Ian Woodward's Investing Blog

A Ray of Hope for a Bull Run in a Bear Market

Don’t get too excited, but the HGS Investor Seminars invariably lead to a bull run, and it seems that this one just finished last weekend is no exception.  One week does not a Bull Run make, but there are distinct signs that the Market sloughed off the bad news of the rotten jobs report and for the time being we seem to have all Market Indexes flashing “Green”.

bull run

  1. At this stage of events it has to be wishful thinking, but at least there is some encouragement if we are to judge this past week’s progress in the JIRM Index which we developed last weekend for Stocks above $35 which we are using as a yardstick to measure the health of the market.  I featured this in my last blog and you will be pleased to know that it has delivered 6.17% vs the S&P 500 of 4.15% based on equal dollar weighting.  More importantly every single one of the 18 stocks selected is positive.  That suggests that the types of stocks we favor are in the sweet spot.

  2. Please understand that a flood of Earnings Reports will be out in another three weeks and that will set the tone for whether we slouch back into a bear condition or that we see some renewed enthusiasm on that front.  As I discussed at length at the seminar, the Earnings are falling from under us at every month’s new surprises such as GM and Sears both taking hits to take the S&P 500 earnings estimates down.  I showed you chapter and verse as to why the S&P 500 touched 1270 and why it could quickly drop to 1150 if we do not quickly see a repair on this front. 

  3. But enough of that, and although Type 1 and 2 traders are already making hay while the sun shines, Type 3 Intermediate term swing traders are wondering if they dare put their toes in the water.  Type 4 Investors are still waiting for more signs of confidence that things are firming and so they should.  A winky-winky is not to neglect those HGS Boxes stocks greater than 0 (and especially Box 7) that timhiggit gave you last week.  Just take an EPS Rank and Grp Rank of 80:80, a A/D greater than or equal to C, Bongo Daily signals that have fired in the last 15 days, and above all a %E/P TTM of >3, and a % Dem/Sup of 0.9 and you have the cream of the crop.  You see newbies…it is not difficult to concoct a potentially winning scenario on the fly using HGSI software.

  4. Now let’s move on to a more important matter.  How does one get a handle as to whether this past week was just a flash in the pan or that there is indeed a fresh Bull Run in a Bear Market or whether the ride will fizzle out in a matter of days? In which case we will be back to the same old scenario of three steps forward and two steps back or worse yet the other way around as it has been for several weeks.   I offer you two weapons and three charts for this immediate week to come and they should tell us the story of whether the Bulls or the Bears have the upper hand.  One is the 40 period Bollinger Band Weekly Chart I showed in an earlier blog and also covered with a five point plan in the Newsletter and the Seminar…the famous Mark Pharr Chart.  The other is the jolly old VIX, which has worked well for the short term traders switching from long to short routinely for the last eight months, and has been a dead give away until NOW! 

  5. Given that we had yet another Eureka last week which almost went un-noticed, that Bongos have fired on all Major Indexes, that Industry groups are perking up, and that the New Highs are improving but not very strong as yet…you get the idea, we might have a changing of the guard from the grip of the past several months.  That grip is better seen in the second chart, but more on that in a moment.

sandp 500  If you look on the left hand side of the chart, you can see that one can have a decent bull rally in a Bear Market, which gets turned back at the “orange line of 40 periods.  In the 2000-03 bear market we had 21.8% and 23.8% up legs as shown…so the hope is that we might be on one of those legs.  We will know if it gets turned back if %B gets no higher than about 0.5 say.  In which case, after a decent move we fall back into a bear market mode again as show heading down.  The other scenario is that we are already at the bottom and the momentum picks up to drive %B up to over 0.7 or more in which case we are at the bottom of the Bear market and on a new Bull Run…the wishful thinking scenario.  All of that is shown by the green dotted ovals for you to compare and hopefully agree with my scenario. The message from this chart is that the first item of the five point plan I gave you is already behind us and we have to see if the %B coming up through the bandwidth continues upwards. This next chart shows how you can time your moves to either go long or go short and has worked well for short tern traders for the past eight months.  It has worked like clockwork.vix

The words on the chart says it all, but if the VIX breaks down badly and heads for the second white line, this may well be a change in sentiment and we could look forward to a decent rally.  Watch for either a bounce in which case the bears are in control again or for a drop in which case there may be a good rally.  Now the way to get a better handle on whether it is one or the other is to look at the VIX compared to the Bollinger Bands, %B and Bandwidth as shown below:

bbs vix The bottom line is to keep a beady eye on the right hand side of the chart and see if what I say on the chart occurs.  Now you have a watertight plan! Best regards, Ian.

 

One Response to “A Ray of Hope for a Bull Run in a Bear Market”

  1. Tim Higgit Says:

    I see you deciphered the basics of my “secret” filter post haste. It’s really just a combination of 3 standard program filters with a few customizations: Delta ERG, REROE, and, of course Box 7. It’s great to have new indicators such as Bingo, Bongo, Tsunamis and the like, but let’s not forget the old Boxes concept. I’d suggest any not familiar with it to go to http://www.highgrowthstock.com/LearningCenter/WBInvesting/ninebox.html
    and read up on it.
    For those interested, the filter returned 3 new ones this weekend from the Chem-Specialty industry group:
    AGU
    CF
    MOS
    Thank you for giving us these roadmaps to watch for determining market direction. It’s nice to see someone else keeping a close eye on the VIX. From this level, the VIX has room to drop precipitously (read: market rally), perhaps to the 16 level. I’ll be watching for a close below the lower 20,2 BB AND the -10% of the 10dsma as a sign of a coming market pullback. Until then, I hold a bullish bias. The DOW looks poised to break out of it’s two and a half month range after a very orderly pullback to the 17dsma, subsequent big rally, and now a tiny flag. Perhaps it’s just that the Spring-like weekend weather here in Michigan has me giddy, but the market shall tell.
    Thanks again,
    Sincerely, Tim

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