Ian Woodward's Investing Blog

Bounce Play or Plunge into the Abyss?

As my good friend Mike Scott said to me;  “Let you know in a couple of days or a few weeks”.  The supposed bounce this past week never materialized, despite the good news of a 5% growth in GDP, and the relatively good Earnings Reports including the Tech Stocks which took a beating.

fool

The Sandstorm blew last week in favor of the Bears and the tepid bounce was hardly even a Dead Cat Bounce.  So you will notice that I have lowered the target for a deadcat bounce to 1100.  Note that drops of 15 points per day on the S&P 500 have taken us down to 1074 and we are but another 16 points away from the Big Line in the Sand of 8% down, i.e., 1058.  So we could see that this coming week.

sandbox

More importantly the mood is now somber all around.  I’m not telling you anything you don’t know already, but it will take a major turnaround of events to instill some life back into this rally.  We have only to look at the key internals we watch to see that a lot of damage has been done since the S&P 500 reached its peak of 1150 just 9 trading days ago.  The next four slides are well known to you so here they are in quick succession:

mc

200

a

e

Now I come to a new beast, which my good friend Bill Roberts and I are working on.  The challenge was to see if we could give insight into how red was red and how green was green on Bongo Daily and Bongo Weekly.  This is work in progress but it might open your eyes that we are onto something. 

I will show you a snapshot of Bongo Daily to whet your appetite.  As you well know we use RSI 8, 14 and 19 ema as the basic crossovers to establish a trigger of Bongo Up or Down, and we struck on the idea of looking at the actual components of 8 up or down through the 14, and 14 up or down through the 19.  These are depicted by red and green, respectively in the chart below.  The demarcation line is “1.00” as shown by the dotted horizontal red line.  The higher the two lines are up from the dotted line at 1.00, the stronger is Bongo Daily and vice versa.  So we are in the dumpster at the moment!

bongo

So I summarize again by saying there are two scenarios:  A Double Dip before a strong bounce outlined in Blue or a single dip and a quick return to recovery.  I sense the former is more likely!  I don’t think I am mistaken that there is a change in psychology that has taken place these last couple of weeks as good news is being ignored and negative news carries more weight.

Best Regards, Ian.

Comments are closed.

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.