The Anals of Stock Proctology

Is your subscription up for renewal? If you want to renew, do nothing, unless your credit card has expired. Please be sure your credit card info is current. If your credit card has expired, you must enter the new expiration date in your Paypal account in order for your subscription to be processed. If you subscribed via Paypal, your subscription will be renewed for one year on the 90 day anniversary of your sign-up and your credit card will be charged. If you want to cancel, use the button at the bottom of the page. This applies only if you subscribed through Paypal. Mailed-in subscriptions are for 1 year. If you subscribed by prior contribution, I will send you a notice before your subscription expires. If you have any questions, see the subscription page and FAQ's. If you can't find the answer, email me.

Update 10/3/02 12:30 PM Terms and methodology

The one day cycle oscillators topped out after the weak rally which ended at noon. The 5 hour cycle down phase should last until 3 PM, with the 1 day cycle down phase into the close. Expect frequent pops on the way down. I've adjusted the 5 day cmaps down a bit, but they are still preliminary. Not enough down yet to establish a good path. The intraday cycle cmaps are based on a 3 hour wave. It could get worse. If the lows break, it's no big deal. They'll waffle around for while for a day or two.

Cycle	Phase	Target	Due
5 Hour- 1 Day
Nas	Down	1165	3 PM, Close
SPX	Down	805	3 PM, Close
NDX	Down	834	3 PM, Close
5 Day
Nas	Top-Down	1140 Prelim	Monday
SPX	Top-Down	790-800 Prelim	Monday
NDX	Top-Down	805 Prelim	Monday

Update 10/3/02 9:15 AM Terms and methodology

Correction: the originally posted SPX 5 hr-1 Day cmap of 812 was a subtraction error. Should have been 822.

Futures are schizoid this morning. They look like they are topping out, but the gyrations make it hard to tell for sure. Doc will stick with the comments he made last night:

... the 5 hour low finally came at 3:45. That might have been the 1 day cycle low also, but there's a good chance of a second, probably lower low after the opening tomorrow.

Downside cmaps for the 1 day cycle lows are 822 on the SPX, 7730 on the Jokes, and 1175 on the Nasty. Look for a weak reaction through mid-day, then possibly a meltdown in the afternoon depending on how much bounce-back they can generate.

Cycle	Phase	Target	Due
5 Hour- 1 Day
Nas	Down	1175	10-10:30 AM
SPX	Down	822	10- 10:30 AM
NDX	Down	845	10- 10:30 AM
5 Day
Nas	Top-Down	1153 Prelim	Monday
SPX	Top-Down	810 Prelim	Monday
NDX	Top-Down	830 Prelim	Monday

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.

Excuses, Excuses (10/2/02)

The excuses are getting more creative. Today it was an erroneous program trade. Depending on the news source, there were three or four different versions of the story, which basically had a trader from Bear Stearns entering a trade for something in the billions, when it should have been millions. Hey, what's a mere thousand-fold error among friends. But the bottom line, which none of the infomercial services services talked about, was that the order came at 3:40 AFTER all the damage was done. Most of it wasn't executed, and according to Bear, the order was fully hedged.

It's a non-issue.

What isn't a non-issue is the fact that, as Doc pointed out yesterday, none of the 10-13 week cycle indicators turned up. Intermediate momentum remains extremely weak with the market near levels the whole world views as critical. This is why Doc does not like the term ov-rsold. If the market really were "over" sold, we'd expect that it could fall no farther. Often we also hear the ridiculous excuse that the market can stay "over" sold for a long time. If it can stay that way for a long time, then obviously it's not "over" anything. It's trending. And, although the circumstances are extremely rare, it is from just such "over" sold levels that market crashes, or long periods of grinding losses occur.

We won't know what is truly oversold, until after we've been there and made the turn. To make an educated guess where that might be, we use cyclical analysis, (ok, some o us use Gannja, and El-li-ott) and we let the indicators tell us when we have reached the target.

Suctor Watch and Stoolwethers- Now posted on separate page. Updated each morning between 8 AM and 9:30 AM NY time.

The Feed sucked, draining $2.25 billion from the system by replacing $6 billion in expiring 5 day repos with $3.75 billion in overnight repos. These will expire Thursday, along with $2.5 billion in 2 day repos and the usual $3 billion in 28 day repos. The draining brings the Feed Index back below the 10% growth channel, and keeps it within the no-growth box it has been in since May. Once again, the Fed seems to be responding to the stock market. When it's up big, Al drains. If it looks like it's on the verge of a meltdown, he Feeds.

What a joke. Al isn't managing the market. The market is managing him.

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 fast Feedometer fell back below the slow Feedometer toward the low side of its downtrend channel. This is not a Fed that has an interest in jamming the market. They only act when its needed to stave off a meltdown. That process is what will prolong the bear market indefinitely. But they're not jamming it any more. Al recognizes the futility.

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

10 Year Bond yields were unch at 3.70. The 10-13 week cycle cmap remains 3.60, which has already been hit. The 10-12 month cycle cmap is 3.50, which is also a long term resistance level. A low is not confirmed yet, but the conditions look right. Watch the intermediate cycle oscillator. An upturn from above 50% would be extremely bearish for the bond market, and would signal the closing of the refi window which has been keeping the financial system on life support. Refis were up big again last week, but purchases were again flat. Mortgage charts tomorrow.

The big question remains whether it's still bullish for stocks if bonds get sold hard. Eventually that relationship must decouple. Only the markets can tell us when.

Financial and Economic Indicators (September 26)

8 Minute Bar Charts 10/2/02
Dow Jokes Inflatables -182.55

Portfolio Sphincters Index-SPX -19.99

Nasgap -26.28

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.

The market broke down on the open, after a 1 day cycle high at the close on Tuesday, The cycle low cam eon schedule at 10:30. The high at 12:30 was also as expected. That high topped out the 2, 3, and 5 day cycles, and probably the 8 and 13 day cycles. A five hour low was due at 3 PM. By that time a big hunchback with weak right shoulder had formed on the intraday charts. The baseline broke shortly after 3 PM and the 5 hour low finally came at 3:45. That might have been the 1 day cycle low also, but there's a good chance of a second, probably lower low after the opening tomorrow.

Downside cmaps for the 1 day cycle lows are 812 on the SPX, 7730 on the Jokes, and 1175 on the Nasty. Look for a weak reaction through mid-day, then possibly a meltdown in the afternoon depending on how much bounce-back they can generate.

Dow Jokes Inflatables

The stage managers were only able to get the Jokes up near the top of the trend channel. Pretty unimpressive. A one day wonder rally is not enough for them to get heavily short. If they're not heavily short, this market will have zero support once it goes through 7500. No wonder Art Cashin looks like hell.

The 10-13 week cycle cmap remains 6950. However, an alternative projection which looks almost reasonable at this point would take it down to 6500. The low can come at any time in the next 3 weeks. The pathetic 6-7 week cycle up phase still has a few days to go, and the 4 week cycle wants to swup if it can, so perhaps they can muster one last defense of 7500. The 8 and 13 day cycles probably topped out. We're about to find out how powerful the down wave of the 10-13 week cycle is. If they take out 7500, three days will be a long time, let alone three weeks.

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

(10/2/02) The six month cycle oscillator started flashing a sell signal. This cycle is topping out a sideways up phase as it moves across the 18-month 2 year cycle channel. The weakness of the up phase and the amount of time left in the cycle suggest devastating losses through January.

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. We also need to be aware that we may have already seen it. The up and down phase of the 1920's bubble lasted more than 6 years, with an interim low after the crash in November of 1929, a little more than 3 years after the onset of the bubble. The Spetmeber 2001 low was at a similar point relative to the 1998 low. Think of the bubble wave like a tsunami. It is bigger and lasts longer than the typical 4 year cycle.

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

Whatever happened Tuesday was largely undone on Wednesday, as the index fell back to the center of the downtrend channel. Both rate of change indicators also dropped. The 8 and 13 day cycles were in a sideways up phase, which apparently topped out. That should be confirmed Thursday. Assuming we get confirmation, the tentative cmap is 775. It could take up to 7 trading days to get there, but it might be done in as quickly as two days. That would raise the specter of a crash scenario.

The unpredictable sideways up phase of the 6-7 week cycle also appears to be coming to an end, with a downturn due within 5 days. The 4 week cycle is in a sideways up phase, at best. The power of the descent of the 10-13 week wave will probably suppress it.

10-13 Week Cycle

The 10-13 week cycle did not turn up. It could bottom any time over the next three weeks. The uncertainty over the timing is what makes this period so potentially dangerous. Some indicators look Dover Sole, but the final phase of the decline is usually the sharpest. Because of this uncertainty, the cmap range of 690 to 760 is unusually broad.

The cycle indicators have not flashed a turn signal. Until hey do, the downtrend has the potential to steepen.

VIX

The VIX sprouted to 43.36, back in the middle of the inverted scale 6 month cycle Stool Band. This indicator, like the market, is trending, near neither a high nor a low.

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 10/2/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/4 Mos.	690p
10-13 Week	Down-Bottom/0-15	690-760
6-7 Week	SWU-Top/0-5	??
20-25 Days	SWU/5-10	??
8,13 Day	Top-Down/2-7	L 775

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 did an about face from the top of the short term channel. The 8 day and 13 day cycles apparently peaked. The preliminary downside cmap is 1125. We should see that confirmed by weakness on Thursday. The 4 week cycle is in a sideways up phase, probably a non-issue given the strength of the 10-13 week cycle down phase. The 6-7 week cycle may have also topped out its sideways up phase.

10-13 Week Cycle

The 10-13 week cycle is still headed down. The cycle indicators remain in sharp downtrends. The cmap is still 1050, due any time over the next three weeks.

Fiber Nacho Dump- Support levels and downside targets.

Fiber Nacho Reflux- Resistance levels and upside targets

Nasdaq Cycle Conditions as of 10/2/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/4 mos.	950
10-13 Week	Down-Bottom/0-15	1050
6-7 Week	SWU-Top/0-5	??
20-25 Days	SWU/5-10	??
8,13 Day	Top-Down/2-7	1125p

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- Published daily by 7:30 AM NY time

The 4 and 6-7 week cycle cmaps are 114 to 118. Unfortunately, if HUI closes below 118, it will pull the 10-13 week cmap down to 106, where there is solid trend support. The low is due within a few days. This is all part of a long period of consolidation which could last for 3-6 months, or more.

Uncle Buck's Illness- Published daily by 7:30 AM NY time

The short cycle indicator is heading up but, with the 6 month cycle turning down, along with the declining 10-13 week cycle, look for a downdraft soon, which will test the lows.

Suctor Watch and Stoolwethers- Now posted on separate page. Updated each morning between 8 AM and 9:30 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

Share your thoughts on the Stool Pigeons Wire.

Renewals

Welcome, and thank you for subscribing to the Anals of Stock Proctology. Your trial subscription will run for 90 days. At the end of that period your subscription will renew automatically, unless you cancel. If you wish to cancel your subscription use the button below. If you want to renew your subscription do nothing. Your subscription will renew and your credit card or Paypal bank account will be charged. If you want to renew, be sure your credit card information in your Paypal account is current. Paypal will not renew your subscription if the card has expired!

Again, thanks for subscribing!

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