The Anals of Stock Proctology

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Doc will be traveling until October 23, God willing. The Anals will be published in a scaled down format, whenever possible. Pre-market and Mid-day updates will be published irregularly. There will be no mid-day update Thursday or Friday. I will try to do pre-market updates both days. Publication notices will be posted on the message board during this period. Since we are nearing a short term turning point, I'll do my best to report to you regularly on how the charts look.

Suctors and Stoolwethers will not be updated today.

Road Apples For Tuesday 10/15/02 - Tilt!

Doc thinks this market is gravely ill, and that we are in the midst of an amphetamine induced rigor mortis rally. The drugs were initially injected by the PPT, acting through Drs. Mohel and Goldman. The result has been an out of control derivatives melt-up as market makers and various and sundry other hedgers rushed to unwind massive short put positions and related short stock hedges. Due to the huge gaps and the illiquid markets, it's a certainty that major losses have been incurred on both sides of these arbitrage trades as they are unwound.

The bond market has not only not been immune, it has provided additional fuel for the conflagration, as an enormous liquidity crisis in the-T-bond market has led to a sudden melt-down there. For sure the bond market indicators had told us for days that a turn was near, and that this would coincide with a 10-13 week cycle upturn in stocks, but these indications in no way foreshadowed the kind of chaos we are now experiencing. Chaos is always followed by destruction and devastation. This will be no exception.

The only way to try to make sense of the instability is by reading the charts. And even that may prove inadequate. As stoolie rog has pointed out, when derivatives activity drives the market, they are no longer derivatives. We are dealing with unprecedented levels of derivative trading and open interest. A catastrophic event is under way.

At 3.55, all conditions for a major bottom in bonds had been met: long term and intermediate cmaps, long term resistance. This was followed by a break of the channel, a classic sign of over extension of a trend, then WHOPsaw. A similar turn in the bond market put a cap on the big stock market rally last November. After that, it was all over except the churning. Another day like this in bonds, and we'll be looking at an all out crash in bond prices. In 1987, the bond crash preceded the stock crash by 4 months. With the derivatives problem, this time it would be more like 4 days. The 13 day and 4 week cycle projections are 4.15. That might not mean much. In a few weeks at most, they should be back up to the long term cycle channel line at 4.50.

Feed, Glorious Feed: If Feed breaks out of the no-growth box, you'd better believe Al is responding to systemic crisis. The last thing they want is the kind of discontinuous markets we've seen the last couple of days. Keep in mind that Feed settles at 2:30 PM. The markets begin to respond to Feed changes at that time.

SPX-

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.

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 Reflux Levels- Resistance and 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 10/15/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/3-4 Mos.	680-700
10-13 Week	Up/12-27	Too Early
6-7 Week	Up/1-10	862
20-25 Days	Up/1-6	849
8,13 Day	Top/0	841-861

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

Golden Stool-

Suctor Watch and Stoolwethers- Now posted on separate page. Updated each morning between 8 AM and 9:30 AM NY time. Suctors and Stoolwethers will not be updated until fudder no dis. (Upon return to Happy Acres, at the latest.)

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