10 Minute Bar Charts 6/13/02

Dow Jokes Inflatables 

Portfolio Sphincters Index (SPX)

Nasgap

Archives

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5/01/02, 5/2/02, 5/4/02, 5/6/02, 5/07/02, 5/8/02, 5/09/02, 5/10/02, 5/13/02, 5/14/02, 5/15/02, 5/16/02, 5/17/02, 5/20/02, 5/21/02, 5/22/02, 5/23/02, 5/24/02, 5/28/02, 5/29/02, 5/30/02

6/01/02, 6/3/02, 6/4/02, 6/5/02, 6/6/02, 6/7/02, 6/10/02, 6/11/02, 6/12/02

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

PM Update 6/14/02 12:45 PM   Terms and methodology

Welllll! Got the timing right and came pretty close on the AM cmaps, but Doc certainly did not expect the jam to do as much as it did. The first 45 minutes were also weaker than expected, driving the averages down to the  AM posting 3 day cycle cmaps. 

The 1 day cycle "should" be topping out now. The indexes are close enough to their cmaps. If the gains resume,  it would indicate an upturn in the 3 day and 5 day cycles and we'd have to reevaluate at that point. Not much change in the 3 day cmaps at this point. 

AM Update 6/14/02 9:00 AM   Terms and methodology

Fasten your seatbelts. Gonna be a bumpy downhill ride. We're looking at a good sized gap down on the open with a 1 day cycle low due by 10:15 that should lead to the usual jam attempt. That won't get far. The currently dominant 3 day cycle should head down into Monday with significantly lower lows. The best guess right now for timing of intraday highs is 11 AM, and 12:30 PM with a final reaction high around 1:30. But let's see how the first few hours play. 

Certifiably Insane (6/13/02) Doc thought he just heard Peter Canelo, a third rate hack strat-ego-ist, actually say on Crapvision that the market is now 22% undervalued. Canelo, of course, is far from alone. These turkeys will never get it. They're all from the James "36,000" glAssman school of market analcystics. The theory goes something like this. Since stock prices always go up, there is no risk, and since there's no risk, earnings should be capitalized at the 5 year risk free rate of return, which today is 4.18%. That means that the market's PE ratio should be 24 times earnings.

Anybody who still believes that, after the last two years, is delusional and certifiably insane.

The idea that stocks should be valued at the risk free rate of return is so obviously crazy, it shocks the mind that anyone could seriously believe it. Well, they don't believe it. They don't even think about it. It's just another Big Lie that Wall Street shills figure, if repeated frequently enough, will sound like eternal truth. 

Earnings should be capitalized at the risk free rate of return? Think about it.

Insane.

Now Doc's not a funny mentalist, but it seems that we might look to real estate for guidance. Maybe it has something to do with the fact that Doc has spent the last twenty years in the real estate business, and only six years working in and around Wall Street, but Doc knows a helluva lot more people who got filthy rich buying and holding real estate than who did it with long term stock investing. Real Estate, unlike stocks, has a fixed supply. Over the long haul real estate appreciates, whether more or less than stock prices is impossible to say, because we have no real idea what the long term growth rate of the average stock is. We do know that the compound rate of return on the Dow and the S&P since they began keeping the data 103 years ago (76 years for the S&P) is around  5% for each,  before dividends, commissions, fees, taxes etc. But they keep dropping the crummy stocks from the index and replacing them with better stocks, meaning they treat the ones that go to zero as if they never existed. Unfortunately, the money that bought them existed at one time, and now doesn't. So the real rate of return on the average stock is something less than 5%, probably a lot less, and it is not even in the same stadium with this 10-12% BS that the shills tout. 

After inflation and taxes, the return on stocks over the long haul is next to nothing. Now there's a fact that you'll never hear out of a Wall Street analcyst.

On the other hand, we know for a fact that real estate tends to outpace the inflation rate, precisely because the supply is fixed, and because real estate has utility. As a professional real estate analyst, Doc can tell you that the capitalization rate on real estate is always 10%, always has been, always will be, give or take a point or two depending on location and quality. So the cap rate, which is the inverse of the PE ratio, on virtually all common real estate investments, ranges from 8-12%. Invert that and you get a PE ratio of 8.3 to 12.5.

If the cap rate for real estate is 8% to 12% and is always in that range regardless of interest rates or market conditions, why should the cap rate on stocks be any different? Why shouldn't the PE ratio be 8 to 12? Liquidity premium? That should be no more than the borrowing cost. By that standard a PE ratio of 10 to 12 is certainly far more reasonable than what we see today. By that standard the stock market is 150% over valued. That means, assuming earnings don't drop, that fair value is about one third of current prices. And believe me, no one has any idea whatsoever what earnings are going to do over the next year. These jackasses that forecast earnings out more than a month or tow are just pissin' in the wind.  

The idea that stocks should not have a risk premium compared to the risk free rate of return is historically a new phenomenon, a byproduct of the greatest bubble in history. After what we have been  through the last two years, one thing is certain. Anyone who can say with a straight face today, that stocks are undervalued, is either a con artist, or a quack.

The Feed did $4 billion in 28 day repos, and $6.5 billion in overnight. Sounds like a lot, right? Wrong! Yesterday's overnight repo was $9 billion, so right there is a deficit of $2.5 billion. Also, remember that on Monday they did a $7 billion 3 day repo. That expired today. The result was a net drain of $9.5 billion. They didn't waste any time taking back most of Wednesday's jam money. Again, ours is not to reason why, just to keep an eye on what, because we know from observation that there's cause and effect here. 

But of course, it's only a coincidence.

Since the market reacted to Al withdrawing the nipple by throwing a tantrum in the afternoon, we'll need to watch and see if the big boob is back in Wall Street's mouth tomorrow. (Geez Mark, yer rubbin' off on Doc.)

The Total Feed fell back to the center of the target range. They have room to jam it again, if they want to. But unless they increase their growth target above 10%, they'll have to take back whatever they give, and the market will drop again.

Yesterday's little jam only worked for a few hours. Al probably miscalculated. They could pop it again. But it won't do any good. The decline is taking on a life of its own.

The Slow Feedometer is still trending up following the bulge of two weeks ago. The money is in the process of being flushed down the market's toilet. 

The Fed reported after the bell that M1 rose by $2.5 billion in the week ended June 3. No surprise there. That was the week of the giant Feed. M3 rose by 3.8 billion the same week. That's an almost immeasurable increase relative to total M3 of 8.07 trillion. The growth rate of M1 over the last 13 weeks is now at zero, and down to 1.4% for M3.  Over the same time frame, the Total Feed increased by 11%. Something is wrong. The Feed has its pedal to the metal, and the wheels are merely spinning. The money is disappearing into the black hole of the stock market and credit derivatives implosion.  

For the biweekly period ended June 12, Total Reserves dropped from 393.4 billion to 389.7 billion. The adjusted monetary base fell by $4 billion, reducing the growth rate over the last 3 months to 6.5%.

M1 for the week ended June 3 grew slightly but the growth rate is zero over the last 3 months. Incredibly, checkable deposits are actually declining. This is terrible news for the markets. The Fed is unable to reflate. The money the Fed is printing is disappearing.

MZM, a broad measure of money which, like M3, includes money fund assets, stalled again in the week ended June 3. Based on the recent flat trend in new mortgage activity, this measure should continue to flatten out, and eventually turn down, as the credit bubble begins to implode.

What about all the "cash on the sidelines"? It's slowly disappearing too. The Street is going to wait forever for this money to come into stocks. Trimtabs reported enormous mutual fund outflows again this week.

All of Doc's 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

The Sphincters Index lost almost 11, nearly doubling yesterday's gain.  The big stocks the stage managers used to drive yesterday's jam, MSFT, WMT, PG, and MMM, got pounded today.

The 17 day rate of change, which represents the 6-7 week cycle, and the 6-7 week oscillator superimposed on the price chart, stayed negative. The 10-13 week cycle oscillator (navy) dropped.  This is a lagging, confirming indicator, early in the down phase. If the cycle runs its full term, which is at least another 6 weeks, the losses are going to be mind bending. The centered moving average projections are only pointing to 972. Either the cycle will end earlier than projected, or the centered moving average projection will move lower.

The 29 day rate of change downticked slightly from a flat pattern in negative territory. A flat pattern in negative territory indicates a stable downtrend. The downtick probably means the trend is accelerating.

The VIX rose to 28.73. On the inverted scale chart, while VIX moved down, the Stool Band is dropping faster. The market is trending from mild to deep concern, in its ultimate journey to fear, and finally, outright panic. The trend is smooth, but the day to day movements are not. The final bottom will be marked by an extreme reading, but what is extreme?  We won't know until after the fact. At the minimum, VIX should break below the lower Stool Band, and stay there for a few days. That condition is usually associated with a vertical price drop. It won't pay to anticipate and be early.

The blue channel lines are the extension of a linear regression channel from the February and May 2001 highs. 

The 6 month cycle oscillator is inching lower. The trading stoolicator is early in its down cycle. The short cycle oscillator is inching higher. This is consistent with an upturn in the 4 week cycle and indicates the Dover Sole condition is actually being relieved as the market works lower. This is priming the downtrend for acceleration. The possibility of a dramatic breakdown is increasing.

In the technical esoterica department, The SPX  broke below the 161.8% fibo retracement level. There's a trendline  formerly known as support at 990 which coincides with a Gann fan line. Centered moving average projections say those levels will be broken.

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 6/13/02

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

Nasgap Charts

The Nasty spent the afternoon losing 30 points to close down 26 at 1497. 

The 6 month cycle time series spread dropped for the second day. Flat below zero is negative, representing a trending market and a downtick from that means downside acceleration. The 10-13 week cycle oscillator and the trading stoolicator continued on their downward path.

The short cycle oscillator may have stopped rising, and it has relieved its Dover Sole condition. The downtrend may be poised to accelerate. 

The Nascrap 100 is trading below the September closing low, will collapse if it breaks the downtrending channel lines now around 1075. 

The next fiber nacho level formerly known as support is at 1432. All Gann fanlines are busted. It would not be shocking to see the September low tested within a day or three.

Nasdaq Cycle Conditions as of 6/13/02

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

AM Edition Features (Previous)

Long Bong Hit 

Bond yields look like they are about to accelerate downward in lockstep with stock prices as capital rotates out of stocks and back into bonds. The question that keeps popping up is, are we headed the way of Japan? It sure smells that way.

Suctor Watch

The short term Dover Sole has been relieved in the last few days. Assuming SOX takes out 415, which looks like a certainty, the downtrend is accelerating.

Software is one of the worst looking charts, outside of networkers and telecom. The 10-13 week cycle is just topping out. 

The small crap stocks are about to break a major level formerly known as support. Institutions drove this index up by piling in in the last 8 months. The lack of liquidity helped them on the upside. Now that some want out, there won't be market. This is going to be extremely ugly. Thanks to stoolie KWaveRider for reminding us of that.

The Street has universally loved Retail. All nails are now in the coffin.

Stoolwethers

Wally is coming to the end of its sideways up phase. When the mental institutions need liquidity to meet  redemptions, Wally is a source. This entire chart may well be a massive top.

Mafiasoft is the same, a source of funds for cash strapped mental institutions. It's topping out it's 10-13 week cycle at the upper edge bands of a couple of key cycle waves. Gates sold 8 million shares on June 3. He should hire a market timer. Caught the short term low.

General Custer's last stand is about to close.

MMM is the most important stock in the world. Although small by big crap stock standards, it has the largest weighting in the Dow Jokes Inflatables. The stage managers have made good use of MMM in propping up the Dow. There's a possible Hunchback formation over the last two months. Keep an eye on the 122 1/2 level. Katy bar the door if they can't hold it. 

The world's largest financial company is in the midst of an accelerating breakdown if it doesn't hold 40, which looks likely.

Fannie's beginning to accelerate down. It's going to be real interesting when she breaks 75.

Stock O' The Day

Doc is skipping skipping skipping StockO today.

Henceforth and forevermore, if you would like to request a "stocko", please post your request in Dear Dr. Stool. If you have not already registered for the message board, please do so. The only required info is user name and password which you choose yourself, and your email address, which you can keep private by selecting the keep private option. Doc looks forward to featuring your ideas. We've had some good ones!

Uncle Buck's Illness

The intensive care unit in Room 111 lost Buck this morning. Last I looked they had moved the body to the morgue in room 110. They'll be burying him next week.

Golden Stool

Cousin Hui has found support, and now must do some work in the 120-130 area before resuming his upward trek. The time may not be far off. 

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

Let me know what you think on the Stool Pigeons Wire.

Previous complete issue with all features

Welcome To New Subscribers

Welcome, and thank you for subscribing to the Anals of Stock Proctology. You may note some subtle differences in style now that this is no longer a free service. The perspective is still bearish, but it will have a more balanced approach than my message board ravings. You won't  see me screaming "BUY" about anything except perhaps gold, but you will see stronger indications of areas and times when I think it might be a good idea to avoid being short. And I promise that I will lose my temper from time to time to keep you entertained!

There's also a new feature, Doc's By Request Stock O' The Day. If you have a stock you're interested in, send an email to [email protected], naming the stock, and why you think Doc should look at it, in 25 words or less. 26 words, and you're disqualified! Those that look interesting, Doc will try to feature here within the next day or two. If you have suggestions about other features you'd like to see, send them along to [email protected].

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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