Ian Woodward's Investing Blog

Wonder of all wonders, we finally got a decent Bounce Play, a little short of a Kahuna Up, but we will take a 2-Bucket Skip any day when the previous few days had us still stuck in the mud.  The Tide is in and the Boats are rising fast and did what I set as targets for the Market to do.

We got what we asked for right on the nose, and the lesson learned is that it is important to have “What If” Plans for both Up and Downside Scenarios to guide you:

Although we all know that the Volume was under par yesterday, it has to be excused given the unusual circumstances of the Hurricane Irene debacle.  However, we had the 2+ Bucket Skip, two Eurekas in a row, and humongous Adv/Dec and Adv/Dec Vol as shown on the next chart.  Note also that %B is now at 0.71…the Safe Zone:

So, the Game Plan gets easier…I didn’t say “Easy”, but at least we have proper Stakes in the Ground and Measuring Rods.  On the Upside the next resistance is the old faithful Line in the Sand at 2600.  How many times have we been up and down that yardstick?…too many for most.  On the Down Side, I spy with my beady eye an Island Gap, like the one between L.A. and Catalina Island.  Beware of Island Gaps…they usually get filled and the Bulls must hold at 2480 or the Party is over.  If it holds then the next move up should be a continuation of the Market in Uptrend and hopefully we avoid the ever present “Fakey” which we now know only too well.  Just look back on past blogs for that predicament that plagued us a year ago until after four months we started a Fresh Rally on 9/1/2010…we are but a couple of days from that anniversary, so we then turn from Despondency and Throw in the Towel to Hope and Relief:

The Bottom Line I hope you will agree is that this good stuff is working for us and keeping you on the right side of this Yo-Yo Market.

Best Regards, Ian

As I start this Blog Note New York City has been spared the Wrath of Hurricane Irene, and I assume the Stock Market will be open tomorrow morning, despite flooding in Lower Manhattan.  The news from Jackson Hole was underwhelming, but it seems that no startling news was good news, and reading between the lines the market felt assured, for one day on Friday, that Helicopter Ben still had a few tricks up his sleeve.  He implies that he is not out of ammo with “The Federal Reserve has a range of tools that could be used to provide additional monetary stimulus”.  In addition, the FOMC is now meeting for two days instead of one to discuss how best to use them.

I trust they are not as befuddled as our friendly Financial Gurus who can’t seem to make up their minds if we are in a Market in a Confirmed Uptrend or Under Pressure with their yo-yo statements within four days last week.  As my good friends Jerry Samet and both Mike Scott’s will tell us it is essential to watch Eurekas, Kahunas, and %A-%E Accumulation/Distribution along with the Coppock and McClellan Oscillator to assure oneself that we are on the right side of the Market.  You know the drill, and we are by no means out of “Jackson Hole” on the Market as I will give you fodder, targets and reasoning to make up your own minds as to what to look for.  Be prepared to play Yo-Yo or sit tight.  You be your own Guru…it’s your Money!

The Message in one sentence is “This Market is so oversold that all boats are still stuck in the mud and we will need a Substantial Move with a 3-Bucket Skip Upwards to at least show that the Bulls are back in earnest”.

Let’s start with our favorite chart which now focuses on Bandwidth.  Don’t get excited if you can’t read the numbers, I lead you by the hand with the colors and words at the top and bottom of the chart.  The first thing to note is the definition of “Composite”, which I will be using in the two charts below this one.  As you can see by the arrows, Composite applies to the Average of all ten Market Indexes shown and although the numbers are very even regardless of which Index you choose to follow, the beauty of this approach is “Consistency”.  More importantly, the Highs and Lows of past Major Moves give us a Stake in the Ground and Measuring Rods that set the Reasonable Targets for good and bad.

I will re-emphasize that based on past history and particularly for the Black Swan of 2008, the Bandwidth MUST get below 12 for us to consider that the worst is over FOR NOW.  It doesn’t mean that we can’t get back into hot water, but what we need to identify is what transpires in the next few weeks, not months from now.

The next two charts are for the Composite of the Ten Market Indexes for %B.  The first shows the dramatic effect of the swoon we experienced that took us rattling down close to Bear Market territory of -20% from the high.  It shows where we are now and the second chart shows what must happen for us to be re-assured that the worst has temporarily passed, and we have a cushion of some sorts for the next buffeting should it occur:

Note that the Composite Reading for %B is still below 0.5 and the beating we have taken compared to the Flash Crash period on the left hand side of the chart.  Then observe the struggle it took for four months to recover to a new Market Rally starting in September, 2010.  In this next chart I show what MUST happen the next few weeks before one can be assured we have at least a Rally, and even then we are at the mercy of fakeys:

In this next chart, I am back to the S&P 1500 with %B and Bandwidth shown.  It doesn’t take two seconds to see that the KEY TARGET is to get the Bandwidth down to being CALM with readings below 0.12.  We are currently at 0.16, so there is hope, but it requires the push I showed above:

The “Score” has improved from -9 to -2 but again we need to see the bias turn upwards  before the score is positive to at least show Stalemate:

Now the question you are asking I am sure is “How can I track this good stuff, EASILY?”  The next three charts show you how in HGSI.  Now please don’t all shout out at once that you don’t have the Bandwidth slices I show.  You either put them in yourself or you wait patiently for the next upgrade when it will be in the Slices Folder of the Spectrum Analysis Pie Chart.  Here are the targets for the High Road Scenario:

…And here is the picture for %B which is in your Slices Folder, so you can easily track this inside five minutes on HGSI:

Now let’s look at the Nasdaq with its Price Targets for the immediate future.  Please note the Death Cross predicament shown on the chart:

…And Finally, we have one picture for the Low Road Scenario, besides all the other warnings I have given you above:

My Thanks to those of you who chose to drop me a line of appreciation for my work which is a labor of love.  Please drop me a line and let me know if you are coming to the Seminar from October 22 to 24 which is now only seven weeks away.  It is on, but we need to hear from you NOW.  There will be plenty of new “Good Stuff” that Ron and I will cover, to say nothing about all the goodies in the Substantial Upgrade to come in a few weeks time.

Late Breaking News:  Paul asks:   What are your suggestions to look for with the McClellan Oscillator?

Your wish is my command.  The Oscillator is at 110.18 so that is good…it needs to move up to above 200 for the rally to continue.  The Summation Index has bottomed for now, but needs to start moving up with wide separation of postings and break up through the down-trend-line with gusto.  We would like to see it get above 1200, but that is wishful thinking for now:

Best Regards, Ian.

Don’t count on it, but it seems all eyes are turned to the Fed Meeting in Jackson Hole this week, so we shall see if Uncle Ben has any last tricks up his sleeve.  The hot news as I write is the fall of Libya to the Rebels and we hope and pray that the unrest settles in that area.

I couldn’t resist a second picture to be careful if the Market suddenly turns euphoric and drives up in an unprecedented manner…we are not out of the “Hole”!

I bring back a key slide from yesterday’s blog note, so that you can maintain continuity with what I have researched with regard to new ground on the subject of John Bollinger’s Bandwidth.

I must admit that Bandwidth is not my primary focus, but in view of the recent precipitous drop in the Indexes, I felt it important to understand what recent changes I can glean in this Indicator as I compare the current recent alarming rise in Bandwidth with the Black Swan drop in 2008.

Here is a Chart I have not shown before, but is what got me excited to keep an eye on this to see if the Bandwidth shown on the Right Hand Side either rises sharply from here or trots back to its normal calm state below 0.10 as shown below.  Anything higher than 0.24 suggests from past history that we are in for a precipitous fall, as I will evolve for you with charts to back it up based on the Black Swan Stake in the Ground and Measuring Rod we learned back then:

This next chart is what caught my eye to evaluate Bandwidth at this critical juncture.  When the Market drops precipitously, Bandwidth shoots up:

Now for our Stake in the Ground, let’s look at the 2008 timeframe when the Bandwidth on the S&P 1500 shot up to 0.43 and then note how long it took to subside.  Markets do not come back quickly when they are badly trashed and my objective is to carve up this chart to show us possible High, Middle and Low Road Scenarios:

Before assessing the alternative scenarios, the following chart shows the comparison of 2008-09 with 2011-12 for a period of a year.  You can immediately see that the rise from the Last Rally starting in September, 2010 until recently recorded Bandwidth numbers that were less than 0.10.  However, over on the right you immediately see how this has popped up to the 0.24 level I showed you a few slides above, as we had that five Bucket drop in %B on 7/27/11:

The following chart says in words what follows in pictures summarizing the three Road Scenarios.  Note there is a Higher Road Scenario not shown, but it is not difficult to visualize what must happen if there is superlative news to the upside which causes the Market Indexes to Bounce at least three Buckets up.  We will embrace that news and breathe a sigh of relief when we see it:

As promised, I have done my usual trick of slicing and attaching the picture from the past and sticking it on the end…Here is the High Road Scenario:

…And here is the Middle Road Scenario:

…And Finally, to round things off, here is the Low Road Scenario…Heaven help us if we trot down to these levels:

Here is an Update with a bonus for HGSI Users.  I put this together after I posted this note.  Unless you are a whiz at making your own Pie Charts you won’t find it in the current software.  Ron and I will work on an update:

Give me some feedback as to whether this appeals to you, makes sense and moves the ball forward or not.  All you have to watch next week is whether the Bandwidth rises or drops sharply from 0.24 as you view it in the HGSI Software for Major Market Indexes.

Best Regards, Ian.

I don’t have to remind you that the Party is Over for now as many Market Indexes are already into Bear Market Territory of over 20% down from their highs, and most others are knocking at the door sitting at around -18% down.  My faith in the Sloshing Buckets or Bucketology as I call it continues to grow , if for no other reason than we are constantly understanding the volatility it presents to us and coupled with other indicators we use we get a feel for which way the wind is blowing.

…And here in one snapshot is the proof that the Market Indexes are all laboring:

The Perfect Symmetry Plan I showed you three weeks ago is now complete, and we are faced with this Market going down even further.  It will take a while to work the VIX down once again from these highs above 40, so don’t expect a true Rally any time soon.  1025 on the S&P 500 is certainly on the cards:

…And here is the picture for Big Foot, King Kong, and Godzilla, the HGSI Barometer I showed you a few notes ago:

It’s important that I repeat these next two slides to maintain continuity with what I show is the precarious situation we are in to drive home our predicament:

This next chart is the real eye-opener as I challenged you to identify where we stand relative to Black Swan days and as the days go by, it looks like we have a lot more to endure…not only in terms of the US Economy which is confirmed as being stagnant, but also the Worldwide situation which has consumed them:

I’m not suggesting we dive a total of 57% as we did in 2008, but we could at least trot down to 30% to 35% which would be a double down from here.  The following chart is an old faithful and I know it keeps you focused on where we stand on the Market Indexes:

If we are fortunate to have a Relief Bounce Play next week, I show you how it “MIGHT” happen, but the main thing to watch out for is a Trap if and when the S&P 1500 trots back up to the 50:50 red line as I explained in my last blog:

We are just two months away from the October 22 to 24 Seminar and we believe it will be a good time for you to brush up on the New Release for the HGSI software due a month from now; and prepare for the next Market Rally when we should know when to crawl out of our foxholes, and take advantage of the big opportunity for those interested in the Longer term move to the upside.  Meanwhile, there is plenty of opportnuity on playing both sides of the market if you are nimble.   Please drop me a line at Ian@highgrowthstock.com if you intend to come.

Best regards, Ian.

I don’t have to rub it in as to what the Stock Market has done to the 401-K’s turning to 401-Kegs, but it seems only Yo-Yo Players who love intra-day volatility need apply to have fun in this market:

If you don’t believe me, here are some charts to ponder over which show that we have rivaled both Flash Crash and Black Swan times before.  Feast your eyes on the High Jump for Starters:

Now let’s look at the Gloom and Doom Scenario, the “A” Accumulation Leadership.  What Leadership you ask?

I hear a lot of wishful thinking about “V” Bottoms…I say past history shows that is wishful thinking when there is no Leadership.  You judge for yourself:

Here is a new twist on the same theme…compare the %A Accumulation minus the %E Distribution…My friend Jerry Samet pays a lot of attention to this one:

So let’s look at where all the Major Market Indicies stand.  As of yesteday’s close they were all hovering around 0.3 %B, far too weak.  You and I can dabble around if we choose, but until we see the Bull Elephant Institutions Stomping around to the Upside (or for that matter the Downside), all the rest is nothing but biding time for some big news to swing this market one way or another.  You learnt it here first…you need 3 Buckets up in one day to even start to get excited.  Alternatively watch for 4 Buckets down in one day for the Downside as shown on 07/27/11, which started to kill this market:

I’m sure you know that Grandma’s Pies are a trifle moldy, and I am suggesting we need a couple of alternatives to the upside before we even think we have a Rally in the making.  We need one or two small steps for Grandma before we can see one giant leap for the Market.  Net-net we need 50:50 for starters:

Another way to measure some relief is to see positive Scores in the Bucket Brigade domain, as it has been negative for three cycles in a row as shown by this next chart and it is time to see some Green appear on the chart soon, which will at least move the buckets north of 0.5%!

So there you have it…not a very rosie picture, but you would have it as I see it rather than sugar coated.

Have a Happy!  Ian.