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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, 6/26/02, 6/27/02, 6/30/02

7/1/02, 7/4/02, 7/5/02, 7/11/02, 7/14/02, 7/15/02, 7/16/02, 7/17/02, 7/18/02, 7/19/02, 7/22/02, 7/23/02, 7/24/02, 7/25/02, 7/27/02, 7/29/02, 7/30/02

8/1/02, 8/3/02, 8/5/02, 8/6/02, 8/7/02, 8/8/02, 8/10/02, 8/12/02, 8/13/02, 8/14/02, 8/15/02, 8/16/02, 8/19/02, 8/20/02, 8/21/02

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

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Doc is out of the office all day Friday. There will be no intraday updates.

Be sure to catch Doc being interviewed on Saturday by Ike Iossif on Marketviews.TV. 
Doc hopes Ike remembers to send the questions in advance, like they do on Crapvision. You never know what might come out otherwise. 

The Trend Ain't Yer Friend (8/22/02) 

It is still too early to take short positions. Even scalping has become next to impossible, as the liquidity train hurtles on, in spite of Al tapping the brakes. Seems the throttle is stuck full open. 

The Feed rolled over $2 billion in 28 day repos, and added $4 billion in overnight repos. A total of $15.25 billion in overnight, 3, 8, and 28 day repos were expiring, for a net drain of $9.25 billion.  The only expiration Friday is the $4 billion in overnight repos.  

The Feed Index is back smack dab in the middle of the box Al has artfully crafted since mid June.  For the last two months he has not grown the Feed at all. There can be no question that this is a deliberate slowing. The only question is whether it is a temporary pause or the beginning of a major policy shift. It is no accident that Fed mouthpieces were out this week making noises that policy is "accomodative" enough to stimulate growth. Will the next round of speeches reflect "possible inflationary influences" on the horizon? Stay tuned. 

The Feedometer, which theoretically measures excess Feed available for jamming the market, fell back sharply as a big set of repos were not fully refunded. The Feedometer is in neutral mode. Liquidity is flowing into the market from other sources. With little selling, it doesn't take much. 

As Doc showed last night, the monster mortgage bubble came b-a-a-a-ck, as mortgage rates plunged to all time lows the week ended August 16. In theory, the huge mortgage application bulge has begun funding and flowing into the broad money supply over the last week or so, and will continue to expand M3 for at least another 4-8 weeks. In other words, the full effect of this explosion has yet to be seen in monetary data. However, this bubble may not have the benefit of super low mortgage rates rates in the weeks ahead. Long term bond yields have upticked and look like they've put in a significant turn. The bubble could implode as quickly as it appeared, taking the market and the economy with it.
 

Sure enough MZM, a broad measure of money excluding large time deposits, has been growing at an astounding 12%+ annualized rate as of August 12. Funding and monetization of the mortgage application boom which began in late June has only just begun. That may explain why Al and friends may be leaning against the tide. They could be worried about the destabilizing consequences of this surge, whether in the form of the out-of-control residential real estate not-a-bubble, or raging services inflation, or inflationary stirrings in commodities. 

None of this explosive growth has trickled down to M1. Checking account balances have broken out to the downside. The question is, where is the destruction occurring? 

Certainly not in the adjusted monetary base, which is growing at nearly 8% on an annualized basis as of August 21.

Business borrowing remains moribund. (Data as of 8/7/02)

Credit card debt expansion has carried the ball of this not-a-recovery. But looky looky at the last several weeks. (data a/o 8/7/02) Has the credit bubble reached its outer limit, or is it just pausing for breath? The next update of this data should be interesting. 
 

These pictures pose a lot of questions and no answers.  We know only that broad money supply is growing like Kudzu, with even more rapid growth dead ahead. Meanwhile the banking system is flushing some down the toilet, and consumer credit growth has suddenly stopped. It's too early to draw any conclusions, other than these are the pictures of the dysfunctional credit bubble economy so eloquently described by Doug Noland. The major issue for the stock market is the rapid growth of  money.  Time and time again, we have seen that extreme acceleration in money growth goes hand in hand with enormous rallies in stock prices. The basis is not cause and effect, but correlative. Both are symptoms of an overflowing, stopped up toilet.

8 Minute Bar Charts 8/22/02  Dow Jokes Inflatables +96.41 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.  Buyers flooded in, late in the afternoon, as a number of intraday cycles appeared to synchronize at the low just before 2 PM. The 3:30 high looks like the 5 hour cycle peak, but there is still evidence of trending on the hourly charts. Pullbacks are shallow, and prices are moving up along the upper limit of a 3 week old channel on the hourly charts. The Dow has a target of 9300 on the 13 day cycle hourly chart. It could get there Friday, or wind higher for a couple of days.  Dow Inflatables The Dow's13 day  and 4 week cycle oscillators remain mixed, with both just into positive territory. The index is creeping along the central linear regression line of the trend. The 6-7 week and 4 week ozzies are starting to roll over, BUT the market will continue to trend higher, so long as the indicators remain at this level. The 10-13 week oscillator remains up, and has crossed into positive territory. That is a clear warning that the advance could pick up steam. The 10-13 week cycle projection has moved up to 9450, and the 6-7 week projection has, as well. The four week cycle is all out of whack, and it has a cmap of 9650, but Doc won't talk about that. (Ooops, it slipped out.)  Portfolio Sphincters Index-SPX +13.34 Nasgap +13.70

Portfolio Sphincters Index (SPX) and Sentiment

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!

The VIX fell to 30.96. On the inverted scale chart it is in the top zone of the Stool Band. We need to be careful about drawing conclusions as the Stool Bands are flattening and could turn up. The final peak in this rally will probably not occur until the VIX and the upper blue band touch. (Close doesn't count). 

The superimposed 6-7 week cycle (red line) oscillator fell again, signaling the peak of that cycle. The trend wasn't listening however, as the powerful thrust of the upturn of the 6 month cycle has set prices on a firmly positive slope. Under the circumstances, the down phase of the shorter wave shows up as merely a slowing in the uptrend until 10-13 week oscillator (dark blue) also turns down. The 10-13 week oscillator is still skyrocketing. The 17 day rate of change, which is a proxy for the 6-7 week cycle, is near a sell signal, but the 29 day rate of change (10-13 week cycle) is still rising and has crossed into positive territory. The up phase is maintaining its momentum.  

The 6 month cycle is in an up phase. All key indicators are still rising. The stoolicator indicates a strong uptrend that is at least several days, if not more, away from a peak. The short cycle oscillator is meandering in positive territory, indicative of trending.  By one count, shown yesterday on the chart, the 10-13 week cycle high could be now, with a cmap of 960. An alternative projection puts it 4 weeks out, at 1000 or more. Your stock proctologist believes the odds now favor Number 2,  because all major cycle indicators are still rising the index has broken above the central regression projection of the 18 month - 2 year cycle band (red). Even the 10-12 month cycle oscillator has upticked. With the market trending, it's probably a good idea not to focus on the 13 day cycle cmap at 971. The 4 week and 6-7 week cmaps now look like 980-85.

The principle of regression to the mean is at work. This chart superimposes two regression channels from the September 2000 high to the March 2002 high, and from the September 2000 high to the July 2002 low. They are on virtually the same line. Prices have simply cycled around that line with wave heights increasing in amplitude. At this level, prices have regressed to the mean. Chances are, since they've gotten this far, they'll now head for the upper channel bands over the next month. That would carry this rally to around 1030 by the middle of September, at which point the 10-13 week cycle should top out. 

Fiber Nacho Upchuck- 978 is the next key test. It is the 50% retracement level of the entire leg down from March to July.

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 8/22/02 

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

Rate of change indicators for the 6-7 and 10-13 week cycles paused again, in spite of the rally, but their trend is still up. The 6 month cycle oscillator rose again and has ticked into positive territory. The preliminary upside cmap for the 6 month cycle high is now estimated at 1495, up from 1445. This is also certain to change, and may go higher. A final blowoff through the top of the 18 month- 2 year cycle channel (teal) above 1500 can't be ruled out. 

The 29 day rate of change is at the level where the March rally peaked. If it blows through here, 1500 is almost a foregone conclusion. Short cycle cmaps are pointing to a top around 1445-50, but the projection of 1495 on the 4 week cycle still sticks out like a sore thumb. It might be an anomaly, and it might not. Note where the 10-13 week oscillator (dark blue below chart) is, relative to late October. Same place, right? And what did the market do after that? 

Let that be a lesson to you. Do not stand in front of a herd of bulls with their asses on fire.

Fiber Nacho Resistance Levels. 1440-50 is the next big test.
 

Nasdaq Cycle Conditions as of 8/22/02

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) These features are in morning edition, published around 9 AM ET US, or the Saturday Weak End Edition, published, uh, let's see, Saturday!

Golden Stool

Consolidation continues as signals remain mixed.

Long Bong Hit

Yields broke below the major channel and reversed. That's a good sign that at least an intermediate reversal is in progress. 

Uncle Buck's Illness

Uncle Buck's short cycle up phase keeps the intermediate cycle up phase alive to test early August high.

Suctor Watch

Stoolwethers

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