Ian Woodward's Investing Blog

Warren Buffet, the White Knight to the Rescue

buffet

In my last blog I said “My take is there are very few Bulls with conviction at this point in time to provide a strong rally. So the conclusion is that some outside powerful surprise EVENT is all they can hang their hat on…” and sure enough we got that event today!  U.S. stocks bounced higher for a second day this Tuesday morning, with investors drawing a psychological lift from billionaire investor Warren Buffett’s proposed buyout of municipal bond insurers’ liabilities and another round of cost-cutting by auto giant General Motors Corp.  Billionaire investor Warren Buffett is offering to help out troubled bond insurers by offering a second level of insurance on up to $800 billion in municipal bonds.  Just when things were looking a trifle tepid by way of the Bounce Play, this surprise news gave the stock market a 200 point lift first thing this morning.  Whether it will hold is another matter, but it is a step in the right direction to get this Market off its lows.

Late Breaking News as I go to Press: It held, but it was a disappointing day with the Nasdaq finishing flat and the Large Cap NDX got hit hard after a promising start.  It is a trifle discouraging to say the least, when the Market seemed to be shaping up for a further follow through Eureka day to finally finish as a fizzle, giving up the 30 point gain that it had during the day.  Unless we see immediate excitement by way of “oomph” tomorrow, we can write this bit of news off as a one day wonder and I am sure the Europeans who seemed to take kindly to the Warren Buffet news must be wondering what happened here across the pond.  We badly needed a 2% point day for the follow through and all we got on the DOW was half  that.     nasdaq

The Bulls really need another strong follow through Eureka Day to propel the Nasdaq up to the 50-dma at 2540 BEFORE there is another drive by the Bears to take it down to test the Recent bottom at 2270.  The opportunities for the Bulls have been in essentially three different buckets according to your fancy: 

  1.  Value and/or bottom fishing “dredging” on beaten down Industry Groups such as Home Builders, Financial Groups and some Retail.
  2. Growth Bottom Fishing with Fallen Angels on beaten down past leaders who have lost >30%.  They include the likes of AAPL, BIDU, GOOG, GRMN and RIMM.
  3. Old and Emerging Wolf Packs with Coal the best of the bunch recently, and other faithful groups such as Chemical – Specialty, Steel Producers, Alternative Energy and Gold. 

Although there have been some excellent short term gains to be made to the upside, the best tactics right now are to play the short term to the upside and take what you can get.  Of course, the market will fool you every time as the expected play is another test to the downside in what is still a Bear Market and until the market Internals show us a markedly improved scenario, the retest of the lows is the general consensus.  Allen Nevalainen on the Yahoo HGSI bb has been doing intense work around potential upside and downside targets and I see he likes the Measuring Rod (MROD) technique of simply displaying the various levels that come naturally to HGS Investors, so here is the latest update on that picture.  He had tagged 1333 as a key threshold for the S&P500 and we seem to be through that barrier for the moment.  The “50-yard line” in my OK Corral picture is always a key level especially when it coincides with a key moving average like the 50-dma, and Allen has taken to it as a duck takes to water.  He applies that concept to the intermediate rallies as well to show potential swing trade pivot points where the Index must hold for the short-term bias to change.  He does good work.mrod At least we have been spared from a rout to the downside for now, and hopefully any retest will abate at or near the Current Base Lows shown in the chart above.  Please realize that we will need a 25% return from such levels to just get back to the old high, so that a very strong rally is needed to achieve such a target for the upside when and if we launch a strong rally.  Let’s take one small step for the bulls by holding the 200 point gain established first thing this morning, then we can worry about one giant leap for the Stock Market out of this mess.   Unfortunately, it was not to be. Best regards, Ian.

2 Responses to “Warren Buffet, the White Knight to the Rescue”

  1. Jim Himmel Says:

    Ian, I use a weekly chart on the SPX to track and bull and bear runs. I plot a 52 week MA and a 20week exponential MA over it and it clearly shows how when the 20 broke down thru the 52 in Oct2000, it was the start of a 2 1/2 year secular bear….then when the 20 crossed back up thru the 52 in 2003, it started a new 4 1/2 year secular bull market. In Dec of 07, the 20e broke back down thru the 52weekly MA again and we’re starting a new bear market. Along the way the MAs have come close to touching or actually touched without consequence, but once the CROSSED, it was the beginning of a major new trend. It may be lights out for a good long while here.

    Jim

  2. ian Says:

    Hi Jim: Thank you for your comments, and many should take heed of what you say. We may have flashes of Bear Market Rallies, but it seems that this downward trend has set in for a while until the Credit Crunch fiasco is behind us.

    Those who prefer to have the wind at their backs need to be patient, prudent and then pounce when we see the 20-ema cross up above the 52 week MA as you point out. Then there are others who want to take advantage of any short term rallies, and fortunately the HGSI software leads us to where the Money Flows NOW. But nimble be quick had better be your first name or else you will take haircut after haircut.

    I will do a piece this long weekend on Reading the Tea Leaves describing the preferences of four different types of Trader/Investor, which I hope you will enjoy. Thanks again and it was good to hear from you. Best regards, Ian.

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