Ian Woodward's Investing Blog

The First Shot Across the Bow

We have enjoyed a Bear Market Rally for 49 calendar days since the last big
down day when we had the last Phoenix signal, and we reached the High
Target of 875 as I suggested in my last couple of blog notes. As one would
expect with a -4% down day on the S&P 500, we had another Phoenix signal
today along with a small Kahuna.  This suggests that the Rally may be over
for now, but one down day does not establish a confirmed change in direction.

bow 

Unfortunately the S&P 500 broke 840 which was a critical line in the sand on
the way up, but as I have said in previous notes the cushion we have is 8%,
so we have used up half of the reserve we had to preserve the Game Plan
of Higher Highs and Higher Lows.  That will truly be broken when we reach
below 780, and those type 3 swing trader’s who nibbled should certainly have
taken some action to lighten up and preserve capital by then:

S&P

I’m sure most of you will recall a similar chart I provided four months ago
showing the critical lines in the sand.  The message is that we are back to
square one.  However, I am sure you will find that your 401-K is less now than
then, so this should be a lesson in Money Management that if we break 780
again, you are playing snakes and ladders with your hard earned money.

santa

All is not gloom and doom as yet…after all we have had only one bad day, and
the following chart gives you the perspective.  As you can see we show a
Phoenix and a Little Kahuna to the downside based on today’s action, and the
S&P 500 Index is sitting right at the 100-dma and 17-dma averages for support.

phoenix

If it breaks that support in follow through action, we head down for the 50-dma
blue line as shown on the chart.  The challenge for the Bulls is to stop the
bleeding and hopefully produce an Inverse head and shoulders pattern that
then gives a chance for another run up on the Bear Market Rally.  This week’s
action should unfold where we stand for the future health of this rally.

Best regards, Ian.

2 Responses to “The First Shot Across the Bow”

  1. David Galardi Says:

    Ian,

    The Game Plan has been spot on. We have one question, should we be looking for another Phoenix soon? If so, when it happens, we should be in deep yogurt until a Kahuna to the upside!

    Thanks as always,
    David

  2. ian Says:

    Hi David:

    The answer is on page 44 of HGS 901:

    a. There is a 30% chance of another Phoenix within 9 days
    b. There is a 50% chance of another Phoenix within 19 days…a toss of the coin.

    If it takes any longer, then we can assume that this Bear Market Rally has real legs and we are in for a big gain of swinging for the fences with a >40% up from the Base Low of 667 on the S&P 500 taking us to around 940…where have you heard that number before?

    To counteract another Phoenix, one needs an Eureka with a Little or Big Kahuna on the same day within a few days of the Phoenix to show that the Bulls have life and have not thrown in the towel.

    On the other hand, if the bears take complete control, expect a few Phoenix signals and a couple of Kahunas to the downside close together then leading to Bingos if we break 780 and drop rapidly towards 667, when we would expect capitulation with significant NYSE New Lows again. It would then require strong Eurekas and Kahunas to the upside to pull us out of the mire.

    On the subject of New Lows…you should realize that we have now had 40 straight days with them under 25, and the last 13 days under 5! This is a good sign for the Bulls, as although the New Highs are not growing, the New Lows have bottomed for the time being. The message is that it will take a complete breakdown of the Market to get us back to the point where the New Lows come roaring back to over 500 which was the norm when the Market was Capitulating in October and November.

    The bottom line is that we have now circled the wagons with the various Proprietary Indicators we have in the HGSI software to know when to thrust and when to parry. These “Impulse Indicators” as I call them have added a new dimension to understanding the strength of the momentum in one direction or the other in the short term, and when the markets move from Bear to Bull and vice versa for the major turns in the long term.

    All the best, Ian.

    Best Regards, Ian.

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