sporatic ignition timing

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Having problems with ignition timing. 99 Jetta GLS MKIV 2.0 AEG manual. I can see timing with my laptop or code scanner with live data and my ignition timing is randomly retarding to as much as 10 degrees ATDC and I do not know why. The timing bounces all over the place randomly and unpredictably during cruzing, accelerating or idling. Acting up more and more and even stahls while driving at steady speed and/or idling. Start it back up and it will idle nice (800 rpm) for a second or maybe and hour it depends. I can see a little bit of faint arcing at the spark plug wires in complete darkness but it is very faint so I don't think that is a factor. My only DTC is p0422 (main catalyst below efficiency) and I have a new catalytic converter and both O2 sensors. I am running on empty for ideas and could really use another perspective. Any ideas??

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optimistic news. Looks like the computer lost it's soft coding from when I did a capacitive discharge over a year ago. I checked the code and it is 00000 while it is supposed to be 00031. Have not been able to change it yet, going to pursue buying a full on version of VAGCOM software for my PC. From what I read, this coding will affect the drivability of the vehicle so I remain optimistic.

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Dealer said that i need to replace my new universal type catalytic converter and they also did a throttle adaptation. I hope they are right cause a new cat with pipe is around $600.