Ian Woodward's Investing Blog

Wall Street has Spilled Over into Main Street

dam

During the past several months I have tried to steer you through the mine fields and give you ample warning of the Lines in the Sand at critical points in time.  Past Blogs have featured key skirmishes between the Bulls and Bears at the O.K. Corral and we have just finished Round #4 which the Bears have once again won.

chart

In recent blogs I have shown you the boundaries in which the “Ball Game” was being played to keep the picture down to its simplest form.  The chart below needs little explanation as you have seen this from time to time in the past.  What is important is that the Last Line in the Sand is broken and it will take a Thanksgiving Gift, A Santa Claus Rally and a “Hail Mary” Pass to head back into the Zone again as shown above and below:

chart 2

Worse yet, given past statistics of Bear Market Swings Down, Rallies Up and Re-Test Statistics we find ourselves in the dubious spot of having beaten all of them to the downside except the one of 1937, and heaven forbid we head on down that low:

swing

At the recent High Growth Stock Seminar completed in late October just four weeks ago, I presented the following chart as evidence that Wall Street had now impacted and spilled over into Main Street by describing the effect of the downgrading in Earnings Estimates as we go forward into 2009.  The chart below is a picture I put together to show the effect of both EPS estimates (past and future) on one axis with P-E on the other to show the net effect of what the S&P 500 can support as an Index Price.   Sad to say we have wallowed around in the Red Zone of late in these past five weeks and have now broken down into the Brown Zone as shown on the chart below.   I suggest we are now headed for 770 (between friends) on the downside, unless we get a humongous Bear Market Rally:

spreadsheet

I wish I could be the bearer of glad tidings at this festive season, but it is better to know the plain facts and the logic that supports them than for me to pull the wool over your eyes.  It goes without saying that we start the entire process again of Capitulation, Reversal Day and Follow Through Day(s) with Eurekas and Kahunas to support the Bull enthusiasm and that can take another six to nine weeks.  In addition we need New Highs on the NYSE to come out of the woodwork and New Lows to dampen below 50 before we have a glimmer of a proper Bear Market Rally.   When Base Low Stakes are uprooted, we now wait to see the above before we can even begin to suggest we have found “A Bottom”, leave alone “The Bottom”.

Best Regards, Ian.

4 Responses to “Wall Street has Spilled Over into Main Street”

  1. Paul R Says:

    So Ian we broke 770 a few minutes ago, what’s next?????

    (Normally I would have added a VBG, but not today!)

    Paul R

  2. ian Says:

    Hi Paul: You should know by now that it takes Stakes in the Ground and Measuring Rods. I gave you the Measuring Rods back on October 19th. 50 points on the S&P 500, 80 on the Nasdaq and 600 on the Dow…back then.

    Now that the stakes have been uprooted we are in free fall until the Bulls decide to be as the song goes: “fools rush in where angels fear to tread”, and we will have a short covering spree until eventually it all subsides and goes quiet before we see any signs of “A Bottom”.

    So an even 700 on the S&P 500 is now on the cards and then we get into the black zone of around 685ish based on the chart I posted here yesterday. If Fundamentals are anything to go by (at this stage all that is also out the window), you should see the pundits like Uncle Warren Buffett speaking up again that this is an excellent opportunity not to be missed at 630, but by then who cares what he has to say, as they were fooled once before? As I warned, he can afford a million here, a million there and another million out the window, but he has deep pockets. Sit tight, brush up on HGS 101 and come to the next seminar in March!

    Best Regards, Ian.

  3. Emini Addict Says:

    Great post. If we would have closed below that magic 770 number for this week it would have been very bad. Looking at the entire chart of the SPX you can see that level is the pivot between heaven and hell. I’m convinced that it’s still coming. The late day rally was all short covering.. Great Site!

  4. Emini Trader Says:

    Nice analysis, a little past the 770 actually. Great Job!

Copyright © 2007-2010 Ian Woodward
Disclaimer: Commentaries on this Blog are not to be construed as recommendations to buy or sell the market and/or specific securites. The consumer of the information is responsible for their own investment decisions.