Ian Woodward's Investing Blog

Bulls Must Defend the Island Gap, or Else!

The Bounce Play lasted a few days and then the Island Gap I discussed last week was too enticing for the Bears to fill, and fill it they did with a vengeance on Friday.

So now the Real Fight begins at Custer’s Last Stand.  Ideally the Bulls must show strength and MOMENTUM to continue the Bounce Play above 2600 and on to 2700, or fizzle out and then watch out below 2300 as shown on the next chart:

…As we can see from the next chart we are at the Stalemate Line after a decent move to 0.86 and only to fall back to 0.51 for %B on the S&P 1500.  I identify  what is needed from the Bulls next week in order to maintain the Rally at Custer’s Last Stand as shown in the Illustration:

The one encouraging note in all of this is that three of the four Canaries are holding up, but NFLX had bad news last week and has given up the ghost for now:

The bigger concern is that if Custer’s Last Stand fizzles out next week, then we are setting up for another big fall.  I don’t mean to be a fear monger, but the Death Cross that we have just experienced with that big 18% drop in all of the Indexes with some even hitting a Bear Market of over 20% before rebounding looks ominous as shown on the next two charts.  I am delighted that many of you know where to go to keep an eye out for early clues, and there is nothing better than the “Rainbow Chart”.  You need to try both a Daily and a Weekly Chart as I show you and the Clues are spelled out on the chart.

If you are new to this concept you can immediately see that the Moving Averages for the the 200-dma envelope on a Daily Chart and for the 50-dma envelope on a Weekly Chart must tighten into a Rope, i.e., come together.  That is the clue for momentum in the direction of either up or down, and in this case the direction is down.  If you look at the extreme Right hand Side we already have the 17-dma cluster and the 50-dma cluster fanning out due to that sudden drop.  It is imperative that the Bulls drive hard to turn this situation around or the  “Market in Confirmed Uptrend” turns to dust one more time in less than two weeks:

We can immediately see the Versatility and Power of the HGSI Software Product in making all of this a snap…try it, you’ll like it or else take two alka-selsa!

It seems we need two alka-selsa anyway given the calendar of events for this month.  We are in for another dose of the same old twaddle, but we shall see:

Enjoy the long Weekend and keep your chin up is the Sincere Wish of your friend, Ian.

 

2 Responses to “Bulls Must Defend the Island Gap, or Else!”

  1. Paul R Says:

    Excellent lesson on the Island Gap Ian. Another superb blog!

  2. Tom Watkins Says:

    Ian, Thanks so much for taking so much time and effort to show how to use HGSI to evaluate market direction. I learn a lot every time I read your blog. I have to do some homework to understand each column of the % b spread sheet. So much infor there. I want to be able to understand it as well as you do. I won’t be able to make the October seminar due a schedule conflict. Maybe the next one. I hear that you continue to raise the bar on the seminars. Your blog is certainly exceptional and I really enjoy reading it.

    Tom

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.