Ian Woodward's Investing Blog

Despite the gloom and doom we experienced just 6 weeks ago, we have been able to crawl out of a hole slowly but surely to gain over 30% from the Base Low of 667 on the S&P 500.  This is indeed a comforting cushion should we go down in the ensuing correction which is expected to arrive soon if not sooner.   This Bear Market Rally has Centipede Legs as we hop along on our Pogo Sticks:

1.  We are into 2nd qtr. Earnings Reporting, and that invariably dictates a sell off

2.  We are two weeks away from May, which suggests the adage “Go Away in May”

3.  We are in a six week rally and the best  is 8 weeks on the way down from the top

On the other hand all the palaver of the G20 summit is behind us and we experienced five straight weeks of S&P 500 gains, where I last showed you the statistics for  the first four weeks with over 23% up and 27 such occasions over the years since 1929.  Yes, of course it was somewhat with tongue in cheek, but we needed some positive news against all the gloom and doom around us, and as it happened it turned out to be favorable…who says that History doesn’t repeat itself?

Given that we then eked out a fifth week of gains, I might as well continue the theme and show you what Past History might suggest for the following three weeks.  Note that the chart below has its stake in the ground at four weeks and then showed the next week and four weeks later, so that we now have only three weeks more to go to meet the expected range of numbers I have circled in the chart below:

Now to blend Theory with Practice, we should stare at the current Support and Resistance lines that most Technicians would lay on the current S&P 500 chart pattern.  I have long before now made the point that 840, 940 and 1000 were the important lines in the sand on the way up.  Since 840 is now behind us, I raised the bar to 875, 940 and 1000 as shown on the chart below:

As I am sure you will recall, all great rallies rise above the 17-dma, and  given that it has pierced up through the 50-dma, when they fail the fallback is to that level.  The Line where key decisions must be made is at 790 but certainly at 780 which was the bottom of the 1st leg of the Saw Tooth Plan.  Net-net, the Market  has played right into our hands and there are no excuses for type 3 swing traders who have been nibbling.   All these numbers are within the ballpark of the Past History Chart above!  Enjoy.

Best Regards, Ian.

After four weeks in a row with the stock market up, the question on our minds is what happens this coming week?

Fortunately I found some statistics that shed light on this question.  Sad to say that the odds based on past history is almost a toss of the coin, as seen by the chart below for those 27 previous occasions where the S&P 500 gained more than 10% in four weeks:

However, we can dig deeper and get a flavor for the boundaries of the move based on
past History and it will be fun to see where we land on this next (fifth) week.

1.  Note that the only two occasions that the S&P gained more than the current 23.28%
over the 4-Week period was in 1932 and 1933 when they rose a humongous 54.20% and 33.85%, respectively.

2.  If you cast your beady eyes down column “C”, you will see there were 13 weeks up
and 14 weeks down…hence the odds of up to down based on history is almost a toss of
the coin or 48:52 to be precise.

3.  But what about the coming week is the big question?  I have separated the positive
and negative weeks into columns “F” and “I”.

4.  Here are the key statistics which I have ringed on the chart:

                                          S&P 500 Current    5th week +ve    5th week -ve
   �
Average S&P 500                     843                       864.33                  827.07

Average % up or down                                           2.53%                  -1.89%

Best & Worst Case S&P 500                                   940.96                  804.05

Best & Worst % up or down                                   11.62%                  -4.62%

The figures would suggest that we will do no worse than dropping to the 50-dma which
is at 790, and a fighting chance to reach the next rung on the ladder at 880 which I
mentioned as the high road scenario in my blog last night.   I have kept the numbers the same as the chart to make for easy reading rather than rounding up.

Best Regards, Ian.     �

The airwaves are full of the fact that this has been the best four week stretch since 1933.  The big question is having delivered over 25% how far can it go?

Since I have been a big QID and QLD Watcher, the factors I have developed to understand the thrust of the Bears and Bulls suggest that the Bears are on their heels for now and have gone a trifle quiet, while the Bulls are flexing their muscles and keeping the ratio of the QID/QLD Total Dollar Volume down to numbers <1.0 and as low as 0.8…not seen before.  So the contrarian view is that the Bears will soon be itching to short.

Better yet, the new beast I have come up with is a decent measure of the thrust of the
rally and as you can see the slope of the rally is still intact.  As long as the red dots stay to
the left of the Yellow Arrow, the rally continues.  if it breaks it significantly to the downside
as it did in May last year, then the rally will be over for now.

Of course, the $64 question is how far can this particular rally go?  Nobody knows, but for
sure we can set yardsticks for what would seem to be reasonable based on past statistics.
The chart below suggests that 17% to 30% are reasonable targets, but that given a major
rally one can aspire to as much as 38% to 50% as seen in the chart.  In this heavily skittish
market that may be a tall order, but realize that the first hurdle has already been
accomplished.

So let’s see what might be reasonable Targets given that the Nasdaq had a breakaway gap
two days ago which bodes well for a continuation of the move…for now.  Now skeptics will
immediately suggest that gaps are usually filled, so of course we must be on our toes that
the tide doesn’t turn sharply, so here are the High, Higher and Highest Roads for the S&P 500 and the Nasdaq, respectively.

On the downside, the areas of support now become straight forward:

1.  The 50-dma for both Indexes at 790 and 1470 for the S&P 500 and Nasdaq, respectively

2.  The critical Lines in the Sand at 741 and 1350, respectively

3.  The final gasp at the Base Low of 667 and 1266, as shown on the charts.  Heaven help us!

It goes without saying that the higher this Rally goes, the more the bears will be itching to
come back with their shorts.  Keep an eye on the VIX.  But more importantly, we must not
forget our pessimistic friends who are saying that the Earnings Reports will be due in full
force in another week for three weeks in a row, and that we will soon be in to May, when
the old adage is “Go away in May” as all will be headed for the Hamptons! 

When all else fails, never forget that >8% down on the S&P 500 is a strong warning that the
gig is up, and it is time to find refuge from the wind in your face!  That number is 776 which
allows for a little break below the 50-dma.

Anyway, we have our beady eyes on the Pessimists who insist we must see a P-E of 10 before we can feel comfortable that a Fresh Bull Rally is underway.  Furthermore, with EPS estimates as low as 40 the gloom and doom scenario suggests we will see the S&P 500 below 600 before we are finished.  I leave you to enjoy the key chart from the March Seminar relating to the Fundamentals, as shown below:

Well there you have it.  I hope those who are attending Dr. Jeffrey Scott’s webinar meeting
tomorrow night will have digested this before the meeting, as this is my contribution to that
event.

Best Regards, Ian.