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The Anals of Stock ProctologyPublished 5 times
per week by the American Academy of Stock Proctology and Available by annual subscription for $1929 or free Welcome to the The Anals of Stock Proctology, the new scholarly journal of the American Academy of Stock Proctology, edited by the world famous founder of the study of Stock Proctology, Dr. Stepan N. Stool PHandD. The Anals replaces Capitalstool's nightly and weekend updates of the major stock indexes. Now you can get your nightly stock proctology report in one convenient, uncluttered page, right here. The Anals will be available for free, for the immediate future. Soon, however, all advertising and solicitation will be removed from the Anals, and access to the Anals will be restricted to subscribers. As a result of the clean format, the Anals will be readily printable for reading in locations more appropriate to such endeavors, such as, uh, the kitchen table. Yes. The remainder of the site, including The Stool Pigeons Wire, IntradayStool, Stoolhoo, and Stoolchat, will continue to be free. You will never have to pay for access to these pages. Previous contributors to Capitalstool will receive a free subscription period. Prior to going to a subscription format, the voluntary pay buttons will remain. So feel free to contribute now. Your contribution will result in a full credit toward your future subscription. Several of you have already contributed in excess of $500, and you will receive a free lifetime subscription. Contributors of written content or illustrations will also receive free subscriptions. That includes all who achieve the level of Professor of Stock Proctology on the Stool Pigeons Wire. Initial subscription rates will be $19.29 quarterly or $74 per year, in honor of the great bear markets of the 20th century. Actually, 1937 was pretty bad too, so the Academy may offer a half year subscription for $37. Latecomers will be able to get a one time, one month trial for, what else? $6.66. As always I thank you for your support, and I look forward to many prosperous years working together with you. Happy New Year to you and to Bears the world over! Dr. Stepan N. Stool December 30, 2001 Weekend Stool (1/5/02)
The rally continued Friday. We got a tease to the downside at mid-day, but alas it was just a tease. The Nas finished with a gain of 15 at 2059, and the SPX was up 7 at 1172. As usual the dipshits stepped in, and sent the market grinding higher until the end of the day, when they pulled in their horns just enough to avoid closing at a new rally high. The close was about halfway up the day's range of 2033 to 2080 on the Nas, and a little better than halfway on the SPX, where the range was a narrow 1163 to 1176. As a result of the rally, both indexes are now above their long term downtrend lines, as well as their 200 day moving averages. Almost everyone is convinced that the market bottomed in September, that the rally is a precursor to economic recovery, and that we are in the early stages of a new bull market. I see it as a flatulence driven gas explosion resulting from furious Feed flatus pumping, which is resulting in gross distortions and financial destabilization. (I've been reading Noland for too long.) It can go on for awhile, but portfolio sphincters and less nimble traders chasing the rally are going to be sorely disappointed in the not too distant future. Let's look at the weekly charts first.
The assumption from these parts is that the Nas remains in a bear market, the dumbass 20% gain is a bull market, rule of thumb notwithstanding. Unless and until the May high is broken the primary trend is assumed to be down. If it breaks it, then after the fact, we'll know that, yes indeed Virginia, there is a bull. By the same token, there's no question now that the intermediate trend is still up at the moment. However, there are a couple of things going on cyclically which are not apparent unless you look at linear regression or momentum based indicators. There's a major intermediate cycle that lasts typically from 12 to 18 months low to low. The indicator at the top of the Nas chart, above, filters price movements so that this wave can be seen clearly. It shows the spread between one year and two year time series. Surprise, surprise, it's been rising since the March 2001 low, and it is now just as high as it was at the top of the bubble in March of 2000. The up phase manifests on the price chart as only a slowing in the downtrend. But if the market seems insane and frothy to you, that's because psychology has actually been growing more bullish and speculative for nearly 10 months. Cyclically, the market is in a wildly speculative top phase atmosphere. This is why we are seeing such extreme high levels of bullishness in so many sentiment measures. Cash that has even the remotest chance of being earmarked for stocks has pretty much been committed. Same goes for the intermediate trend. The intermediate cycle is often 5-6 months or 10-12 months from low to low, although there's a great deal of variance. I build filters which measure a six month cycle. That catches most important turns. But it's either going to be early, late, or just right, depending in which cycle is dominant. This time it's early, and instead of a six month wave, perhaps this one will be of the 10 month variety. Again, this indicator is signaling a top, although clearly it is early. That's why we use daily and even shorter time frames to fine tune timing.
The above weekly chart of the SPX leads to the same conclusion with different indicators. There's just no sign here, regardless of how big this rally has been, that it is anything other than intermediate in scope. Now I am damn sorry I grossly underestimated the sucker, but I don't cry over eaten beans once they're digested and expelled. Gotta get ready for the next plate. The oscillators are signaling an intermediate top within a long term downtrend. You also see two linear regression channels on the chart, one from the March 2000 high through Friday, in blue. The other, in the red box, is drawn from the May 2001 high through Friday. Notice that the slope of the more recent channel does not deviate one iota from the long term channel. If this rally were part of a major reversal, I would have expected to see the shorter, more recent channel to have shown some sign of at least softening it's downward trajectory after 8 months. So there's the case for the bear market not being over, in terms of the big picture. Now the short term.
There's enough going on on the daily charts to make a bear very uncomfortable. Bears have been doing a lot of crapitulating lately, and that has contributed to the markets upward march. It's partly related to that old bugaboo of record short interest. In a very real sense, there's a shortage of stocks, since just about everything's been hypothecated and sold twice. And as we all learned in childhood, he who sells what isn't his'n must buy it back or go to prison." So we have the Nas breaking out all over the place creating a vicious cycle of short covering, and more breakouts, and more short covering. The question that remains, is "Has there been enough short covering to ease the squeeze." Certainly, judging by what stoolies have been saying on the Stool Pigeons Wire, and by my own painful experience, the answer is mmmm-maybe. There's an overbought reading on the 4, 6-7 Week Cycle oscillator that has a pretty good record of coinciding with short term cycle peaks. But what is really troubling is the configuration of the 10-13 week cycle ozzie. I don't have to tell you what that looks like. Portfolio sphincters are certainly familiar with it. They've been identifying it for the past 18 months. To them the stock market is all bottom, all the time. Just keep buying. Joe fund investor, however, may be slowly but surely taking back his toys, because the sphincters keep destroying them. It's like, "Those shmucks loved Enron all the way down. I ain't leavin' my money with them any more. Screw them! I'm puttin' it in the bonk!" A point I've raised before is that I expect this upturn in the 10-13 to be just like the one last summer, a "dreaded sideways up phase". That's where the psychological cycle is bullish and speculative, but prices work only sideways or worse, because longer term cycles and secular forces are overpowering positive cyclicality. The public's steadily growing mistrust of the whores on Wall Street is just one of those forces.
The SPX chart below presents pretty much the same picture. The short cycle has turned up again. It could run another 1-3 days, or it could top out Monday. The 10-13 week cycle has been headed up for 3 weeks. If this cycle is symmetrical in time, then we're in big trouble. The top could be 3 or 4 weeks away, or Monday could be the blowoff. There should be a ton of resistance in the 1180 -1200 range. Finally we take our usual look at sentiment and momentum. This is the more conventional TA that most people are familiar with. The VIX continues to ride along at levels indicative of complacency consistent with a top. Meanwhile, momentum in this rally is... well, there isn't any. The market is running on fumes. or something. There's just no thrust. It's more like a residual sling shot from the initial impulse of the September low, latecomers getting in off a high base, but with a lot less boing. The negative divergences are growing. There's a chance they could resolve to the upside, but it would take a mammoth breakout to do that. More often than not, this type of momentum non-confirmation is a prerequisite for a selloff.
Finally, I'll leave you with the secret weapon chart. It's easy to understand and it never lies. There's a little more room on the upside, but unless the red and blue lines start heading up together, we're not going far, let's say 1185. If they get to 1200 and reverse, you'll hear the bell.
Nasdaq Cycle Conditions as of 1/4/02
*SWD=
Sideways Down Phase- Trading Range SPX Cycle Conditions as of 1/4/02
*Sideways
Down See you in Intraday Stool. |
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