10 Minute Bar Charts 6/26/02

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, 6/13/02, 6/14/02, 6/17/02, 6/18/02, 6/19/02, 6/20/02, 6/22/02, 6/24/02, 6/25/02

The Anals of Stock Proctology

Published weeknights by 8:30PM Happy Acres, Florida Time
Weak End Edition Saturday Afternoon

 The American Academy of Stock Proctology and 
the American Society of Shortsellers
Dr. Stepan N. Stool, A.S.S. Chair

Dr. Stool will be traveling from June 29 to July 14. The Anals will not be regular during that time. An abbreviated version of the nightly commentary will be published when internet access is available. Doc will post a message on the Stool Pigeons Wire on days the Anals will be published. Intraday updates will not be published. (Last time Doc took a vacation, the market bottomed.) 

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PM Update 6/27/02 1 PM   Terms and methodology

The 5 hour cycle low is due as I am writing at 1PM. One day cycle low is due at 2:30. If the market is higher at that point the 5 hour cycle is dominant and the high would be due at 3:30 with the 1 day cycle peak in the first hour tomorrow. It's too early for an upside cmap on this wave. 

The 3 day cycle is still up. It now looks as though the high is due tomorrow, although at lower levels than projected this morning. This morning's highs may not be exceeded. 

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. 

On the other hand, if you made any extra this week on account of The Stool, send it in!

AM Update 6/27/02 9:15 AM   Terms and methodology

The bottom is in for the umpteenth time. This one looks a little more serious than the last couple (See Suctors and Stoolwethers), but don't worry, the bear will be back. How do we know that? Count the number of times you've seen or hear the word "capitulation" analyzed on the financial infomercial media. It must be a record. 

For today at least, we'll see a strong open with highs due in the first hour and again around noon. The 3 day cycle cmaps suggest the move will be a big one, with a late afternoon surge. This is the beginning of a swup in the 8-13 day and 6-7 week cycle.  

Tactical Review (6/26/02) The time may have come to start thinking about a tactical shift from shorting strength, to covering on weakness. There are no definitive buy signals yet, but early warning signs are beginning to pop up like boils, not the least of which was Wednesday's market action, with the market reversing off perceived support.

There also appears to be a liquidity buildup under way. First of all, weeks of selling will do that. Second, not only is the Feed engaging in steady pumping, but the mortgage market sprang to life this week, after being relatively moribund for several months by bubble standards. A slow increase in the number of mortgage applications over the last month accelerated sharply this week, and the additional liquidity will begin flowing into the system when those mortgages are funded in 3 to 8 weeks. At some point during this period, there is going to be a stock market melt-up, and you do not want to be short when it occurs. 

That risk does not appear imminent. But it does appear that 8-13 day and 6-7 week cycle lows are forming that could lead to a short up phase, before the market settles into its 10-13 week cycle low in 3 to 6 weeks. That low would coincide with the heavy inflow of liquidity from mortgage funding. 

Centered moving average projections for the lows are also stabilizing and moving up, and they are only 2-4% below Wednesday's intraday lows. The charts also show the indexes sitting along their lower channel projections for a number of intermediate cycles. 

So it's time to tread with care. A lot of sellers puked it all up today and tehr is likely to be less stock for sale going fo wad. Summer's here. Be like Doc, and prepare to take a vacation. The market will still be here when you get back.

The Feed did $6.5 billion in 15 day repos, refunding $3 billion in overnight repos, for a net addition of $3.5 Billion. $7.5 billion in 3 day repos and $2.5 billion in 7 day repos are coming due on Thursday. The Fed will need to add $10 billion to maintain total Feed at the midline of its 10% growth channel. If they do that much or more, the market is likely to be firm. If it's less, look for a slide in the PM.

The Slow Feedometer, which is the 17 day average of the daily excess Feed available to jam the market, upticked, along with another uptick in the fast feedometer (grey line). Clearly there's enough excess liquidity here to stem a market meltdown. The question is whether the pumping can be sustained long enough to help the market reverse without causing massive dislocations in other areas, particularly with Uncle Buck and the Long Bong Hit. 

In an extremely ominous development, the Mortgage Bonkers Association Mortgage Application Index soared in the week ended June 21. According to the MBA, "the seasonally adjusted Purchase Index reached its second highest level ever, increasing to 397 from 359 the previous week. Its record level was 414, set the week ended May 31, 2002. The seasonally adjusted Refinance Index increased to 2505 from 1764 the previous week. The last time the refinance index was above the current level was the week ended December 7, 2001, when it stood at 2732. The market composite index of mortgage loan applications-a combined measure of total mortgage loan applications-increased 24.8 percent to 706 on a seasonally adjusted basis from 566 the previous week. The last time that the market composite index was higher was the week ended November 30, 2001, when the index reached 746." The rate on 30 year fixed rate mortgages fell to 6.45%.

This is going to create another liquidity surge in a few weeks which is likely to further destabilize all markets, and probably trigger another burst of financial bubble activity that will boost asset prices, both physical and financial.  

The upturn included refi activity, which is the primary engine of financial market liquidity through the mechanism of GSE liquefaction. At this point this bulge is nowhere near the size of the huge boom in the fourth quarter, but if long term rates continue lower, it could be. 

Those with short positions in stocks should watch the market closely in the weeks ahead for signs of a turn, and use prudent trade management measures, including protective stop loss orders. Exercise caution in instituting new short positions as well. Market volatility, in particular upside volatility, will be increasing as this liquidity buildup flows through the financial system. The  liquidity build is evident not only in the mortgage application data, but also in the Feed activity. It began in mid-May. Mortgage applications are funded usually within 3 to 8 weeks. Some of the new liquidity is already beginning to flow into the system, and it can be expected to build through the summer. 

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 also staged a miraculous recovery, after being down 25 to 953, also twice, like the Dow. It finished down 2.61 and is now within 8 points of the September 21 closing low of 965.80. 

The 17 day rate of change,  which represents the 6-7 week cycle, upticked a bit, but did not reverse its downtrend. The 6-7 week oscillator superimposed on the price chart, continued rising. This reflects an ever so slight diminution of downward momentum and signals that, yes, Virginia, this is the 6-7 week cycle up phase. The last time it rose without prices following, in mid April, the market had a vicious one day pop a couple weeks after the upturn in the indicator. If that happened here, I'd consider shorting it if none of the other indicators confirmed, but it would be the last time for awhile, and I'd be prone to take profits quickly. 

The 10-13 week cycle oscillator (navy) fell. As long as  that continues, we will not see an intermediate low.

The 29 day rate of change flattened, but remains in a downtrend. This indicator should stabilize and turn up ahead of price. 

The VIX rose to 33.33. On the inverted scale chart, VIX pierced the outer stool band that is often associated with 4 and 6-7 week cycle lows. If that's the case here, the most that's likely is an up phase lasting a few days. Fear levels are relatively moderate and are consistent with the market's trend. At a major low, extreme fear readings will persist for several days. A buy signal will not be generated until the index drops below the blue band for several days and then reverses. 

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 barely drifting lower. A flat trend in negative territory signifies a stable downtrend. The trading stoolicator is still signaling a downward acceleration. The short cycle oscillator is still plunging.  The 10-13 week cycle oscillator continues to trend gradually lower. The centered moving average projection inched up to 932, due in 3 to 6 weeks. There is no sign of a meaningful low yet but prices are bumping along their lower channel projections. This is problematic because sharp rallies are often triggered from these levels. We know these, of course, as Dover Sole rallies. As all stoolies know, there's no such thing as that other thing that sounds like Dover Sole, in a bear market..

The decline stopped at a fib number, and the recovery was exactly 23.6% of the decline from 1040 to 953.  Rod Serling lives. Keep this chart close by tomorrow. It might come in handy.

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 6/26/02

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 Nasgap was down 50 early but by mid-day it had the strongest pattern of all the averages.  After breaking the September low in the morning, by day's end the Nas was up 5. For now, that may be all she wrote, as prices pierced the lower channel projections of all the key intermediate cycles and even ticked the edge of the long term channel. But it's not the end of the end, just the beginning. There will be gyrations in the days ahead, and some of them should result in lower lows. It will be exceedingly tricky, what with the growing liquidity and mechanistic jamming. Although, truth be told, it was pretty easy to see this coming today, when the Dow and SPX made those simultaneous double bottoms. Doc even sang a song on the message board in honor of the occasion. It was, "It's Double Bottom Time" to the tune of Howdy Doody Time. Seeing the positive divergence in the Nasdaq at the time gave Doc that old silly feeling.

The 6 month cycle time series  is still drifting lower. The 10-13 week cycle oscillator and the trading stoolicator are still declining, as well. There is no sign that this downtrend is kaput yet, although it is getting late, and Wednesday was probably an 8-13 day cycle low.

The short cycle oscillator upticked slightly, but did not reverse. The 6 month cycle cmap is pointing to a range of anywhere from 1075 to 1325, due from mid-July through mid August. The 10-13 week cycle cmaps are pointing at 1300-1325 for the same time frame.

The Nascrap 100 also made a stunning comeback. As with its broader cousin, there's no bottom signal yet.

They sure did bounce off the September low, didn't they? Now how predictable was that? I suppose the real question is why did Doc expect it to break?  Irrational bearish exuberance, I guess.

Nasdaq Cycle Conditions as of 6/26/02

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

There are numerous pre-indications that bond yields are "bottomish."  If the 4.75-80 area holds, this is an intermediate bottom.

Suctor Watch

The SOX and many tech sectors are trading at trend support levels, with the 6-7 week cycle indicators showing early signs that a low is in for that cycle. We're due for a swup. After that, one more dip. If this is the final bottom of the 5-6 month cycle, Doc will eat his charts. 

The Street loves Aerospace. If the 235 -240 area holds, this sideways down phase in the 10 month cycle will lead to another leg up. That would go against the Second Precept of Stock Proctology, which is, if Wall Street loves it, sell! 

How much lower for telecom? Long term cmaps are 260 and 100. We'll see. Trend support at 350 may or may not trigger a bounce. How's that for saying nothing? 

The small craps have also reached the bottom of their long term channel and are likely to go into a  swup for a few weeks. The 10-13 week cycle ozzie has bottomed, and the 17 day ROC is signaling a low in the 6-7 week cycle.

The consumer index has reached the the lower edge of its channels and should stabilize for a few weeks. 

Retail is also bumping along the lower reaches of its trend channels.

If reflatulation of the bubble is under way, the homebuilders are still the place to play. There are signs the group could take off again. 

Have the Druggies hit bottom? They broke through the bottom of their long term channel, with the oscillators suggesting that a bottoming process is underway. Look for a Dover Sole bounce.

Good grief, even Biodreck looks bottomy. 

Reflatulation of the bubble means asset plays should do well. If you insist on going long, energy looks like the place to be.

Stoolwethers

Market Maker Management has support here. No buy signals yet however.

Mr. Bill has another pop left. If you're short, a stop at 57  is a good idea.

Untel triggered this latest market swoon. Now that the market makers have flushed out all the sellers by breaking the September low, the washout is temporarily finished. 

IBM is also likely to find support in the 65 area. No reversal yet, however.

Every major player in the world is supporting  the General at this level. They simply have too much at stake. 

Stock O'der Day

Stock O'der will resume when Doc returns from vacation. Many tanks for your excellent suggestions!

Henceforth and forevermore, if you would like to request a "stock o'der", 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

No love for Uncle Buck. But he's getting Dover Sole.

Golden Stool

The gold stocks still have more basing to do and could retest 128. Bubble reflatulation is bullish for gold. If you got the stones, you could accumulate weakness. 

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.

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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