Ian Woodward's Investing Blog

We had an Eureka Signal Today!


The Eureka: The Eureka uses a set of conditions based on the ARMS Index which usually indicates that the Bulls are sufficiently exuberant that they are pushing back on the Bears to initiate a bounce play from an oversold condition or to start a new rally.  Let me quickly add:

  1. It does not mean for one minute that the direction has changed from Bearish to Bullish 

  2. It can mean a respite for a few days where we have the prospects of a turn-around 

  3. We will have to see if there is a strong follow through day with strong volume and a further Eureka which would at least indicate that a Bounce Play and/or a reasonable move up is on.

The intent is to identify the market bottom which I call a “Base Low”.  I use the Arms index to call the actual day of the Base Low before waiting for the follow through days. The concept uses specific value combinations of the Arms Index components to determine the Base Low.  There may be several Eurekas before the market bottom is confirmed, but consider the first one as a sigh of relief that at least there is potential respite to the downward spiral that can occur. Since we have just had two Bingo Signals indicating lower and lower deterioration in the market, the first ray of hope and move back should start with a Eureka.  I ask you to please go to the blog I wrote on January 18th, which shows the past relationships of Bingo and Eureka signals.  I won’t belabor the point further except to say that I doubt we will be out of the woods until we see at least 150 New Highs and then repeated confidence in this number staying above this level to confirm the rally is strong. chart

Let us see how the week unfolds as we have the FOMC meeting tomorrow and many, many Earnings Reports due out in the next couple of weeks.  There is a long road back to gain the high ground, but in a Bear Market there are always rallies within further legs down.  No one knows where this will end, so play if you must to put food on the table in several beaten down Industry Groups including Energy – Coal (which is white hot), Homebuilders on a bounce off the lows one more time, Financials, Cap Goods, and Consumer Services.  Otherwise, take this as a heads up that better things may come and this is a first step, but be very cautious not to be the early bird who gets swallowed by the hawk above. Best Regards, Ian

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