Ian Woodward's Investing Blog

Where Are We Headed #2?

U.S. stocks were hammered Friday, pushing the Dow industrials to their lowest close since Oct. 11, 2006, after February’s unemployment report cemented thinking of a recession and central bank moves to stem the credit crunch failed to offset the damage. 

 captain         

  • “Folks, based on today’s employment report, if we are not in a recession, it is a darned good imitation of one; we are in an unprecedented real estate and credit crisis that is whipping its way through the U.S. economy,” said Kevin Giddis, managing director, fixed income trading, Morgan Keegan & Co. Dow Jones Industrial Average declined 146.70 points to 11,893.69, giving it a weekly loss of 3%. Since the year began, the blue-chip index has lost more than 1,370 points, declining 10% in value. We are close to a Bear Market with a -18.05% drop from the High on 10/31/2007 to the recent low.  My last blog suggested that if we do not hold at 2203 on the Nasdaq we would trundle down to -30% at 2010, and next week is the final chance for the Bulls to hold the goal-line.   
  • At times like these, I revert to my most trusted tool which I call the High Jump, or in this case since the Index is BELOW the 200-dma I refer to it as the Limbo Bar.  It is the % from the 200-dma to the High of the Index, which as you will see from the snapshot below we are currently down -10% and at a critical point based on past history for the S&P 500 looking back to the Major Bear Market from 2000 to 2002.  In staring at the chart below, I couldn’t help but ask if what I see is a coincidence or another case of History does repeat itself in different but similar ways.

     

    high jump

  • With that said, I overlaid the next three months of the 2001 dip down to -20% on the Limbo Bar on top of where we are currently and this is what the picture looks like.  It is uncanny to my mind, and although I am not for one moment wishing this on us, it is a wake up call that if the Bulls do not hold here at the current Double Bottom, we are headed down to 1100 before we might see a proper Bounce Play:       

    high 2   

  • For those of you who are not too familiar with the Value of the High Jump or Limbo Bar, I refer you to the Blog “HGS Investing Principles – The 405 Freeway” written on December 2, 2007, where I discuss this valuable tool when the market is headed for extremes, either Tops or Bottoms.

Best Regards, Ian.

2 Responses to “Where Are We Headed #2?”

  1. Tom Astley Says:

    It was good to hear your voice again on the online meeting call tonight.
    When I read yesterday’s blog I indeed did take special notice of the possible repeat double bottom as so cleverly shown in the third chart. It is precisely because of your glass half full spirit that such cautionary observations prove so valuable.
    Again many thanks for all you do on our behalf.
    Best regards, Tom

  2. Paul R Says:

    Ian,

    Your blog, HGSI, the BB, all too much to ask for in one life time!

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