Ian Woodward's Investing Blog

Reviewing the Bidding of the Market and VIX


My Father was a great bridge player and taught me well.  He would make sure to
say before the hand was played: “Son, always review the bidding”.  So let’s
review the bidding:

In my last blog of March 10, all of 15 days ago, I left you with a strong winky-winky
that said:

“Late Breaking News – We have had a confirmed rally…how long it will last in this
skittish Market is another story for another day”.  That day is today.  Unfortunately,
people are too busy these days as they spend time multi-tasking and don’t soak in
the messages that count.  Those that attend our seminars are taught to read
between the lines, so although they were prepared for gloom and doom, they
also knew that there may be a ray of sunshine. “Confirmed Rally” with an Eureka was the clue I gave you 15 days ago, before I had to prepare for the Seminar.


1. We certainly got that boost this past Monday with the strong move of 50
points on the S&P 500 which took us from 770 to 820.  A 6.5% rise in one day
is the reverse of what we endured during the landslide on the downside so
it was certainly time to sit up and take notice.

2. We have now had 6 Eurekas in a row with nary a sign of a Phoenix, so it
means that the shorts have scurried into their foxholes, are covering their
shorts mighty fast and for now are waiting for the Bear Trap to pounce.  The
start of that trap could well be today, unless that Bulls can hold the line
above 800.

3.  We know from past experience that a good rule of thumb for a reasonable
rally is between 20% to 25% up from the Base Low.  With the Base Low at 667,
we now have a potential target of 800 to 834. We hit 826 today at its high so
that is close enough for government work…first mission accomplished.

4.  Now What?  Either we come rattling down with the Bear Trap to wind up
with a -8% drop which takes us down to 760 or the Bulls will have none of it
and hold the fort above the psychological barrier of 800.

5.  Anything less than 741 means the Bears did the rally in and the Bulls must
re-group or once again throw in the towel as the S&P 500 trundles on down
to re-test and/or break the Base Low at 667.

6.  Seminar attendees now have the “Saw Tooth” Game Plan that either
confirms the rally is on or find that Type 3 Swing Traders must once again sit
on the sidelines waiting for another attempt off the lows to start a bear
market rally that has some legs.


7.  Now to give comfort to the Bears, the challenge is simple…their goal is to
hold the VIX at no lower than 40 and so far they have done that, despite the
rapid move of over 23% up from the Base Low.  Until this is broken vigorously
to the downside with “three black crows” (big red candles) to drive down to
30, we will meander in a trading range or once again have the fear of morphing
into the depression scenario which I covered adequately to show the dark side
of the looking glass.  Furthermore, an ARMS reading > 2.50 will trot out another
Phoenix sooner rather than later and the Rally will then be finished for now.
The Bears objective is to drive the Fear up with a VIX reading > 45.

8. The Bulls would have had less than a month between Phoenix signals to bask
in the sun and they now know what to look for on that score before the odds are
heavily in their favor.  My point is that the HGSI Proprietary Impulse Indicators
have given us enough faith to follow them in these turbulent times to keep us
on the right side of the curve and to know when the odds are heavily in our favor
or no more than a toss of the coin.

9. Follow Through Days in Bear Markets are little more than a toss of the coin,
while attendees learnt that we now have better tools to guide us out of this mess.

The Game Plan is now straight forward and there is no excuse for you to lose your
hard earned nest egg.  You and I know that the Market is totally “Event” driven by
the four principals as we discussed at the Seminar, so be leery and watch for
sudden bursts to the upside and downside.  Those events will be captured with
Bingo, Phoenix, Eureka and Bango.  In the words of the song “Bingo, Bango, Bongo
I’m so happy in the jungle I refuse to go!”

Best Regards, Ian.

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.