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

Intraday Updates 2/7/03

12:45 PM After exploding out of the gate in the news is noise syndrome, things have settled back t their "cyclical norm". The 3 day cycle is headed down again. Doc believes the 1 day cycle will be in a swup until around 2 PM, and that after that there will be a gradual acceleration down for most of the remainder of the PM. Chart below. Get regular updates throughout the day in Stooltrading.

9:15 AM - Fun with numbers. The market jumped on the jimmied employment data. The 1 and 3 day cycle cmaps moved up to 849-50, already hit on the fucutures. The 5 hour cmap on the QQQ jumped to 24.55. The 3 day cmap on the Q's looks like 24.55-60 as well. Highs are due in the first 1 1/2 hours. Should be the 3 day cycle high followed by a pullback in the PM. We'll have to wait for the wake to settle before normal cycles reassert themselves, perhaps by this afternoon.

Intraday Turdsday -

The market sold off on the open, forming a 1 day cycle low around 10 AM. They then drifted higher making a 1 day cycle double top at 1 PM and 2:30. That was followed by a slow drift, and finally a shakeout into a 5 hour cycle low at 3:45. A one day cycle low should come around 10:30 tomorrow. It will not necessarily be a lower low.

The mental institutions continue to use their reserves to support the unsupportable, keeping the market from breaking down, and forming a double bottom late in the day. Some fighters just don't know when to quit. After another retest of the downside early tomorrow, look for another recovery attempt. The 3 day cycle downside cmap is still around 825-830, but if they can continue to hold together for the better part of the day, those targets will become moot.

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

Turdsday's Markets

Fed Releases Turdsday 2/5/03

Every Turdsday, Doc reviews the Fed's latest weekly releases published after the market close. Outside of the markets themselves, this is as close as we can come to real time information. The money supply data has a 10 day lag.

The MoGauge, which has about a one week lag, tends to lead changers in money supply by a month or two. It came down sharply in October, but spiked in November, and again in early January, and although off from its peak, remains at panic levels. Mortgage loan demand may be slowly waning, but it's not exhausted. Looking at the graph, we would expect broad money supply growth to come in fits and starts.

Mortgage applications get funded about 4-8 weeks after the application is taken. When the GSE's hold those loans in their portfolios, they then turn into money through the magic of money market fund intermediation. Broad money supply grows, and that flows into the markets and economic activity. Likewise, when mortgage activity declines, money growth slows or even goes negative. In effect, the MoGauge has the potential of telling us to what degree money will be added to the system in a month or so. Big jumps in the MoGauge tend to be followed by big stock market rallies along with big jumps in money supply. When these bulges subside, the market follows a month or two later.

Broad money supply spurted in the week ended January 27. The MoGauge spikes of November and early January were working their way into the system. It didn't help the stock market one iota. That was a disastrous week for stocks, reminding us that it is not only liquidity that matters, it is liquidity preferences. If investors are risk averse, money seeks a safe haven.

Some of the new money created that week trickled down to M1. M1 popped to the top of its 4.25 % growth channel.

Commercial lending is still in a depression.

Total bank lending activity remained subdued in the week ended January 22. With commercial loans in a long term downtrend, growth had been coming from the consumer sector. We can infer form the drop in total loans recently that there's been a radical weakening in consumer lending.

The refi bubble has one foot in the grave, but the other foot is still hitting the gas. Money growth has picked up. The system is still liquid, which is probably why the stock market manages to stay afloat. As long as they can keep the refi bubble simmering, and interest rates stable, the decline in stock prices will be volatile and slow. Long term bond yields and mortgage rates are the key. If they are steady in this range mortgage demand will continue to gradually soften and that will put pressure on the liquidity machine.

Maybe it all depends on inflation expectations, since the mental institutions aren't worried by cascading credit problems. Their job, after all is to stay fully invested. The sheeple, bless their hearts, are complacent. They are simple folk, not comprehending the nature of the credit bubble economy, (who does?) or the rot that is slowly eating away at its foundations. As long as they remain ignorant and confident, there will be no run on the bank, or their friendly neighborhood money market fund, or their 401K mutual funds. They are the true believers. But the steady drip drip drip of capital coming out of the system, for repatriation, or simply for domestic cash requirements, will continue. And that will exert a steady pressure.

Department of Yes We Have No Inflation

Commodity inflation measures eased a bit this week, due in no small measure to the COMEX raising gold futures margin requirements. That of course is a de facto credit tightening. If will be interesting to see if this move is significant enough to impact the monetary the monetary data for this week.

It's no wonder that the markets are confused. The poodits spend all their time fretting about how the market is handling the Iraq situation. Lots of noise out there. But the liquidity data is confusing as well, and liquidity is what drives the market. There's no sign of near term resolution, whether from the monetary data, or the market indicators. The burst of liquefaction in the week ended January 27 is likely to prove temporary. Chances are the market will just continue to waffle irregularly lower. No big rallies, but no collapse either.

Doc's Pooper Scooper.

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The Feed did $5 billion in 28 day repos to replace $3 billion expiring, and $8.25 billion in overnight repos, while $13.75 billion in short term repos expired. The net drain was $3.5 billion. The $8.25 billion in overnight repos expire Friday. There are no other expirations scheduled.

Total feed fell back to its 20 day moving average. Feed remains in a neutral trend over the last 10 weeks, and down in the last month. Al seems to be on hold. There will be lots of Feeding ahead to help absorption of the flood of new new Treasuries, but the auctions will result in a short term draw down in the system.

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 still in a short term downtrend. There's insufficient excess Feed to support a sustained rally in stocks. Al is still draining excess liquidity. There's no catalyst here for a rally.

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 fell slightly. While they may dip to 3.85-75 over the next week, assuming stocks get sold and some of the money goes into bonds, there's still no sign of a sustained move. The bottoming process in yield will continue for the foreseeable future.

Long Term

Dow Inflatables- The Dow's 6-7 week cycle cmap continues to point toward 7550 over the next 3-8 days. But the oscillator for that cycle is beginning to turn. Time to be alert.

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 short cycle oscillator is holding above the 50% line. Downturns from this level are usually associated with devastating declines, but we can't assume anything. A significant down day or two is needed turn the indicator.

The 17 day rate of change remains in a downtrend. The downside cmap on the 6-7 week cycle remains at 820. Time is growing short in this cycle. It will end within 3 to 8 days.

The 6-7 week cycle oscillator on the chart below upticked from a bottoming zone. It's too early to tell if this is just a tick or a turn. If its a turn, we'll get a brief pop. Look for an up down sequence with a higher low, along with a positive divergence relative to price, before the market can stage a significant rally. This usually takes about a month.

10-13 Week Cycle

Roughly 5 to 8 weeks should remain in the 10-13 week cycle down phase. Oscillators continue to move slowly lower. The one in the top chart is getting into a bottoming zone. It's a delimited indicator that can remain low for weeks, with the market continuing to drop. When the indicator comes out of a trough, with the 29 day ROC and the Stoolicator confirming, a new 10-13 week cycle up phase will have begun.

The flat movement below the zero line in the 29 day ROC indicates mild trending, a condition that can last for weeks. The preliminary cmap for this cycle has been oscillating between 770 and 820. We have to consider the possibility that we might see only a grinding shallow decline, as opposed to a sharper selloff.

Sentiment

VIX rose again. (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. But at the current level we might be ripe for another short bounce in the market coincident with the 6-7 week cycle low due within 3-8 days.

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 2/6/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/4-6 M	720p
6 Month	Down/0-8W	750p
10-13 Week	Top-Down/26-41	820p
4-7 Week*	Down/3-8	820
8,13 Day	Down/0-4	828

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 2/6/03

Cycle	Phase/PTT	Target
10-12 Month	Top-Down/4-6M	1000p
6 Month	Down/0-8W	1200p
10-13 Week	Top-Down/26-41	1180-1260p
4-7 Week*	Down/3-8	1240
8,13 Day	Down/0-4	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 2/6/03 PM

The COMEX tightening margin requirements triggered a selloff. The result is a classic Finger formation and WHOPsaw. Prices broke out through a long term uptrending resistance line, sucking in the whole world, then promptly reversed and fell back below the line. It was the Jimmy Jones Cramer Memorial Move. Cramer turned bullish on gold about two days ago.

A 4 month cycle low is due any day now. Now matter how powerful an uptrend, the final days of a cycle usually see a profit-taking slamdown. That's probably what this is. This thing just needs to consolidate for a month or two. It was way ahead of schedule.

Charts as of 2/6/03 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. Short cycle cmaps are in a range of 128 to 140. The selloff probably marks the final stage of the intermediate sideways down phase.

HUI Cycle Conditions as of 2/6/03

Cycle	Phase/PTT	Target
9 Month	Up/4-6M	215p
4 Month	SWD/0-2W	133-138
4-7 Week	SWD/4-19	128-133
8,13 Day	Bottom/0	134-140

Long Term

Uncle Buck's Illness Comments 2/6/03

Buck remains in a short term and possibly 13 week cycle swup. The upside cmap on the 8-13 day cycle is 100.50. Longer term cmaps look like the low 90s by mid year. Uncle B and SPX (gray line on chart) usually move together because Uncle Buck's index measures the flow of capital into and out of US paper assets. The relative magnitude of the moves varies and wide divergences are followed by convergence. Central banks intervening to buy dollars are not going to help stock prices, and cannot drive sustainable advances in the dollar. The current divergence is therefore likely to be resolved by falling stock prices.

Chart as of 2/6/03 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