The Anals of Stock Proctology

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Update 10/2/02 12:30 PM Terms and methodology

The cycle timing has been as expected so far, with the AM pullback going a little deeper than projected. The 3 day cycle ozzie is in a topping area. If prices go higher from here, they're trending, in concert with one or more of the bigger waves Doc talked about last night. This is a critical juncture in that respect. We either gotta hold 'em at these targets today, or fold 'em.

Cycle	Phase	Target	Due
5 Hour- 1 Day
Nas	Up	1235	12:30/2:30
SPX	Up	857	12:30/2:30
NDX	Up	888	12:30/2:30
5 Day
Nas	Up/Top	1215-20	Today-Thursday
SPX	Up/Top	855	Today-Thursday
NDX	Up/Top	885	Today-Thursday

Update 10/2/02 9:15 AM Terms and methodology

Back down the chute? Based on the futures action, the 1 day cycle high was yesterday at the bell. But because the futures closed well above fair value, at this point there doesn't appear to be much downside. Looks like no more than churning. The 5 day cycle is still up, with the high due today or tomorrow. Looking for highs just a little higher than yesterday's.

Cycle	Phase	Target	Due
5 Hour- 1 Day
Nas	Down	1213	Low 10:30 AM
SPX	Down	845	Low 10:30 AM
NDX	Down	869	Low 10:30 AM
5 Day
Nas	Up	1225	Today-Thursday
SPX	Up	856	Today-Thursday
NDX	Up	880	Today-Thursday

Doc does not make trading recommendations. This update reports intraday time cycle estimates and centered moving average projections based on the Hurst cycle analysis method. Doc assumes no responsibility for the accuracy or inaccuracy of these estimates and projections. The market may or may not meet these projections. New stoolies should thoroughly familiarize themselves with the methodology before trading based on this method. There is no free lunch. 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.

Inconclusive (10/2/02)

Will this rally will flame out as quickly as it began? Maybe, but there are signs that the 4 week cycle has turned up, joining the 6-7 week cycle, and there are also hints that it may be an early 10-13 week cycle low. If so, it might lead to a retest or near retest of the August highs.

There's just not enough evidence yet for a verdict as to how high and how long. Until there is, we have to be flexible and rely on good trade management practices. That means, if you stayed short, use intelligent stops. If a key resistance level is broken, respect that. If you get stopped out and whipsawed, so be it. It happens all the time. It's the cost of insurance. And remember, there's always another streetcar. If you miss this one, you'll catch the next. If you're out, don't be overly anxious to jump back in. Just make sure you have the fare in your pocket. Don't gamble it away!

Doc just hopes this isn't what we're in for. (Click to listen.)

Look familiar? The SPX, right?

It's the Dow from October 1, 1973 to July 1, 1974.

The Feed did $2.5 billion in 2 day repos, resulting in a net drain of $3.25 billion. $6 billion in 5 day repos expire tomorrow. The draining kept the Feed Index within the the no growth channel, and sitting on the lower 10% growth line. Whatever "unnatural acts" caused this rally, it wasn't Feed.

Three trends are evident on the Feed Index. One is the 10% growth trend beginning in May of 2001. Feed growth has recently been at or 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. Then there's the golden box which says he's stopped growing Feed altogether over the last three months.

The Feedometer remains in the center of its recent downtrend. The lack of aggressive feeding may be what rocked the bond market. The syndrome of liquidity flowing from bond sales into stocks continues. Eventually that relationship will be broken. Apparently, not today.

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

Bond yields surged higher to close at 3.70. The 10-13 week cycle cmap rose to 3.60, a number which was hit yesterday and last week. The 10-12 month cycle cmap is 3.50, which is also a long term resistance level. If this isn't the low, it's close. We want to keep our eyes on the intermediate cycle oscillator. An upturn from above 50% would be extremely bearish for the bond market. The big question is, is it still bullish for stocks if bonds get sold hard. Only the markets can tell us that. We'll be watching. 90 day bill yields rose 2 bps to 1.55.

Financial and Economic Indicators (September 26)

8 Minute Bar Charts 10/1/02
Dow Jokes Inflatables +347.58

The charts at left show the prior day's action in 8 minute bars with stochastics at %K 26, %D 18, a proxy for the 1 day cycle.

It was straight up from the git-go. A move like that can be one of two things - an upturn in one or more larger cycles, a short covering panic, or manipulation. Doc will examine the bigger picture for clues as to what this was.

The 1 day cycle low came at noon. The parabolic nature of the following rise suggests it won't be sustained on the open, but stranger things have happened. At this point it's too early to tell if the one day cycle high came at the bell, or will be in tomorrow's first 45 minutes. CMAP's for the 1 day cycle high are 7950 on the Inflatables, 850-52 on the Sphincters Index, and 1213 on the Nasgap. That's just for the morning. 3 and 5 day cycle cmaps may be 5-10 points higher. It depends on the depth of the pullback.

Now, judging by Maria's screeching about Dell's press release at the bell, the Dow will gap up 200 points tomorrow. That is, of course, if Maria has anything to do with it.

Dow Jokes Inflatables

Is it another two day wonder? The Dow made a nice double bottom at 7500. This is a bear market round number syndrome rally. There are numerous examples of this in the 73-74 bear, in particular from the 800 level. (Hmmm, sounds familiar) When they turned on a dime without any base, like this one did, they tended to last 2 to 5 days, and run 10 to 12%. Of course, the market is twice as volatile today.

Then 10-13 week cycle cmap remains at 6950. The low is due from this week through the third week of October. Looking mighty iffy at this point. Seems like the stage managers want to defend 7500 for awhile. They need those rallies to get shorter themselves, after all. If the 10-13 week cycle oscillator turns up, this could get real ugly from a bear's perspective. Manage your stops accordingly. But let's look on the bright side. There's no buy signal on that indicator yet. What, you should worry?

Portfolio Sphincters Index-SPX +32.62

Nasgap +41.50

All of Doc's cycle charts are powered by METASTOCK. (Sorry about the bull.) You've seen the software advertised on TV. Buy it now at Doc's bookstore! Best price anywhere!

Portfolio Sphincters Index (SPX) and Sentiment

Long Term

(9/30/02) The six month cycle oscillator continues to rise. This cycle either remains in a sideways up phase as it moves across the 18-month 2 year cycle channel, or it is just topping out. We should know in a few days, if not Tuesday. The weakness of the up phase and the amount of time left in the cycle suggest devastating losses through January. Obviously, given the 4 year cycle low in October 1998, over the next few months we need to be on the lookout for conditions indicating a four year cycle low, which would be followed by a ferocious rally finally convincing everyone the bear market is over.

They'll be wrong.

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 Index skyrocketed to near the upper edge of the channel. The real test will come as the index blows through the channel in the morning. Will it be a WHOPsaw? The 8 and 13 day cycles appear to be in a sideways up phase. They could peak tomorrow. If they don't, they could roll higher for 3-4 more days. The key will be if the pullback after the blowout in the morning holds above the channel at 850. If it does, we have to start drawing a new upsloping channel on the chart. The preliminary upside cmap is 875 for the 8 and 13 day cycles.

The up phase of the 6-7 week cycle wasn't a dead issue after all. It remains capable of spawning vicious rallies. By Doc's current counts, which are foggy, the up phase should peak within 1 to 6 days. The problem is that if tomorrow is strong again, the 10-13 week cycle is probably turning up. The 4 week cycle has turned up. The up phase will last for 6-11 days. With the possibility of 3 cycles in gear to the upside, the next four days have a high probability of upside follow through if the rally can hold its gains Wednesday afternoon.

10-13 Week Cycle

The 10-13 week cycle should continue to govern. But is it bottoming? The signals aren't clear yet. The time window may have opened a little early, but the possibility of more downside is still there for the next three weeks. Doc redrew the cmaps, but they still point down toward 760. The cycle indicators have not flashed a turn signal yet either. the 10-13 week cycle indicators are usually pretty reliable. So Doc will withhold judgment.

VIX

The VIX collapsed to 40.14, near the upper band of the inverted scale 6 month cycle Stool Band. This is a lot closer to a high than a low. Unfortunately you can't see it on tonight's chart because the VIX data didn't update.

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.

Fiber Nacho Dump- Support levels and downside targets.

Fiber Nacho Reflux- Resistance levels and upside targets

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 10/1/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/4 Mos.	670p
10-13 Week	Down-Bottom/1-16	760
6-7 Week	SWU/1-6	??
20-25 Days	Bottom-Up/6-11	??
8,13 Day	Top/0-4	875

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

Nasgap Charts

Long Term

(9/30/02) Confirmation of the 6 month cycle sell signal will come when the smoother line (red), which is a time series of the indicator line (navy), begins to flatten. Late signals are usually a sign of a much bigger move to come. They happen when one phase of a cycle is much shorter than typical, under the influence of larger downtrending waves. The down phase of this cycle should last into next year and carry well below 1000. Then we could see a big rally of the 4 year cycle low, which might bring the Nasty all the way back up to the level of the breakdown currently in progress. In the long term, we are looking at a situation like Germany's Neuermarkt, which shut down last week. The handful of large companies which remain will have no choice but to move to the NYSE. The 100 Nads will be reduced to 10.

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

The Nasty rallied hard off a nasty double bottom. The 8 day, 13 day, and 4 week cycles turned up. They joined the 6-7 week cycle which was already in an up phase, which Doc thought wasn't going anywhere. HA! So much for that. The preliminary upside cmap for the 8 and 13 day cycles is 1230. If they can hold gains tomorrow, the rally may last up to 4 days.

10-13 Week Cycle

It's not clear whether the 10-13 week cycle low is in. The cycle indicators are still in sharp downtrends. The cmap remains 1050. We'll have to wait and see what they do tomorrow, but for now, Doc has his super skeptical stock proctology goggles on.

Fiber Nacho Dump- Support levels and downside targets.

Fiber Nacho Reflux- Resistance levels and upside targets

Nasdaq Cycle Conditions as of 10/1/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/4 mos.	925
10-13 Week	Down-Bottom/1-16	1050
6-7 Week	SWU/1-6	??
20-25 Days	Bottom-Up/6-11	1075-1125
8,13 Day	Up/0-4	1230

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

AM Edition Features (Previous) These features are in morning edition, published around 9 AM ET US, or the Saturday Weak End Edition, published, uh, let's see, Saturday!

Long Bong Hit - See top of page.

Golden Stool

Short cycle cmaps are 118, and if that doesn't hold, next stop is 106. Doesn't change the long term picture, but painful as hell in the short run.

Uncle Buck's Illness

Short cycle low, but remains rangebound.

Suctor Watch - Now posted on separate page.

Stoolwethers - Now posted on separate page.

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