Ian Woodward's Investing Blog

I have always maintained that the Stock Market’s Moods relate heavily to the events that dictate major policy decisions by the White House, the Congress and the Fed.  The Moods of  Fear, Hope and Greed as the herd decides to be more buyers than sellers or vice versa often stems from these events and influences the short and intermediate term direction of the market. 

I have captured enough evidence on this very blog of the Market behavior countless times that this is not fiction I have made up; rather it is reliable fact backed by example after example.  Of course “Buy the rumor, sell the news” is a convenient way of expressing that mood, but make no bones about it the DEPTH of that sell off is what describes the true Mood and whether there is a preponderance of buyers or sellers…bulls or bears. 

The latest example of this was when the Treasury Secretary was in the limelight and got his first stern warning that waffling on platitudes is not enough when the country is in this dire situation which he in fact mentioned time and time again.  He shrugged off the market’s mood and reaction, but he now knows full well that he is on notice. 

Unfortunately, most of Main Street have lost their way, have had their butt kicked often through no fault of theirs, and don’t know which way to turn when it comes to their life savings. 

 It really doesn’t matter what one’s political persuasion is, Wall Street Investors hate uncertainty which quickly turns to fear and can take the Market Indexes down into a spiral.   It was appropriate to have straight talk to portray the difficult situation the Nation is in and to put a firm stake in the ground that this was handed to the current administration by the previous one.  But now comes the true test of “Where’s the Beef?” or dare I ask “Where’s the Pork?”  It will not be enough to say “I told you so”.

Confidence and Trust are what the Nation needs at this juncture, and in my opinion it will have to start this coming week to restore it with  a one-two punch from two important events due soon:

1.  The President’s State of the Union Address to Congress on Tuesday.  I for one agree with President Clinton’s advice who suggested in an interview with ABC News this week that rather than taking every opportunity he can to talk down the economy, the President should begin to show “that he’s confident that we are gonna get out of this and he feels good about the long run.”  We shall see whether he heeds that sage advice and becomes a Statesman or he delivers another campaign stump rhetoric. 

2.  After the Raspberry the Market gave Tim Geithner 12 days ago with 381 points down on the Dow that eradicated the two Eureka signals and supplanted it with a Heavy Red Phoenix signal, the Treasury Secretary seems to have gone into hiding when the entire banking sector is on the verge of collapse (once again).  If he fumbles once more when he appears with his plan, heaven help us all as the market’s reaction will undoubtedly signal the first signs that we are headed for a Depression, and that will now be on his watch.

It has become very apparent since the Geithner fumble that the enthusiasm for any form of rally has been drummed out of the bulls and although there are plenty of places to make short term gains, it is difficult to stay the course for the long term.  Add S&P 500 projected earnings to the list of under $50 (and I am being generous) and the Fundamental types can’t see supporting 600, leave alone 800!

Since we are now on a Phoenix red as the last “Impulse Signal” together with two dark red Kahunas, the direction is not only down but “Timber Below” is the watch word.  741 on the S&P 500 is within easy reach for the floodgates to open to the downside.  I don’t have to remind you that with the market as fickle as it is and already oversold for now, that any form of good news can turn this upwards…but it is the THRUST of the move which will determine whether it is a one or two day wonder or new hope or despair.

HGS Investors will be able to apply this Indicator to their views hopefully this coming week.  I am sure you have seen the other important upgrade with the “Days Since” feature for the Force Index parameters that Ron described in his Movie on Saturday, which will make for easy pickings of the low hanging fruit, both up and down.

Best Regards, Ian.

Sure enough…”Buy the rumor, sell the news” wins once again.  It seems that Wall Street has a new Whipping Boy, so Helicopter Ben gets a respite and we have a new Sheriff in town.  By the way, my blog shows that I have the most hits from this picture below which I posted many moons ago, so naturally there is a major concern as there has been new fear instilled into the rhetoric from the White House, the New Treasury Secretary and the Congress as they tell us in no uncertain terms that we are in dire straits not seen since the great depression.  This is the refreshing new transparency and to be forewarned is to be forearmed.  We can only hope that these three musketeers will turn the tide for the nation:

There is little point in my adding fuel to the fire…all I can tell you is what my eyes see in the reaction by the Market.  It took instant heed and plummetted us into another Phoenix signal yesterday which decapitated the two Eurekas previously.  So now we go on Red Alert until we see the Bulls Recoup when they were beginning to flex their muscles again, only to be driven into their cubby holes once more.

The bottom line message is that in these times it is better to be on the side of the Bears, and those who anticipated the “Buy the Rumor, Sell the News” axiom made a lot of hay yesterday.

 So now who do you believe:

1.  The Optomistic View:  Warren Buffett and Zeall who feel the bottom is already in

2.  The Pessimistic View: Maudlin and Tuttle Asset Mgmt who believe we are half way through a Secular Consolidation Phase and have another 7 to 9 years to go

3.  The Realistic View: Woodward and Brown who suggest to let the market tell you as we do in Ron’s Weekly Movies, the Newsletter and this blog.  Why not try our Seminar in March 21 to 23 and you will learn how to protect and make money in these troubled times?

The brief messages as we hope to resurrect ourselves from the Phoenix ashes are:

1.  Use the Game Plan and Check list I have given you in several of my blog messages recently and…
2.  Type 1 and 2 Traders enjoy to your heart’s content in moment and day trading…Type 3 use the check list, and Type 4 long term Buy and Hold, just be patient and wait. 

Don’t waste your money trying to bottom fish.  However, it is possible to make money off the bottom if you are nimble to give yourself a cushion but run for cover at the slightest sign of a mistake at the onset.  I suggest you look at %Cl/52 Wk Lo, as most stocks are 50% or higher from the Base Low…you can do it if you are nimble, but make sure the Earnings are out.   Understand that the difference between you and Uncle Warren is that he has deep pockets!

Best Regards, Ian.

As my regular viewers have come to recognize, I place a very strong emphasis on what the White House, the Fed and the Congress do at critical points in time.  The direction the Stock Market takes at such times have helped me understand its Moods of Fear, Hope and Greed.  As such, the HGSI Team has developed a series of Stalwart Indicators that have kept our clientele on the right side of the Market.

It is now over 15 months ago I flexed our muscles and gave you the importance of the Hindenburg Omen to warn you that the Big Shoe was about to drop, and drop it did.  Incidentally, that particular Blog proved to be a long term winner as not only did it get a substantial amount of “hits”, it continues to do since it is referenced in Wikepedia and also shows up on Google Images for “The Big Shoe”!  A little bit of trivia never hurts along the way.  We got you out at the right time, and we hope we can get you back in again when the coast is clear.

So here it is again resurrected as a Caption to remind us that a momentus decision is about to be made and let’s hope for all our sakes that we will be singing Cumbia this time or else we are surely headed for a Depression in the weeks and months to come.

Lest we forget the last time that I defined a momentus decision was upon us was with the first stimulus package known as the Bailout Bill which flopped before the ink had dried.  I recorded that event in the October 3 Blog, since when the Market and the 401-K’s have suffered serious damage.  That was TARP I.  It seems the House has done it again where the Nation now waits with baited breath to see if the Senate will right the ship with a meaningful and sensible package.  Time will tell if TARP II is any better.

It goes without saying that the Market is at a Critical Juncture once again.  The Santa Claus Rally fizzled out along with the January Effect to end up with the worst drop in history for the month of January with a -8.57% decline.  I have shown you the instability and oscillation of the market as Bulls and Bears fight to gain the upper hand.  Once again the HGSI Proprietary set of Indicators have shown us clearly the warning signs of this Unstable Market, and a picture is worth a thousand words so here you go with the latest Indicator the Phoenix prominently showing the fight between it and Eureka.  Please understand that despite all the fru-frau, the last indicator standing is an Eureka signal posted on January 21, 2009.  It goes without saying that it is tenuous at best, but Markets will always surprise you when you least expect it and we will just have to wait and see if the Psycholgical Mood turns from Fear to Hope to Greed!

I have shown you both the short and intermediate term criteria for a Bear Market rally, so keep your powder dry and use this Game Plan to decide whether Type 3 and 4 investors should participate at this juncture.  Type 1 and 2 short term traders know what to do and they enjoy this volatility.  Don’t forget that the Employment Report is due this Friday and one can assume there will be bad news on that score based on the several recent layoffs announced.  The only good news is that many think this is already baked in!

Last but not least, there are three schools of thought regarding the bias of the market direction:

The Pessimist:  We are in a confirmed 17 year Consolidation Phase and are only about half way there.  In any event, the As Reported P-E for the S&P 500 will need to be less than 10 before we can be assured of a New Bull Rally in their view, based on past history.  We are currently around 15!

The Optimist:  We have seen the bottom, and we are due for a new strong rally similar to what transpired 100 years ago in 1907!

The Middle of the Road…Realist:  We are currently in a Trading Range, the bias is obviously down, and unless we see a marked improvement in the Economy and particularly the Housing Credit Crunch, we will probably retest the recent low of 741 on the S&P 500.  We could break it to the downside before we can find a true bottom and clear out the rest of the Fear. 

I leave you to decide which Road you think we are on.

Best Regards, Ian.