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Slang. the auditor who is so unsure of what a floating needle is and
whose TRs and basics are out, calls floating needles all over the place on the pc, when the needle is in fact not floating is said to have free needle-itis. It means, properly, an inflammatory disease.
It is used to indicate "obsession with" or a mental obsession. In this case, it would mean an auditor who is obsessed with calling free needles (floating needles) on the E-meter when they don't exist. (LRH Def. Notes)