Ian Woodward's Investing Blog

Many thanks from all of us the HGSI Team to all who attended the October Seminar for making it a “happening”, your strong contributions and interaction, your friendship and your support.  I had a lazy day today recuperating from the three day seminar, but happened to spy what may either be profit taking prior to the FOMC meeting tomorrow or the first signs of Rotation in the Leading Wolf Packs.  The pictures below for the Transportation- Shipping and Chemicals – Specialty Wolf Packs speak for themselves:

Keep your powder dry and watch how the market behaves tomorrow after the FOMC Meeting Report which may either be a Trick or Treat for the Market.  The next Seminar will be held on March 29 to 31, 2008 so put it on your calendar and don’t let the grass grow under your feet in signing up as seating priority is “first come, first served”.

Best Regards, Ian.

A quick heads up on the fly…The Hindenburg Omen Strikes again.

Ron and I are feverishly working on getting the Seminar DVD’s completed, but I felt I should give you a quick picture to chew on. 

Best regards, Ian.

On Sunday I told you watch these Market Leaders to see which way the wind was blowing, and I am pleased to say so far so good.  The numbers speak for themselves.   

Lest we get too euphoric, let me put some perspective on this picture. If I use a simple filter of  $3, and 40,000 average daily volume on the data base, I see that there are 241 stocks with an “A” Accumulation and 492 stocks with an “E” for Distribution.  So what you ask?  One item we watch is that when the number of “E” stocks are greater than “A”, and as you can see by a factor of 2 to 1, be careful of the underlying internals of the market.  Note also that we are back up to over 2200 on the NDX, so you might want to go back and look at the Fly Specking I gave you on that number several blogs ago. 

More importantly, when you look at the Gorilla Index where it was down over 3% the other day and it comes back to deliver all stocks up with 5.48%  it is showing that these extended stocks are getting more peaky.  Yes, I know it is not equal dollar weighted, but that is not the thrust of my point.  It reminds of the days when we had the Nifty Fifty…probably before many of the young tigers can remember.  They can go on for ages, but then the majority of them die never to be heard of again.  So if you want to make good profits quickly you know where to play, but play close to the exits.  I say yet again “As GOOG, AAPL, RIMM and GRMN go, so goes the market”. 

I note that AMZN got hit hard in after hours, so you might expect another see-saw yo-yo affair tomorrow.  One day up and the next day down is what we have come to expect.  Well folks, this was a quick blog note to keep you tuned, but Ron and I are already working feverishly to put our Case Studies together for the seminar, so I will wind down for a few days as I would rather tell you than disappointment you when there is no blog.  I’ll be back when I can. Best Regards, Ian.

We had a decent snapback today after the downdraft of over 100 points on the Dow at the start, so the first round goes to the bulls after Friday’s big drop.  But don’t count your chickens before they hatch.  We have achieved the first leg which was a positive day on the next day after a big correction, but we still have to achieve the market being up by the end of the week.   

At any rate, it is encouraging that for starters the Market preferred Scenario #2 of the two I gave you yesterday and that suggests we are still intact for this being similar to 2000 rather than 2001 and are still possibly searching for a higher top.  More importantly, we need a bridge to the FOMC meeting on October 31^st. and we got a shot in the arm after the market closed with the stellar EPS Report from AAPL.  In addition, as you would expect, the Gorilla Index confirmed the direction was up and three of the key horsemen of GOOG, AAPL, RIMM and GRMN were positive with RIMM being the only one down.  Watch those four is the clue. 

Here is the updated picture for the 2000 scenario compared to 2007, with one “Question Mark” replaced with a positive number “0.33%” for today, and one question mark for the end of the week.  We badly need a positive week and AAPL may have given us hope. Best regards, Ian. 

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Late Breaking News! There will be a New Release of the HGSI Software this evening at around 6.00pm Pacific Time and George Roberts will be sending out a notice to that effect.  He says “Keep in mind that anyone running Vista will get an error message from our installer when they do the download instructing them to go to the website and do a manual download.  We have Vista improvements in this release but the first time out I have no choice for existing Vista users.  There will be plenty of warnings about this.”  Please read the instructions carefully.

So let’s come down to earth as to what are the two items front and center in the tug-of-war between the Bulls and the Bears.  The two most important items on the platter are the EPS Reports and the FOMC Meeting to come on October 31.  The former has been mixed with the Caterpillar Report throwing a pall on the market as of Friday, despite the upbeat reports from GOOG, YHOO, AAPL etc.  As Art Cashin put it, we might be importing inflation with the two edged sword of a low and still decreasing dollar value while the Multinational Companies benefits of seeing their overseas profits go straight to their bottom line.  However, it doesn’t seem to have done much for Caterpillar.    It seems the potential impact of EPS reports to come is blunted now and the key event is on Halloween with the FOMC meeting.  Whether the Market Bulls can stave off another drop before then remains to be seen but that seems to be the only hope. Let’s review the Fear and Hope items: The Fear factors outweigh the Hope items at this stage of events: 

1. The Financial Loans woes haven’t gone away and not likely to anytime soon
2. The dollar continues to slip with concerns of a “run” on the weak dollar
3. The Price of Oil continues to climb to that imaginary goal of $100
4. The Beige Book Report showed that the US Economy has slowed
5. Housing continued to take its toll and is expected to remain subdued
6. The Hang Seng market continues to rock and roll into bubble territory
7. The internals of “A” accumulation stocks is less than Distribution “E” stocks
8. Taking that point further, there has been a dramatic drop in the leaders, i.e., “A+B accumulation stocks in the past week or so
9. For the Folklore types, years ending in “7” have been disastrous for the month of October in 110 years.  Only one of the 11 instances going back to 1897 was positive for the DOW. The average return has been -8.5%.
10.  For those watching the RSI on the NYSE, any reading below 40 spells more trouble to the downside.  It is currently at 44 so any down day will kill it.  Since the NDX (Nasdaq 100) is the strongest Index, watch the Gorilla Index.
11. One month and one day after the Fed cut the Fed Funds and Discount Rate by 50 bps, both the S&P 500 and the Dow are now below the levels they were trading at prior to the Fed’s September announcement, but the Nasdaq and NDX are still above.  The S&P 500 and DOW have both “broken” their 50-dma. We have a split market based on the above.  Technology leads.
12. …and the litany of woes go on

The Case for the Bulls is primarily one of hope: 

1. There is a 70% chance the Fed will be forced to reduce rates again on Oct 31
2. We have just had a decent correction and the new rally is only 8 weeks old
3. That correction has wiped away the folklore cloud of no 10% correction in over four years for the S&P 500. 
4. We have had an explosive rally wiping out all the losses of the correction
5. We had a false breakout but this dip is small in the long term perspective
6. The S&P 500 P-E is still at very reasonable levels of around 18
7. 4^th Qtr earnings are expected to be strong, therefore justifying a higher S&P Price with most Forecasters indicating it to reach 1600 by year end
8. If we get past Halloween and the FOMC has a treat for us instead of a trick, the Santa Claus rally will take us into new highs and any major correction will have to wait until early January

All of that is nice to know, but the proof of the pudding will be in the eating on Monday…then your stomach and your Portfolio will tell you what to do.  So let’s look at the steps in the process between now and then: 

1. Tonight before trotting off to bed look at the “World Markets”.  Their reaction to the US markets will be very apparent and you will know whether we are in for another stormy day.
2. First thing when the market opens, the likelihood is it will open down since all Market Indexes finished at or near their lows.
3. If your Portfolio is blood red, you may be tempted to lighten up early.
4. My suggestion before you do so is to see how the Gorilla Index is behaving
5. If they are giving up the ghost, the party is over for now. If not we have a chance of a bounce day.  I didn’t say bounce play, I said bounce day.�

Here is the Gorilla RonIandex performance on Friday, with the Index losing 1% more than the S&P 500.  It was ugly with only GOOG up, and even it was down for the day as it gapped up at the open and those that chased it lost money.  It may be your lifeline on what to do regarding your own portfolio on Monday.  If it is either lower than the S&P 500 or down again by 3% on Monday, it is most likely that we will finish down, and that we are headed for another big correction. It is unlikely the FOMC will act before October 31^st, so only a really oversold bounce play may be the only thing that will hold it together until then.  I repeat, don’t guess what you think the market will do, let it tell you what to do, but you must be nimble and that is the only trump card you have, but play it correctly both ways.

As I go to press, I am reminded by my good friend Manu that the action is still in the Chinese stocks, but it seems that my blog on the Chinese Dragon didn’t get much of a peep out of you folks, so you missed a winky winky.  I don’t blame you as it is a two edged sword.  However, you play at your own peril; it’s always “Your Call”.   Good Luck and Best Regards, Ian.