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.

Mid Day Chart

Looking for a test of the high, or a minor new high. 5 hour and 1 day cycles should be up until 3 PM. This could be 8 day cycle high. Enough uncertainty to go around for everyone.

Bad News, Bears (10/23/02)

The rally rumbled on, Wednesday, dashing the expectations bears yet again. According to SeeBS.Markethype, "The Dow began to recoup its losses after the Federal Reserve chairman suggested America's productivity may be in better shape than some observers have suggested. "A significant step-up in the growth of productivity appears to have persisted," he said.

But Michael Metz, a portfolio sphincter with CIBC World Markets said, ""No one takes him seriously any more."

Right On, Michael!

This rally isn't about Greenie, or productivity, or profits. It's about sphincters chasing performance. It will run straight up until they run out of cash, and when that happens it will come down at double time speed. In the meantime, patience is the byword. There's precious little sign that the rally is truly over, pauses and dips are still being bought, and it may take a buying panic blowoff to end it.

The Feed did $1.5 billion in overnight repos, resulting in a net drain of $500 million as $2 billion expired. The $1.5 billion will expire tomorrow along with the usual Thursday 28 day repo rollover, this time for $2 billion. The minimal drain had no impact on either the Feed Index or the Feedometer. The action over the next few days will tell us whether the Fed still wants to maintain the 8% growth channel.

Three trends are evident on the Feed Index, which is the total Fed holdings of loans and securities. 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 still shows that Al has the markets on a starvation diet. They are keeping their powder dry for a potential crisis.

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

Bond yields were little changed, after dipping in the morning and rocketing higher in the afternoon along with stock prices. The upside cmap on the 6-7 week cycle moved up to 4.35-4.40, but 4.50 looks like a good bet. The 10-12 month cycle is just coming off a bottom. The 2 year cycle and longer waves are also likely to head up over the next couple of months.

The real news is, as always, in the mortgage arena. The Mo-gauge Bonkers Ass. of America (bigger crooks than the stock borkers) reported their mo-gauge application index for last week, and it was down big time. A drop in new mortgage formation could trigger the liquidity crisis some of you have been expecting. A number of the approved mortgage applications in this recent bulge are not going to fund as the uptick in rates blow out borderline qualifiers who did not lock in. This could begin to affect money supply quickly, well before the normal 4-8 week lead time it usually takes for these applications to turn into funded mortgages which the GSE's monetize.

Meanwhile, the Treasury auctioned $27 billion in 2 year notes, raising over $5 billion in new money. That has to be paid for in 7 days, and will represent an additional de facto drain next week unless the Feed does some offsetting pumping.

We'll have a look at the Fed's monetary aggregates Thursday night. Now that the Feed has been flat for months, and the influence of GSE's growing their portfolios has been stopped, can implosion be far behind?

Mortgage rates are on an inverted scale on the chart below, to show the relationship between rates and applications. Purchase applications have not responded to lower rates, while refi volume responds directly to changes in rates.

8 Minute Bar Charts 10/23/02
Dow Jokes Inflatables +44.60

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 sold off on the open following weak fucutures action pre-open, but recovered quickly as both the 5 hour and 1 day cycles were still in an up phase. That topped out at 10 AM, leading to a selloff into the 5 hour cycle low at noon. Then up again into what should be both the 5 hour and 1 day cycle high at the closing bell. The SPX hit its upside cmap of 894, then extended beyond it. That extension should be corrected on the open Thursday, as the 5 hour and 1 day cycles should head lower. Of course, a lot depends on the overnight futures. The Nas also hit its cmap of 1320.

The 5 day cycle turned up. It has a preliminary cmap of SPX 900-910. It's pretty clear they're going to retest the Friday highs.

Dow Jokes Inflatables

The 13 day cycle cmap of 8500 was retested. The cycle should be in a down phase for a few days. If this is the down phase, fellow bears, we still sitting in the woods. The 6-7 week cycle has a cmap of 8700, and the 10-13 week cycle is also still headed higher. The high is due in 1-3 weeks.

Portfolio Sphincters Index-SPX +5.98

Nasgap +27.44

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

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

Still no sell signals from the cycle or rate of change indicators. The short cycle oscillator in the chart below continues to hover in the top zone and looks ready to turn down. The 13 day cycle is in a down phase. Rut ro. Not good. A down phase that doesn't go down means there's another pop left in this pig. The 4 and 6-7 week cycle cmaps point to 925 with time running out on the up phase.

10-13 Week Cycle

Still up with from 1 to 3 weeks remaining. Still no upside cmap. There's too much ambiguity in the projections. Everything may hinge on the next two days. A move to 950-960, or even 1000 (braaaack) is not outside the realm of possibility. It could also end at 925. At this point the signals are too ambiguous to make a reasonably reliable call on the upside for this cycle.

VIX

The VIX continues to flirt with the top zone on the inverted scale stool band chart. The bands are flattening, however. We may need to see a reading of 35 or less before this up phase ends.

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.

Long Term (10/22/02)

While the whole world is fixating on the "4 year cycle low", Doc thinks it's a non-issue. Since October 1998 was a bottom, virtually everyone was expecting a 4 year low in this time frame. But bubbles are peculiar. The tsunami wave spawns atypical wave responses. The November 1929 low was at a 3 year anniversary. The next important low was in July 1932. At other times we have seen cycles run 4.5 years, or 3 years. Focusing in a 4 year low is a bad idea. Cycle lengths vary, and long term indicators do not suggest that the ultimate bear market low is at hand.

The most obvious long term wave this time has been around two years in duration, and the last low was in mid 2001. So we should look for the next one around mid-year next year, give or take 3 months either way. That would also correspond with the 10-12 month cycle which bottomed in July and is now in the midst of a weak sideways up phase. This up phase shows every sign of manifesting as a broad trading range in which highs fall short of past highs and nominal new lows are made on downswings.

The current rally is part of a 6 month cycle top within the 10-12 month cycle up phase. As a result of the rally, the downside cmaps Doc had been posting are no longer valid on the current 5-6 month cycle. The 10-12 month cycle is headed up. Significantly lower lows look like they will be delayed until well into next year.

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 10/23/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/3-4 Mos.	??
10-13 Week	Up/6-21	??
6-7 Week	Up-Top/0-4	925
20-25 Days	Up-Top/0	925
8,13 Day	SWD/0-3	??

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

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 13 day cycle hit its upside cmap and is now in a down phase that isn't going down. That means bigger cycles are skewing this cycle inline with the bigger trend. The 4 and 6-7 week cycles now have cmaps of 1350 due within 4 days.

10-13 Week Cycle

The 10-13 week cycle apparently has a cmap of 1330 but that too could change. The up phase still has 1 to 3 weeks remaining.

Long Term (10/22/02)

The "4 Year Cycle" looks like it bottomed last year, lasting only 3 years as a result of the influence of the tsunami bubble wave. The Nasty may actually have been in an up phase since then, with the current move being the rigor mortis rally before the Nas heads for its ultimate price objective of negative 400. By 2007, the Nas will be the National Toilet Paper Exchange. (Assuming that this interpretation is correct, of course.)

In the meantime we'll have to grit our teeth until the current 5-6 month cycle top phase within this 10-12 month cycle sideways up phase is complete. That should be within 1 to 3 weeks. Doc doesn't think the up phase will exceed 1350.

Nasdaq Cycle Conditions as of 10/23/02

Cycle	Phase/PTT	Target
6 Month	Top-Down/3-4 mos.	1350-1400
10-13 Week	Up/6-21	1330
6-7 Week	Up-Top/0-4	1350
20-25 Days	Up-Top/0	1350
8,13 Day	SWD/0-3	???

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

Long Bong Hit - See top of page.

AM Edition Features (Previous) These features are in morning edition, published between 7:30-8 AM ET US, or the Saturday Weak End Edition, published, uh, let's see, Saturday!

Golden Stool

Cousin HUI is still basing for a 10-13 week and 10-12 month cycle low. Downside cmaps for the 6-7 and 10-13 week cycles remain at 105-106. The stoolicator and 17 day rate of change indicate a trough is in progress. There may be one more shakeout however, and the beginning of a downturn in the 6 month cycle oscillator is mildly troubling. A new upmove will be confirmed when the 29 day rate of change and intermediate cycle oscillator turn up.

Uncle Buck's Illness

Uncle Buck remains flat on his back. Some time in the next 2-4 months this weak 10-12 month cycle up phase will turn down, and the stock market will go with it.

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