Ian Woodward's Investing Blog

Archive for August, 2007

Bernanke, the “Quiet Man”: Will He Pull a Rabbit out of the Hat?

Friday, August 31st, 2007

The Quiet Man

A picture is worth a thousand words, so I hope you will agree the picture sums up the Message. 

Talk is cheap but let’s “Cut to the Chase”:  There was a strong reaction today to all the talk that led the market to go up.  Whether that will last or not is for another day?  What is far more important on this long weekend is to take stock of the targets we set a while back, see how we fared compared to a strong or weak bounce and assess the alternative roads ahead.  I reviewed the progress in my August 25th note and update it now:  

      Index Criteria                                  Low     Target    Actual     % Up    8/31 Actual     % Up

  • The S&P 500 above the 50-dma      1371      1485       1479       7.9%          1474           7.5% 
  • The NYSE back to                         8812      9750       9607       9.0%          9597           8.9%   
  • The NASDAQ must get back to       2387      2575       2577       8.0%         2596            8.8%   
  • The DOW needs to get back to      13209    13400     13379      1.3%         13357           1.0% 

You will recall in the August newsletter, I talked to the importance of “Change Management”. So the assessment over the last week is essentially flat.  I also said that we should feel more comfortable once we get over the 50-dma and have a >10% bounce.  The numbers themselves are not the end; they are the means to the end.  These benchmarks are tests-of-reasonableness that determine which way the wind is blowing and which way the psychology is shifting. Going forward into next week we remain with a stand-off at the OK Corral, as neither of these two hurdles has been crossed.  

A Fundamental Principle of HGS Investing is the use of Stakes in the Ground.  You measure against known Benchmarks based on past experience as you walk through history over the years, and you know when to tap them in lightly or firmly or uproot them based on performance.   I know that some people love numbers, others hate them.  So I will simplify the targets for those that can’t remember numbers.  For the NASDAQ, I gave it to you ages ago, 2400, 2600 and 2800.  For the S&P 500, 1485 is key, but I will simplify it again…call it 1500.  If it is 1600, the Bulls will be standing on their heads and clapping their feet!  If it’s 1400, watch out below, the Bears have it.  Others who are adept at Technical Analysis will tell you where Fibonacci meets up with Moving Averages and High Jumps and Limbo Bars and folklore, but it all comes down to the same thing. My Way is to do the detail analysis first and then simplify it to the bare essentials.  

Listening to the jabber-jabber-jee of the CNBC gurus can have your head spinning, but if you cut all the noise out and bring what the market is telling you down to your terms, then you will not get flummoxed and make a hasty and/or wrong move.   

Please understand that as participants of either the Bull or Bear Camp, we are assessing the degree of negativity relating to the spill out of the housing mania into the lending markets which manifested itself as a liquid market turning 180 degrees to an illiquid one.  How the Fed deals with bolstering the confidence of the Stock Market is front and center right now, but the negativity will remain part of the inherent concern for the next three to six months.  

The saving grace this time with the Housing bubble is that we do not have an exorbitant P-E accompanying it as we did in the dot.com bubble.  But don’t take too much comfort from that as Fundamentals will take a back seat to Technicals right now, until there is a general consensus that the Gunfight at the OK Corral was won or lost by the FOMC’s action or inaction.  

Since it is a long weekend, I will give you a double dose and follow this with obvious winky- winkies you should have caught from my previous notes.  There is always a method in my madness. The only way I know of to read the tea leaves is with little stakes I put in the ground along the way, and then revisit them later to see if there are any nuggets or just pebbles. 

I will tell you ahead of time to re-read “Stocks are Like Wolves…they hunt in packs”,  “Looking a Gift Horse in the Mouth”, and the Game Plan List (of 18 stocks) for the Short Term.  That latter was written one month ago, and if you are not watching it, you don’t understand the key principles of HGS Investing.  

I leave you with a fitting thought for this Labor Day Weekend, as my good friend Manu Kapadia reminds me:

 Quiet Man #2 

Have a great weekend and enjoy your family.  Best regards, Ian.

What’s Up Doc…In Jackson Hole, Wyoming?

Thursday, August 30th, 2007

Jackson Hole

If only we knew, but then it is unlikely anything will come of it other than:

 Jackson Hole #2

 So, it is time to take a break and smell the roses in my Wife’s Garden. 

Have a great long weekend and keep your Powder Dry! Best Regards, Ian.

A Hair Raising Experience…This See Saw Market

Wednesday, August 29th, 2007

Two Hair Raising Experiences in a Day!  One was on the Market and the other at the DMV.  The good news is we had a Eureka Signal today and I passed my Driver’s Written Test!

Hair Raising

 Hair Raising Chart

I have been spoon feeding you with blow by blow commentary for three weeks now.  So I am going to turn the tables on you and maybe you can take a crack on the highgrowthstock.com bulletin board to see if you agree with my fly specking (looking for minute clues) whether a bottom is setting in or not.  Remember how we were whipsawed with a similar situation in May through July of 2006.  I say it again, trading in moments is where it is at right now, and take your trades off before the end of the day!  Best Regards, Ian

The Grand Old Duke of York – a.k.a. Ben Bernanke

Tuesday, August 28th, 2007

Duke of York

Last week I likened the Fed Chairman to the Grand Old Duke of York.  There is no question he saved the day a week ago last Friday and marched the Stock Market Indexes to the top of the hill.  I also warned that the market may get impatient that the Fed hasn’t done more, and after a week of a decent bounce from their lows, we trotted down the hill today on its way to test the low again. Three news items weighed down the market today: 

  1. Merrell Lynch (MER) downgraded three major United States banks, Citigroup (C), Lehman Brothers (LEH), and Bear Stearns (BSC) were all downgraded from buy to neutral, amid concerns over the institutions’ debt exposure.  The downgrade sent financial stocks rattling down, as it brought more pessimism to an already battered sector.
  2. The Consumer Confidence Index declined to 105.0 in August from a revised reading of 111.9 in July. Analysts had expected the index to fall to 104.5, so the drop was normal and expected.
  3. Then the Federal Reserve released the minutes of the FOMC meeting on Aug. 7th. The release renewed investors’ fears that the Fed will continue to place their emphasis on inflation risks and an interest rate decrease is less likely than previously thought. 

These are examples of a bigger problem that will plague the Stock Market for some time to come, and unless the Fed can pull another rabbit out of the hat, and particularly turn this last item around, it will be rough sledding for some time.  Their cloth is three weeks to the FOMC Meeting.   Now we must batten down the hatches and/or find short candidates while the storm continues to brew.  I have done my job in drawing the lines in the sand at the OK Corral, so I need say no more for now. 

So let the cards play out and we shall see where they fall, but the Bears have the upper hand right now.  Note how the Nasdaq finished right around 2500, and we now wait to see if it bounces or 2500 provides little resistance and the Index continues down. Whether it is a coincidence or not, the lesson learned is to always expect a retest of the lows when the S&P 500 has gone down >8% as it is most unlikely that it can recover with a V Bottom.   Best Regards, Ian.

Gunfight at the OK Corral Coming Soon

Monday, August 27th, 2007


The Stage is set for the Gunfight at the OK Corral

The Combatants:  Bulls and Bears: 

The Site: The Nasdaq with lines drawn at 2572 for the Bulls and 2387 for the Bears 

Early Signs of Who’s Winning: 

The Bulls:

  1. 4-dma, 9-dma come up through the 17-dma; later 17-dma up through the 50-dma
  2. A Eureka Signal with a Follow through Day of 35 points up and 2 Billion Shares
  3. Directional Movement: Di+ above Di-
  4. The Nasdaq Index gets above the 50-dma at 2572 and then above 2616…the Upper BB

The Bears:

  1. The Nasdaq breaks down through the 200-dma at ~2500
  2. The Nasdaq goes down below the Lower BB, i.e., 2460, and %B goes Negative
  3. The Nasdaq breaks the previous low at 2387
  4.  The Nasdaq drops over 16% from the High…down to 2290

Best Regards, Ian.

Copyright © 2007-2010 Ian Woodward
Disclaimer: Commentaries on this Blog are not to be construed as recommendations to buy or sell the market and/or specific securites. The consumer of the information is responsible for their own investment decisions.