Ian Woodward's Investing Blog

Since it is a relatively quiet day in the Stock Market, I felt I might discuss my approach to High Growth Stock Investing to keep it simple.  I am reminded by a good friend of mine, Mike Scott, who said to me “Ian, you taught me one thing that has improved my Investing Habits and Success enormously and that is to follow the signposts.”   

I realize that Blogs are places where people go to get ideas and with Investing Blogs one is looking for “tips”.  That’s not my style.  I teach you how to fish “My Way”, but seldom if ever catch a fish for you.  Rather, I prefer to show you where the fishpond is and show you by example where the liveliest and biggest fish are waiting to be caught.   Hopefully in the course of the last eight weeks you have begun to see my approach to solving complex problems by dissecting them in threes.  It has worked all my life and it is not too late for you to use the underlying Principles of High Growth Stock Investing.  Here are the pieces of the approach that are most pertinent given that you have been following along in how I tackle problem solving relevant to the stock market: 

1. The Plan must always consist of three Scenarios, the High Road, the Low Road and the Middle Road.  The worst thing one can do is to have a single plan based on your bias, as the market will either surprise you or fool you or both.  Assessing three alternatives eliminates the element of surprise to a large extent.   
2. The Targets one sets for the three roads must be challenging but reasonable based on past experience.  They become the Stakes in the Ground from which you measure progress over time.  History seldom repeats itself in precisely the same way, but I find that the folklore of the past will set one’s level of expectations to being achievable rather than too optimistic or too pessimistic. 
3. Let the Market tell you which road we are on.  Yes, I know you want to be contrarian and you don’t want to be sheep that follow the herd, but being contrarian when the herd is heading for the exits is a sure way to get trampled to death.  There is a balance between being the early bird and waiting too long before you act.  Be patient and prudent…but pounce.  Ready, aim, aim, aim and never firing just will not work, especially in this volatile market.    
4. Return to those stakes in the ground and take measurements.  Then of course make an assessment…Too high, too low, and not high enough, etc.  It is important to cut through the fog of all the items one can list for the Case for the Bulls and the Bears and to pick just one from all the chitter chatter that seems most prevalent at the time, as I showed you in my Tug of War note. That way you cut to the chase on what matters at that time instead of worrying about every bit of news or nuance.  At this stage of the game the run on the British Bank Northern Rock and the swift move by the Bank of England to shore them up put the immediate focus by the FED that at all cost they did not want to see a run on the banks in this country.  Therefore, despite the ever looming problem they face regarding the impending inflation had to take a back seat for the time being.  Whether they overdid it by the generous 50 basis point cut on both fronts remains to be seen, and we can certainly see that there are many who feel that way as both Gold and the Ten Year Note went up appreciably today.  So that is the change in the Tug of War at this time.   
5. Change Management is a part of Risk Management.  Having done the homework, assess if it is time to change the targets you previously set, WITHIN the framework of what was previously done.  If the Stakes in the Ground have served their purpose or are now meaningless chuck them out, but invariably I find that I can still keep the original targets but move on up or down to the next level from there.  I’m sure you saw that in my assessment yesterday of the progress that has been made in the Gunfight at the OK Corral.  The upshot was that the Bulls won the first round.  Now we move on from there.   
6. Finally, find a way to serve up the meal of all of this in a simple form, hopefully in a sentence or a paragraph or a chart or a diagram, and keep it by your side as your own Game Plan. I know; I know…you are saying “Ian, we know all that, but don’t leave us with platitudes.  Where’s the Beef?”   I say you will be making a big mistake if you just skim over what might seem like platitudes…it’s called discipline.  Study them and see how many of those items you follow in establishing your own discipline in addressing the market.  If you buzz around like a blue bottle fly, you are never going to make it…in my humble opinion.  So here’s the beef: 

Here is a one page plan that slices and dices the market six different ways, four of which are Technical, one Fundamental and one Folklore, all of which are self evident to the reader.  It is in essence a ready-reckoner that gives you insight to the different Road Scenarios, and shows where the recent Gun Fight between the Bulls and the Bears took place.  Your job is to know which side is winning and act accordingly.  Enjoy! 

Best Regards, Ian.

I am sure you all recall this Stake in the Ground that I planted in my blog note on August 27^th.  The first round of the fight at the OK Corral goes to the Bulls.  These were the conditions for the Bulls to win, all of which have been met. 

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 Requirements for the next round for the Bulls to continue to win are:

1. Drive to the old high at 2725.  The Nasdaq is currently at 2666.
2. Stay above the 50-dma on the downside which is at 2590. 

After a brief pause to refresh, the Nasdaq must drive above the old high for the new bull run to be fully underway.  The Line in the Sand is now at 2590 for Round #2.  Best Regards, Ian.

I had a Wisdom Tooth extracted, so I can tell you this was a double relief when the Fed surprised us all with a bigger cut than most of us expected, including myself as I mentioned in my Newsletter.   

It goes without saying that this changes the entire complexion of the fight at the OK Corral as the short term opportunity is decidedly with the Bulls.  How long it lasts is another matter, but as one should expect given the immediate reaction today, the pendulum should swing violently to the upside.  If you have done your homework it should not be difficult to know where the opportunities are and as my good friend, Maynard Burstein reminds us on the HighGrowthStock.com bulletin board, the best stocks right now are just an arm’s length away…the HGSI StockPicker lists of 10 stocks.  Many of them were up over 5% today.  Even the Blog Game Plan Index which we have followed for the past six weeks showed all 18 stocks up for a 4% move today.   

It is a little early for me to do tonight’s download, but I am sure that we have another Eureka to go with the two previous ones we chalked up a couple of weeks ago, and unlike those which could have been suspect as the volume was low, today has all the right characteristics and is a major follow through day.  Please understand that there are times in the market where one can have a skewed price and volume change as we did on the downside on August 16 when there was chaos to get to the exits that day.  Likewise, those who were short the market had to cover quickly so it is natural days like today will not necessarily reflect the full mood of the market.  So keep this in perspective.  Have no doubt about it that the Psychology has turned on a dime…for now.  

However, for the short term, I expect one can throw darts and get a decent move in many stocks.  There are opportunities that range from rounding up the usual suspects that I have already mentioned where Technology, Telecom, Health Care, Materials and Energy are where the action is, to finding beaten down stocks in beaten down Industry Groups such as the Home Builders and Financial Stocks. A further clue will be how the Brokerage Stocks behave in delivering their earnings reports this week.  Lehman Brothers delivered a 7c surprise to day with $1.54, and Morgan Stanley is due to report tomorrow.  Lehman indicated they had about a $1 Billion write down if my memory serves me correctly, so there is much to watch this week.  My suggestion is that we need stakes in the ground quickly as I have shown you they give you pay dirt at critical junctures: 

1. I have a list of 19 Home Builders and they delivered 7.78% today based on buying 100 stocks for each company, all green, with Hovanian (HOV) producing a hefty lift of 28.42%.  Put together a User Group of these and watch them to see how they perform. 
2. Do the same for beaten down Brokerage stocks.  

What’s the big deal?  The best way to understand the underlying pulse of the market is to focus on these since the injection that the Grand Old Duke of York just gave us was to measure Risk Management and decided to do this unusual action (for him) to put life back into the economy.     

It goes without saying that it won’t be long before the Inflation Hawks will be out in droves even before the dust settles, and others will be moaning that the dollar has gone to pot, being at the lowest in years for a long time.  You can rest assured that if this medicine does not do the trick particularly for easing liquidity and incidentally helping the Housing Industry, watching these two Industry Groups will soon tell you that the medicine is working or is a flash in the pan.  Whether this is putting off  what many feel is the inevitable of a recession or that they acted before the rot really set in to accomplish a soft landing remains to be seen, but at least they can’t be accused of pussy footing around.   

On a personal note, we had the pleasure of Dave Baratto visiting us from Texas for the Saturday Meeting and he went away armed with all sorts of goodies that I will cover at more length at the October 27 to 29 Seminar in just five weeks time.  If any of you are in L.A. on the third Saturday of the month you are welcome to join us for an afternoon of FUN.     

Understand that I can’t cover the water front in one blog note, but I have given you plenty to chew on.  Besides, the pain killer for my tooth is wearing off and yes, I am looking for some sympathy!  Best Regards, Ian.

The Big Bad Wolf huffed and puffed twice and blew the house of straw and the house of sticks down, but try as he might, so far he has not been able to do any damage to the house of bricks.  After the initial drop to a precipitous low in mid-August the market has righted itself with a respectable Bounce Play, and is now waiting for its second wind to hopefully return to its old high.  We have one more big item of anticipated news next week when the FOMC meets on September 18.   Then either there will be gnashing of teeth or hoorahs depending on whether Ben Bernanke lowers the Fed Funds Rate or not and by how much….25 or 50 basis points?   

I hope all of you are enjoying my Blog, which is a challenge, but I hope it gives you a blow by blow assessment of the market in these tricky times.  I have some good news and some great news.  With the help of a member of our Saturday Monthly Meetings who is a whiz at spreadsheets, we have come up with insight on Tops using the Hindenburg Omen and Eureka, and also Bottoms using Wilder’s RSI and Eureka, all based on the NYSE.  This will be the focus of the new good stuff at the October Seminar.  Like any other indicators, there is no silver bullet, but the combination of the two makes it more convincing when they occur together or in sequence.  This month I will cover the Game Plan Filter used in the Blog which has been fairly successful in showing the leaders are still healthy. 

Ron has applied his attention to the Barron’s 400, a new stock Index of their 400 selections.  We felt you would like this in your bag of tricks.  Ron has done a great job in slicing and dicing the good Fundamental stocks from the bad in terms of their current Technical performance relating to price momentum.  

The next Seminar will be in Palos Verdes Estates (PVE) just 15 miles south of the Los Angeles Airport for 3 days from October 27 to 29, 2007, inclusive.  The price is $1100/person.

Best Regards, Ian 

In my last note I mentioned Rules of Thumb for quickly establishing if a stock is extended.  I call it Black Spot Disease (BSD) and Rust after Rose Diseases.  My wife loves her garden and grows roses with tender loving care and she is always using her flit gun to get rid of the diseases.  So I took a leaf out of her book and go after my stocks with the same care!  Here are the parameters:

Tim Higgit who is one of our loyal clients came up with a brilliant idea for charting the BSD and Rust parameters in the HGSI software, and I am featuring his work here in this note.  I built on his concept by adding a Red line as shown down in the 200-dma window to show that DRYS, the stock I covered in my previous note on the High Jump Indicator, had reached a peak of 160% from its 200-dma.  You can immediately see that the Rules of Thumb work very well to give one the clue that DRYS should peak again at between $85 and $87 as shown on the chart.  For HGSI customers, this Charting View is posted on the HighGrowthStock.com Yahoo Bulletin Board for you to download into HGSI:

Best Regards, Ian.