM, then stabilizing and crawling upwards for a few hours. The 1 day cycle highs were set in a 1:45, 2:45 double top. The down phase lower until 3:15 when the Crisco ramp began. It lasted until the close. THAT was noise. A 5 hour cycle low should come tomorrow around 10 AM, followed by a 1 day low near 11:30. Doc expects at least a retest of Tuesday's lows, maybe worse.

Pre Market Update at 9:15 AM NY time.

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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 shown 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. Times and prices are the projected cycle highs and lows with cmaps.

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

Tuesday's Markets

When News Isn't Noise 2/4/03

News is noise, except when it isn't. News of big write offs at AIG, triggered a selloff today. News is noise and cycles rule, right? News events are rocks in the pond with their own waves, but the cycle waves govern direction over the longer term. Prices always return to patterns formed by the market's intrinsic cyclicality.

But wait! The AIG news was a horse of a different fire department. When the AIG news broke, the not only did the rot in AIG make a stink that could not be ignored, but it reminded the players of teh market's secular rot.

This news was of the sum and substance, the heart and soul, of what ails the markets, the economy, and the global financial system. It is yet another of the festering boils of the inflamed credit bubble infection, sapping the lifeblood out of the system. The financial body's temperature is dropping in shock as institutions hemorrhage losses from their hidden partnerships and derivative counterparty implosions. The AIG news, like the Enron and WorldCom news that went before, the reported problems of subprime lenders, credit issues at Ford and AT&T, and huge losses by European insurers, is yet another reminder that the problems are still there, they are not going away, and they are in fact, getting worse.

In that respect this isn't news. It's just the truth coming out again. The public is waking up. These are pro cyclical events, exposing the truth underlying the secular trend, and reinforcing the long term shift in public perceptions that drives the bear market.

So the market went down. But it didn't collapse. The cycles weren't ready because there are still more sphincters to be convinced. They refuse to disgorge what they are holding in while hopers and dip jerks are still out there, throwing whatever is left of your brother in law's many at anything that moves. Until the dip jerks are tapped out, or punched out, the drip drip bounce will continue. But they will be tapped out or punched out soon, maybe as soon as tomorrow.

Fed Releases Turdsday

Doc's Pooper Scooper.

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The Feed added $250 million. $3.75 billion in overnight repos expired and $4 billion were added. The $4 billion will expire Wednesday. $5 billion in 9 day repos will expire Turdsday along with the usual 28 day rollover, this time in the amount of $3 billion.

Total feed remains in a neutral trend over the last 10 weeks, down in the last month. This is far from the reflation everyone was crowing about and crapping themselves over, at New Year's. It's just more of the same old, same old. The 1 year growth trend is only 6%, compared with the 2001-2 rate of 10%. There's even evidence of cyclicality, in particular a 9 month cycle. Will Al keep Feed in a flat range for 6 months in an attempt to stabilize the dollar, calm inflation fears, and counteract huge, inflationary, gummit budget deficits? Questions, not answers. If he does, he is signing the death warrant for stocks.

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. The blue channel going back to last December suggests a 5% growth rate. Look at the 4 week moving average (brown line) and compare it with the slope of the tow larger channels for an indication for whether the slope of short term growth is slower or faster than the 2 longer term trends.

The Feedometer is in a downtrend, indicating the Feed is draining excess liquidity from the system. They may have two goals in mind. One, supporting the dollar and stemming outflows of foreign capital, and the second, calming inflationary fears that are bubbling near the surface in the bond pits as commodities skyrocket. If those fears should surface, the worst case scenario will begin unfolding.

The Feedometer theoretically measures excess Feed available for bond or stock market jamming. Al selects a trend level he feels is needed to reflatulate the economy. The Feedometer measures the difference between the apparent trend target, and actual day to day Feeding (Fastow Feedometer), as well as a four week moving average (Slowmo Feedometer). A break above the orange trendline might indicate a more aggressive jamming policy.

Bond yields moved lower, giving Al some room to Feed if he wants to. The shortest cycles are headed back to 3.75, but there are still too many crosscurrents for a sustained move in either direction. A secular bottom is forming but it could be months before an upside breakout.

Long Term

Dow Inflatables- In spite of the 4 week cycle swup, the 6-7 week cycle still has a cmap of 7550 due in a week or so.

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

Cycle Chart
The red channel is the idealized 18 month-2 year cycle. Dark blue is the 10-12, or 6 month cycle. Teal is the 10-13 week cycle.

Short Term Cycles

The 4 week cycle has been in a swup. The 4 week cycle up phase normally manifests as a slowing in the downtrend or a sideways movement when longer cycles are heading lower. The short cycle oscillator continued to rise in spite of the weak day. This is exactly what is supposed to happen during a swup, and it portends a sharp drop ahead. This movement began 7 days ago. It could extend for up to 4 more days or it could end now. Taking out 840 decisively would signal that the 4 week cycle up phase had ended early. That would put all the short cycles back in gear, and signal the beginning of a collapse that lasts 3 to 8 days when the 6-7 week cycle low will be due.

The 17 day rate of change remains in a downtrend. The downside cmap on the 6-7 week cycle dropped to 820, but that will go lower. The 8 day cycle oscillator already points toward 808.

The 6-7 week cycle oscillator on the chart below is getting into a bottom zone but should form a zigzag, along with a positive divergence relative to price, before the market rallies. This process usually takes about a month. The indicator is not delimited. It may drop well below the level of recent lows. Whether it does or not, there's plenty of time for the market to work lower. The only question is whether it will do it suddenly or gradually.

10-13 Week Cycle

Roughly 6 to 9 weeks should remain in the 10-13 week cycle down phase. Oscillators are heading down slowly. The one in the top chart is getting into a bottoming zone but it's a delimited indicator that can remain low for weeks as the market drops. When the indicator comes out of a trough, with the 29 day ROC and the Stoolicator confirming, a new up phase will have begun.

The 29 day rate of change is still trending gradually lower, a sign of distribution. The preliminary cmap has dropped to 780. Cmaps are moving targets, potentially revised daily based on the market's current action. It is very early in the cycle and the number will change frequently until the lows are reached.

Sentiment

VIX rose sharply. (down on the inverted scale chart). Over the next few weeks the channels will turn lower and we should see much bigger numbers on VIX. The next big intermediate cycle low should reach at least 50-60.

The 15 day rate of change is a proxy for the 4-7 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.

Long Term

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 2/4/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7 M	720p
6 Month	Down/0-9W	750p
10-13 Week	Top-Down/24-39	780p
4-7 Week*	Down/0-8	820
8,13 Day	Down/1-6	808

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 are distinct but usually overlap. The dominant cycle is reported.

Suctor Watch and Stoolwethers- Updated each morning between 8 AM and 9:00 AM NY time.

Nasgap Charts

The Nas is expected to behave more like the SPX with the continued de-weighting of tech. In the interest of publishing the Anals earlier in the evening Doc is presenting the charts and data without commentary, as it is largely redundant relative to the SPX commentary above.

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.

Long Term

Nasdaq Cycle Conditions as of 2/4/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/5-7M	1000p
6 Month	Down/0-9W	1200p
10-13 Week	Top-Down/28-43	1220p
4-7 Week*	Down/0-10	1200-1240
8,13 Day	Down/1-6	1240

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.

Suctor Watch and Stoolwethers- Updated each morning between 8 AM and 9:00 AM NY time.

Long Bong Hit - See top of page.

Golden Stool Comments 2/3/03 PM

Cousin HUI and the pog blew their stacks today. Gold blew right through an uptrending resistance line without so much as a by-your- leave. The advance has gone parabolic. The next target is 390, which is a 9-12 month cycle cmap and wasn't due till mid year. It will get there much more quickly. The break above the resistance trend suggests that this move could ultimately run to 435 by May or June.

Charts as of 2/4/03 Close

HUI's 4 month (or 13 week, take your pick) cycle has been in a sideways down phase for 6 weeks. The end of the down phase is due at any time within two weeks. Doc said Monday that he thinks it's a bad idea to be short these stocks. Tuesday's action was the exclamation point. Once they break out above 155, the cmap will be 215, probably by mid-year. Short cycles have turned up again, and the 6-7 week cycle preliminary cmap is 159 for starters.

Long Term

Uncle Buck's Illness Comments 2/4/03

Uncle B looked like he was in a sideways up phase in his 13 week cycle, but today it looks more like he's just trending. The upside cmap on the 13 day cycle is only 100, already hit. Longer term cmaps now look like they could be from 90 to 92.50 by mid year. Uncle B and SPX (gray line on chart) usually move in the same direction at the same time, but magnitude varies.

Chart as of 2/4/03 close

Long Term

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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.

About centered moving average projections.

ABBREVIATIONS:

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