Ian Woodward's Investing Blog

More Stock Market Muscle from Cash for Clunkers?

The Bulls are enjoying the ride and seemingly this Market can do no wrong.  The
psychology has changed from gloom and doom to the Bottom is in and the
Recession is behind us.  How long the euphoria will last is another matter, but
with the chitter-chatter of “Cash for Clunkers” this weekend, it must surely spill
over to the Auto stocks if not the whole Stock Market on Monday.  But watch out
for the looming Jobs Report this coming week which if poor can turn the Market
sour; but if good can send the S&P 500 through 1000 and on its way to the next
target of 1012.

picture

I gave you the Targets for the Bulls and Bears in the last blog and have updated the
Status for you below.  As you can see things have matured and now it is a question
of whether the Bulls can hold the line or we pause to refresh yet one more time.

targets

This Rally is now five months old and we have not had a 10% correction…the worst
we have suffered is 9% on the S&P 500.  You will recall that all of 4 Months ago I gave you the Saw Tooth Plan as a way of staying on top of your Money Management and
running for the hills to save your 401-K if things got tough.  The chart below was on
the April 3rd Blog, and we have certainly come a long way.

old

The Bottom Line Message is that Higher Highs and Higher Lows with no more than an 8% correction is all you have to watch.  Then raise the Lines in the Sand when the
Cushion gets more comfortable which I have done in this updated chart as we have
got long in the tooth.

new saw

At the March HGS Investor Seminar, I told you that we would not fully recover from
this dreadful Black Swan swoon until we saw New NYSE Highs >100 and New Lows less than 25.  I am happy to report that we are there and this is yet another sign that the Market internals are strenthening for Type 4 Buy and Hold Investors to begin to dip their  toe in the water.  If you are not already in, then it would pay to be ready after the next correction provided it is not disastrous.  The next two charts show the status:

new highs

ss

The NYSE Total Volume has improved and now sits just below 60 M shares.  I expect
if it stays at this level there should not be any further concern of insufficient volume.

total vol

The only item on the Targets that is a little sluggish is the 50-dma of Adv:Decl Volume Ratio, but as I show the 17-dma of this item is very healthy @ 1.55, and given that the market went sideways for two months, the 50-dma will take time to return above 1.2.

up down

The Type 4 Buy and Hold Investors should stiffen up their backbones and begin to feel that the market has repaired sufficiently to dip their toe in the water.  Obviously, you need to watch the market and choose your spots carefully:

mark

Lastly, let me finish with a caution on the High Jump which is screaming “extended”
when compared to what transpired back in 2003.  Of course it can go higher, but we
are due for a correction as shown by the dotted oval line back then.

high jump

Good Luck and Best Regards, Ian.

One Response to “More Stock Market Muscle from Cash for Clunkers?”

  1. Theresa Hui Says:

    Hi Ian,

    thank you for the updated “Target schedule”. I knew you’d be giving us “new” guidance @ this critical juncture & have been checking for your blog since last night!

    One quick question: do you still use the ration of QID + VOL vs QLD + Vol to gauge the market momentum? I’ve added that to my own ss & have been looking @ it daily. (I just don’t know how to make it into a picture like you do!)

    Thanks again for taking such good care of us. We look forward to seeing you in PV after one whole year!

    Take care. Our best to Pat.

    Peter & Theresa

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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.