Ian Woodward's Investing Blog

At long last we have a decision on which way this market will move given today’s
substantial rally, which pushed through the bugaboo level of 956 and plagued
this Market for the past two months plus.  We had a 9% correction from the top,
and now we are headed for the next target of 1000. 

The Golden Cross which I discussed in the previous blog has done its duty and
produced the best one month gain in 20 previous such occasions with a Gain
of 9.07% to close today at 976.29.  Please note that from History the next month is flat, so don’t be too excited if it performs according to the past.  It seldom happens, but is always good enough of a target for gov’t work.

At long last the Saw Tooth Game Plan is again looking healthy, and as you can see
we are again on the high road with an even bigger cushion than before of being
able to tolerate a 10% correction before we again hit the magic number of 880 to
the downside.

The Monthly Coppock is still up, but the Weekly has corrected over the past six weeks and is now finding a bottom and hopefully will turn up, but not there yet:

I gave you two sets of Targets on the last blog for the Bulls and Bears respectively, and we will look at the status with happy and sad faces.  The three most important
items are:

1.  The Acc/Dist Vol. Ratio was weak and should return to 1.2 – Currently @ 1.0
2.  The 40-period BB was flat and needs to turn up before Long Term Buy and Hold Investors should at least feel the Market has turned the corner for them.
3.  The High Jump for the 200-dma to the Index is peaking – Currently 12.48%

Here in quick order are the three charts that present the situation:

The Update on the Ten Upside and Downside Targets for the Bulls & Bears follows:

As my boss once said to me “Stick with me and you will be wearing Diamonds for
Suits…Nothing Else!”:  Still waiting for the Diamonds.   This market is event driven, and Earnings are currently at the forefront.  Three things still loom:  The deficit, the bail-outs, and health care are other big items.   Markets can turn on a dime.  Take it a day at a time.

Best Regards, Ian.

Every now and then, we come to the junction of Robert Frost’s “The Road Not Taken”.  This is one of those critical moments in time.  All the odds and most of the sentiments point to the Low Road, since this Bear Market Rally is long in the tooth, produced records for moving higher faster than most in the past, and showing signs of drooping.  Just last week, it chalked up seven straight days up on the Nasdaq, and the SOX Index is moving up in leaps and bounds.  Likewise for every point that can be made in favor of the Market continuing to rise, there is a counter-point that seems equally plausible.

In the July Newsletter I covered the gory details of the Golden Cross Debate, and one piece out of that study needs repeating on the blog.  The next two charts bound the immediate High and Low Road Scenarios based on past statistics and we do not have long to wait to see which way this round of events is pointing.  Note that by Thursday, the 23rd of July, we should see our first stake in the ground going forward.

Note that the boundaries are either -8.74 % down or +8.40 % up for the worst and best cases, respectively.  I will note in passing that we have already had a 9% drop in the S&P 500, albeit not according to the current pictures relating to where we go from here.  Going into tomorrow, we are on the positive side of things with the current reading as of Friday on the S&P 500 at 940.38, which is just 35 points from the highest target.  We are in the thick of the Earnings Reports season, and there can be many a slip twixt cup and lip, but so far so good with the technology big stocks coming through with beating estimates.  It is no wonder the Semiconductor Index is on fire.

It is not surprising that the 2003 Bull Market Rally is viewed as the recent benchmark for a successful move coming out of a long recession.  Most pundits point to the fact that this recession is still young in time compared to that 2000-03 timeframe, being only half the time.  All Technicians will point to Price and Volume as the yardsticks to measure.  We are now 4&1/2 months into the Rally, and we know that after the first 2&1/2 months of major thrust in both Price and Volume, the Rally has lost its steam by in essence going sideways for the past two months.  But sometimes that is exactly the “Pause to Refresh” needed for all mountain climbers, before they conquer the next peak.  You be the judge:

It doesn’t take long to see that the initial move on both Price and Volume was superior than the 2003 timeframe for the first 2&1/2 months.  Granted it has fallen below the 1.2 ratio we expect for continued momentum over the longer haul, surprise, surprise, the 17-dma has perked up considerably this past week….moving again.  The next week will tell us whether this was a flash in the pan or we continue to see the ratio rise to the required 1.5 to 1.7 level.  the 50-dma Ratio must climb back above 1.2 and stay there.  Be assured that the move must be very strong with the Nasdaq driving hard to 2000 in the next week, and the S&P 500 to 970 for this move to be on and believable.  Now let’s look at the Total NYSE volume picture for the two occasions, 2003 to 2009:

Of course the recent hue and cry is “Where is the Volume”, and certainly that is understandable, since there has been a recent dip by a factor of two.  However, if you look at the 2003 timeframe it was relatively flat for not just one year but two during the entire price climb.   Certainly we would want to see the number get to the higher end of the current range at 70,000,000 (say), but I do not believe we need to see it much higher for the rally to succeed.  Remember this is the period of the summer doldrums.

I wind this up with the two sides of the coin, the ten targets for the Bulls and the Bears:

If you believe these are the right targets at this time, then the Bulls have the upper hand.

Best Regards, Ian.

Let’s not get too excited as the Jury is still out waiting for the bulk of the Earnings
Reports.  However, provided we do not have a meltdown, the slow signs of progress
in the Internals of the Market suggest that the Buy and Hold Type 4’s should get ready to rumble.  The key number on the S&P 500 is 960 and above!

Both Goog and IBM beat estimates so that bodes well for EPS Reports.  Tomorrow is Options Expiration.

Lets dispense with the Downside Scenario:

1.  If we break 870 to the downside, it’s curtains for the Type 4’s.  Be patient

2.  If we break 840, Type 3’s are long since gone and sitting on the sidelines

3.  If we break 800, you are a fool not to protect your 401-K…period

The Upside Scenario:

1.  We have arrested the Head and Shoulders Top…for now

2.  Type 3’s should be nibbling above 930, with tight stops

3.  Type 4’s still need clear signs that we are on our way again…get above 960

The Stakes in the Ground and the Measuring Rods:

a.  NYSE New Highs must stay above 100…it just reached 155 yesterday

b.  The Accumulation:Distribution ratio must get back above 1.2…it is at 1.0

c.  The 40 Week MA needs to turn up…it is currently flat, which is a good sign

I hope it was worth waiting for.  Newsletter, Guests visiting, rotten cold, getting better.

Best Regards, Ian.

The Market turned sour on Thursday and the HGS Investor Software can always be counted on to find stocks that are swimming against the tide…if you are so inclined.  The Bad day which brought out irrational exuberance by the Bears was registered with a Phoenix Signal.  Naturally, the airwaves are abuzz with Head and Shoulders Tops and the expectation that we are now headed down with the  long in the tooth Bear Market Rally petering out. 

To find stocks that are showing strength and going up when the market is going down, the HGSI software has another arrow in its quiver which is to ferret for stocks that have strength by filtering for “Up” Kahunas, i.e., a 1-Day Change in %B of the Bollinger Bands of > +0.24.  Of course you can also go the other way to find stocks that are weak by filtering for %B of > -0.24, but that is not the purpose of this note.

Here is a Filter that will do the trick and gives a small list of stocks that has positive momentum on a rotten day.  As one would expect, the list is not awe-inspiring, but beggars can’t be choosers.  The two with the highest ERG are in the Retail Restaurants Industry Group, i.e., PEET and BAGL.  Another thing  that pops up is an interesting Wolf Pack with poor numbers coming out of the ashes – Fin-Invest Mgmt.

Now here is a further trick to see if anything more can be gleaned regarding these two Groups.  Just toggle the Bollinger %B 1-Dy Ch by reducing it down to 0.18, i.e., 2/3rds of a Kahuna.  True enough, we add one more stock to the Restaurants and two more to the Fin-Invest Mgmt groups.  I’m not for one moment suggesting you plunge headlong in the tide, but at least it would pay to see if these were just one day wonders or there is a Bauble, Bangle and Beads in the mix by putting them in a watch list and see what happens first thing tomorrow.

Not to belabor the tricks, but you might as well zero in on the Restaurants as a Group and it won’t take long to add TAST to the list, which was dormant on Thursday.  Note that the Group Rank is 98 and the stocks have strong 13-ema Force Index for the past five days with Kahunas coming out of their ears on some of the days, with PEET the last two.  Understand I don’t tout, but I am showing you how to ferret for candidates.  It is always “Your Call”.

Best Regards, Ian.