Ian Woodward's Investing Blog

Bounce Plays, Bottom Fishing and Dredging

I couldn’t pass up two opportunities from the Mailbag that relate to using the proprietary High Jump Tool in the HGS Investor Software.  Please understand that I know the two persons very well, so took a little license at wagging my finger a little to drive the point home…all in fun.

bounce

  •  Mail Bag Question #1: Seems like the Ferts, want to test some moving averages today… I am looking closely at MOS and buying around 134…interested in thoughts.
  • David: I have taught you the difference between a “Bottom Fisher” and a “Dredger”.  So you want to become a Dredger.  That’s not to say that the Fertilizers won’t get down there, but in that case we will have a lot more to worry about than buying MOS at $134ish, as we will all be truly in the fertilizer.   
  • High Jump using lowest recent (Limbo Bar) for 200-dma = 40.70 on 5/27/08.   
  • Current 200-dma = 97.31.  Therefore 97.31 x 1.4070 = $136.91, ergo you missed it today at $136.02. 
  • So the best time to take a flier was at its low today.  As my old man would say to me, “Son, You want Jam on it!” i.e., you want to be a Dredger at around $134.  But then again, who is to say it won’t go down another $7.26 (High to Low today) from here tomorrow.  If it makes a high of $142 say by the end of the day, you might just be lucky with your dredging and get it for $134.74.  However, the odds are slim to none as I write this.  It all depends on timing.  So pass the Marmalade at breakfast tomorrow and keep your fingers crossed.  
  • It’s not a perfect science, but I have already taught SKI (aka dorothyoz) how to play TKC and hopefully he has turned to Dredging on that one, but that beast was beaten way down to start with.  That kind of Dredging takes a lot of patience.  HGSI type bottom fishing and dredging is a lot easier for the likes of you who would be like a lamplighter...gone in a flash if the trade works against you.  Why? Because the HGSI Investor has a trump card, and it is called “Nimble”.  I’m sure you would take 4% in half a day any-time. 
  • The bottom line is that the High Jump is your best tool for giving you a fighting chance…use it.  It’s all possible with the HGSI software and a little coaching. 
  • I’m sure you won’t mind my having a bit of fun on a roller-coaster day.  Best Regards, Ian.
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  •  Mail Bag Question #2: Hi Ian, It is nice to hear from you on a day like today.  If I apply the same principle to POT, I get an entry point of 220.37, is my computation correct?  And since it is not too far from the current price (220.98) as I write this, is it “safe” to buy POT now?  I know, it is always “my call”; just want your input on this as my exercise.  Thanks!  Best regards,  Theresa
  • Answer: Hi Theresa:  To answer your first point, yes, you did the Math correctly, so that is a good start!  Count one up for you   Now for the disappointment.  Unlike David who wanted to Dredge, you are hardly even bottom fishing…to all intents and purposes you are barely using the tool for a BOUNCE Play off the 50-dma.  If that was your intention then be my guest, but you are way too high to come in here for even a bottom fish, leave alone a Dredge.  BOUNCE Plays off the 50-dma is fine when the Market is Strong and very risky when it is weak. 
  • Look at the spread today…$14.40.  Another one of those tomorrow and you would be down to $208. Then what do you do?  It would be a Busted play if you were in at $220ish.  In other words you are looking for an entry which can only work if the Market goes up from here and POT goes up from $220; otherwise you are in for a busted play…i.e, the odds for the risk are a lot higher than the reward. I chided David for wanting Jam on it, but you hardly even want butter on your bread for a point of entry.

    pot

    1.  Please remember the concept of High, Higher and Highest Jumps.  Likewise, Low, Lower and Lowest Jumps, i.e., the Limbo Bar.  I’ll grant you that 44.09% is the Low reading for the 200-dma on 5/27/08, so you did the math correctly and it comes out as $152.94 x 1.4409 = $220.37, so pat yourself on the back for that one.  But I am afraid no cigar!  Why? look at the two cases below: 
    2. a)  But what if it goes LOWER to 31.47% as on 3/20/08…it would be down to $201.07 in a flash 
    3. b)  And worse yet, suppose it really corrected to its LOWEST Limbo Bar of 28.51% on 1/23/08; you would really be in a pickle as that would take us down to $196.54. 
    4. The lesson learned is to know where you stand regarding the competition with the Market and with POT.  NEVER only look at the first leg down of the Limbo Bar; look to the next one down and the lowest before you can assess the odds.  At least you will know whether you are taking a risky gamble or should be patient and wait for a better day to the DOWNSIDE in a BEAR MARKET. 
    5. It hardly even touched the 50-dma leave alone break it, as is its past history when it really corrects.  So take comfort that you know how to do the calculations correctly, but that is not enough to differentiate between a Bounce Play, Bottom Fishing and Dredging.  Now you know all I know.  Who said that HGS Investors don’t know how to play the Value Game?   It’s Value of a different kind when you know how to use the High Jump correctly.   Best Regards, Ian.

    It turns out that David bought as his T/A signals triggered, but Theresa was just practicing her skills for how to calulate the points for Low, Lower, Lowest.  Ian.

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