Ian Woodward's Investing Blog

Doodling on a lazy Sunday afternoon while watching the golf, I struck on an old idea of using the Ranking Module to ferret for Wolf Packs, i.e, stocks that are hunting in packs.

I applied the 0a Key to All Securities and was struck by the number of Chemical Specialty stocks that were high up on the list.  I counted ten in the top 20.  The Combo Rank attached to this filter brings stocks with strong 1 and 5 Day Industry Price gains to the top, so one knows we are working with stocks with strong current momentum.   In addition the Group Rank using Ian Slow is a healthy 92, so it has long term Group Rank Performance.  However, here is a group that has recently been trashed, but is coming out of the ashes.  So I applied the Ranking Module view using Accel/Vel/RS as the view.  The crafty thing is to scrunch the view down to just show the single Industry Group one is interested in the view as shown below: 

Note that the setting for the numbers shown is for the Percent Change for the past three weeks, and one can quickly see that although the group has been trashed, it is rising from the ashes very rapidly.  Here are the top 10 stocks for Chemical – Specialty which look very powerful for beaten down stocks:

Understand that this is a Case Study to help you use the HGSI Software tools to ferret for strong Wolf Packs, which may provide opportunities if the market settles down.  Just look at the number of Box 7 stocks – there are seven of them.  Also note the %E/P, Rev/Share and ROE for all these stocks.  No wonder they have high ERG!  It’s always “Your Call”.

Best Regards, Ian.

We are in the peak vacation period and much of that is evident in the volume traded this week. 

A week ago last Thursday, we had a roller coaster ride in the Stock Market and then on Friday we got a respite from an even bigger drop when the FED lowered the Discount Rate at the Window!  This week the markets calmed down with a decent bounce but on light volume. The picture above shows how the NASDAQ volume fell off these past five days compared to last week. Much of the early volume was short covering, but I must say that the surprising aspect to me is the recovery of the stronger stocks as exemplified by the Game Plan 18 stocks I gave you over two weeks ago to watch.  These are pedigreed stocks and they have shown their resilience in this see-saw market:

The bottom line from this past week is that round one goes to the FED in settling the Market jitters.  But what do we see for the immediate future… I’m sure you ask?  It’s not difficult to present both sides of the coin to make a judgment call as to what to expect.  But first, we need a recap: 

1. As I warned last week the tom-toms are beating that a Recession is now the major concern.
2. The odds of two consecutive qtrs. of negative real GDP growth is 7% in 2007 and 32% in ’08
3. The pressure is on for the FED to lower the Fed Funds Rate.
4. The FED will hold their annual retreat in Jackson Hole next weekend…key subject, Housing.
5. I say again that the market is in the process of baking in a cut in rates.
6. Labor Day is just a week away, and the odds are the DJIA will be up next week by about 0.5%
7. The Bounce Play has been reasonable so far compared to the targets I set last week   
8.        Index Criteria                                    Low       Target    Actual      % Up   
   • The S&P 500 above the 50-dma      1371      1485       1479       7.9% 
   • The NYSE back to                         8812      9750       9607       9.0%   
   • The NASDAQ must get back to       2387      2575       2577       8.0%   
   • The DOW needs to get back to     13209     13400     13379       1.3% 

   9. With the heavy pounding the Market took the week before this past week, do not expect any major change in the number of New Highs in the NYSE next week.  We need to see around 100 New Highs to 50 New Lows for a 2:1 ratio, before we begin to see repair on this score.  Although the New Lows have arrested at about 50/day, the new Highs are around 25/day, so we have a 2:1 ratio in the opposite direction at present.   

The bottom line is the results are close enough for Government Work that the intent of a decent bounce was met.   I would feel more comfortable with a 10% cushion on the first three Indexes, as this would give us a reasonable chance that the retest under NORMAL circumstances, (meaning no more adverse surprises of a Loans fiasco) will hold at or above the current lows. 

The Case for the Bulls: 

1. The FED has sent a strong signal to the Market it will defend against illiquidity and market chaos.  It should act at the next FOMC meeting to reduce the Fed Interest Rate.
2. Corporate Earnings remain strong (even Ketchup is selling well…a good Heinz EPS report)
3. Mergers and Acquisitions are still active, but not hot as it was a few weeks ago…liquidity?
4. Corporations are buying back their shares, so they feel they are cheap.
5. There seems to be a baton pass from the Financials to Technology, Telecom and HealthCare.
6. With %B of the Bollinger Bands mostly above 0.7 (70%), these Indexes are healthier now.
7. Unless there is a catastrophic negative surprise and down day, that %B gives a cushion to act. 
8. U.S. Job’s growth is still positive, and GDP will continue to grow on average at around 2.5%
9. The inflation (CPI) is not expected to rise above 3.25% by the 4^th qtr. and then decline in 2008
10. The S&P 500 P-E is at a reasonable value below 16, which is not the 32 we had in 2000. 

The Case for the Bears: 

1. V bottoms are very rare and so we can expect a retrace to test the lows.
2. Where’s the Beef – the volume has been relatively low and primarily short covering this week 
3. Given the Fed’s intervention, this has been a tepid bounce and it is time to see a retrace soon.
4. Most Indexes have only just got back to around their 50-dma and this provides resistance.
5. The other shoe has to drop by way of another surprise on Hedge Funds, Mortgages, Carry Trades, Illiquidity, etc. etc.  We haven’t seen a bottom in Housing yet.
6. The Shanghai Composite is an accident waiting to happen and has a steeper rise to 5000 than the NASDAQ did back in 2000.  That could cause a perturbation in Global Markets.
7. The low volume this past week shows there is no conviction by the Bulls and there is more on the downside, with several stocks at head and shoulders tops at the 50-dma or at double tops.
8. General David Patreaus is due back on Capitol Hill with his report on Iraq and that may cause a flurry of discussion between both parties in Congress and stir up the pot in affecting the Markets. 

With regard to the low Volume:  Do not be too quick to brush aside the low volume this past week.  It is all relative to the times.  After all, just look back to this time last year and you will:  

• See a similar seasonal fall off in volume on the NASDAQ
• Recognize that this week’s volume is actually higher than the same week a year ago, i.e., 8.7 billion shares traded compared to 8.2 billion. 
• Not get too hung up on volume; last year for this coming week the volume was only 6.5 billion.
• Find the Avg. Daily Volume these days is automatically expected to be >2.3 Billion due in part to the sell off in the Market.  Last year we were happy with 1.8 Billion for a strong volume day.

As my caption says they are all on vacation at the beach in the Hampton’s.  Watch the market action to see if the Indexes can repair above their 50-dma and above their Upper Bollinger Band and if they can, the re-test to come will in all probability not take out the current lows. The only caveat is a negative surprise, which can always throw a spanner in the works at any time.  I say again, I am pleasantly surprised to see the Game Plan Index still strong.  Likewise, there are many 10% winners each week in the SmartGroups and StockPicker Groups.  Do your homework.  Best Regards, Ian         

Today was a ho-hum day with the Stock Market taking a breather, before the tug-of-war between the Bulls and Bears resumes. So let’s “Review the Bidding” as bridge players would say:

1. The Bank of America making a $2 billion investment in Countrywide, the large mortgage company that is suffering a liquidity squeeze, is a significant signal that Bernanke’s strategy is working over the short term.
2. It shows that stronger firms can become part of the financial adjustment in the markets by making investments in weaker companies at this illiquid time without the Fed having to immediately lower the federal-funds rate. 
3. Understand that the Fed is on notice to lower this latter rate and the markets are already baking some of this anticipation in as we near the September 18th FOMC meeting.
4. Easing too quickly can then give license to other sloppy lending practices by credit-card and auto financing companies.  

Net-net, it seems that Bernanke’s Fed is walking a fine line between Volcker and Greenspan, a balance between avoiding a recession versus dropping the rates at the drop of a hat.  The $64 question is whether the Stock Market is patient enough to wait until mid-September, for what now seems an inevitable reduction by then…or the disappointment will be enormous and the market will react negatively. Don’t forget that Wal-Mart and Home Depot are red flags to show that the 25% who are the working poor have been hurting for a long while with high gas prices.  

Meanwhile from a Benchmarking and Target Setting standpoint we are at the half-way house and mark today down as the “Pause to Refresh”, before the tug-of-war between Bulls and Bears goes one way or the other until mid-September:

1. The Bulls are happy to see that after several days of short covering that the Bears were not able to drive a dent in the bounce…not yet.  The Market jitters have calmed for now. 
2. However, the Bears are quick to point out that most Indexes are hitting their critical resistance levels which are essentially struggling at the 200-dma or trying to get to their 50-dma averages.  With the strong up day yesterday, the Bulls are desperately looking for the follow through day to give them a signal to go full speed ahead and darn the torpedoes.  The Bears point to the tepid volume and cry “Where’s the Beef?”
3. The only saving grace for the Bulls is the Game Plan Index of 18 stocks is holding above the 17-dma, which as you all know by now is a good sign, as all good leaders rise above the 17-dma.

As my caption shows tonight it is a toss up between the Bulls and Bears Tug-of-War.   Best Regards, Ian. 

We, the High Growth Stock Investor (HGSI) Team have made life easy for our investor clientele. Not only do we provide you the software to ferret out the best stocks at any given point in time, but also through our StockPicker and SmartGroups we give you stock selections on a daily basis to suit different Investor Styles.  

During the past three weeks I have concentrated on giving you the blow by blow account of how to evaluate the Market, to understand the Process for Benchmarking and Target Setting, and to relate to the current pulse of the market in terms of the news driving it up and down.  Needless to say this is a strong up day, the kind of day one looks for when the market is trying to repair, as I covered in my note of yesterday.  Maybe the Discount Window trick of the FED has calmed nerves for a while.  The volume picked up today. 

For those who are not familiar with our products, here is a sampling of the types of Portfolios of ten stocks each we select on a daily basis for you to narrow down the stocks you prefer based on your Investor Style.  Naturally, today is an up day in the market, so one would expect stock selections to be up.  However, you know as well as I do that one doesn’t blindly pick ten stocks and buy them as a bundle…you do your homework. As I have warned, only Moment Traders make good money in this market. It is always “Your Call” as to whether you nibble or let the grass grow under your feet. 

On the day, depending on how the wind is blowing you can in real time rifle shoot the Best of the Best using HGSI.  Here is a sample of different types of portfolio from last night’s selections.  The results are based on buying 100 stocks of each selection in the basket, but obviously one would tailor their needs to equal dollar weighted, and of course you can always do that using the Group Performance Analysis (GPA) tool in HGSI.

As Always, Best Regards, Ian