The Anals of Stock Proctology

Published 5 times per week by the American Academy of Stock Proctology and 
the American Society of Shortsellers
Dr. Stepan N. Stool, A.S.S. Chair

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. 

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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.

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Happy New Year to you and to Bears the world over!

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

December 30, 2001

The Big Fakeout (1/7/02)

The market opened strong Monday, but that turned out to be the high of the day, and the close was the low. The bulls were unable to muster a meaningful charge. The Nas traded in a range of  2081 to 2037, closing at 2037.11 down 22.86.  The Sphincters' Index closed down 7.62 at 1164.89. It dropped steadily from a high of 1177 just after the open to a low of  113.55, just before the close. 

Bulls, however, were not the least bit rattled by the "correction." The VIX settled down at 22%, near the lowest reading of the past few weeks. This is indicative of supreme complacency, and it's well within the range of previous tops over the last year. That complacency is going to prove to be misplaced, just as it was at all recent rally highs. Centered moving average projections for shorter cycles have begun to ratchet down, and some of those projections were met or nearly met on Monday. Hourly indicators suggest that the 8 day cycle has rolled over, with 3 to 4 days remaining on the downside. Momentum and stochastic oscillators are beginning to roll over from lower highs. The negative divergences stretch back to early October in the case of short term indicators and to early December for intermediate oscillators. Big divergences like this normally are indicative of major distribution, and are usually followed by big counter moves.

SPX Chart

The SPX chart below shows the long period of  low volatility in the VIX that is consistent with past tops. The difference here is that the distribution phase has lasted longer, and has been even more convincing a fakeout than any previous high in the last year. The market makers and specialists have done a helluva job screwing bears out of their shorts, and simply screwing the public and portfolio sphincters into thinking that a new bull phase is under way. They did so by breaking key downtrend  lines and, of course, the old faithful 200 day moving average. 

The portfolio sphincters should know better than to be suckered by this stuff., but the truth is they really don't give a damn, as long as they are doing and saying the same thing as all their sphincter brethren. That way they can throw out the old, "Hey, everybody was wrong," defense when the time comes. Bears, on the other hand, simply got the crap squeezed out of them. Most of us, ahem, couldn't stand the pain, so we added to the upside panic by crapitulating all over the place.  This was a crapitulation rally, no doubt about it.

Mooomentum indicators also show clearly that something has been rotting on Wall Street over the last month or two. They simply have refused to confirm this most recent phase of the rally. When these indicators roll over, the market is going to crack like a big rotten egg.

Chart Powered by METASTOCK  (Sorry about the bull.)

Nasdaq Charts

On the Nas chart, we see steady weakening in the intermediate cycle indicator. The 10-13 has bottomed, but that should lead to no more than a "dreaded sideways up phase," as the distribution continues. This type of action is consistent with not just an intermediate top, but a major top.  The breakout through the topside of  the long term and intermediate channels also only happens in climactic moves. Or it could be a "V" bottom, and I'm just not recognizing it. Why am I so certain it isn't? The psychology of this market just doesn't fit. And, as you know, if the glove don't fit, you must acquit. Furthermore, if that low last September was a V bottom, this 10-13 week cycle would be blowing the lid off. But don't worry, it's snot. In the meantime the short term cycle indicator looks, shall we say, toppish. Yes it do! 

Here's another view of the big fakeout..

Stoolwethers

I thought it would be fun to show you a couple of Dr. Stool's favorite stoolwether stocks from time to time. The first is Fannie Mae. Fannie is one of Doc's favorite names, naturally. This Fannie's about to get a good butt kickin'.

Nasdaq Cycle Conditions as of 1/7/02

L-Low, H-High
*SWD= Sideways Down Phase- Trading Range
  SWU=Sideways Up
  p: preliminary

SPX Cycle Conditions as of 1/7/02

See you in Intraday Stool. 

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12/30/01, 1/1/02, 1/2/02, 1/3/02, 1/4/02