Ian Woodward's Investing Blog

Ron and I have been busy producing the April Newsletter which is now published:

Overview:

The Stock Market is currently at the crossroads of holding after a very Minor Dip so far of only ~ 5%, or heading on down for a normal 7% to 10% Correction as we experienced in the first three Corrections in 2009 during the long Bully Rally. Now for sure we have Double and Triple Top Scenarios on most fronts.  The $64 question is whether the shot across the bow on March 6^th over the Greece kerfuffle followed by the more recent deeper pullback on April 9, 10 and 13 with the poor Spain Bond Auction coupled with a poor Jobs Report is a Storm in a Tea Cup or a warning to Run for the Hills as we close out the week on another down day of >1.25% on most Market Indexes?

The Major theme for this month is the High Jump Tool and an update of the Benchmarking of Fear and Greed.  I have reviewed the High Jump to give insight into this valuable concept which you will find only available in the HGS Investor Software.  I cover the High and Low Road Scenarios and a Review of the Market at this critical stage.

Ron covers “The New America Case Study”…a quick way to home in on up and coming Companies with strong Earnings.  Ron and I will give a brief demonstration at the Roundtable scheduled for Thursday April 19th. at 4.30 to 5:45 ET.  The emphasis will be on the New America Study.

Not a Monthly Roundtable Newsletter Subscriber?

Consider the value! For the current price of $200 a year, $16 a month you are getting the latest research from Ian Woodward that is not published elsewhere plus the latest HGS Investor software techniques from Ron Brown. To make this subscription even more valuable, you also get a seat at the W&B Round Table where a topic from the current month’s newsletter will be discussed in more detail. 

Attendance will require registration. If you are not a subscriber the registration will not be accepted. The session will be recorded and the video posted in the monthly newsletter section of the website for subscribers.  Please click on the following link to Register:

https://www2.gotomeeting.com/register/205015850

Best Regards, Ian.

Anindo asks an interesting question to compare Corrections in Bull and Bear Market Rallies:

Thanks for a timely blog Ian.  I note that %B < .5 is now 60 %. Is there a difference in how high %B < .5 gets in a bear market in 2011 vs a 5 to 8 % correction in a bull market that we saw in 2009.  The action in the leaders like AAPL, PCLN, MA, V, KORS, FIRE, CMG, ALXN, BWLD, LNKD all indicate a healthy market.

That may change on Monday as S&P futures are down 16.75 to 1373.5.

Thanks,  Anindo

I had to dig back into the archives to give you a cogent answer.  I have used two Benchmarks to give you a good feel for the comparison for Minor and Major Corrections in Bull and Bear Markets.  I used October 2009 and August 2011 (Debt Crisis) for 7% and 17% Corrections, respectively. There is a lot of information on the charts which I have “ringed”, but let me get you to the Bottom Line Message before I unfold the nitty-gritty grimbling:

If %B in Bucket <0 exceeds 32% (~1/3^rd of the S&P 1500 stocks), we are in for more than a Minor Correction.  Let’s see what transpires from here.  It will be particularly interesting as this is the first time in recent memory that we have so many LLUR’s (Lower Left to Upper Right) tight chart patterns still holding up that it will be a major tug-o-war between these and the others that have already been hit, which could determine which group wins out.  Late Breaking News says we hit 32% on the button today, so it makes this review very timely as the next few days will determine if the Market will hold or the floodgates open.  I have summarized the key statistics over the last three years and provided you with enough detail to understand the process I have used.

The above chart shows that in Minor Corrections the magic number for %B <0, i.e., below the Lower Bollinger Band for the S&P 1500 stocks is 32% or about 1/3rd of the total number of stocks.  Also note that the % of stocks <0.5 must not be higher than 89%, and we are already at 82%.  The next chart shows when these corrections occurred and I have used Item #’s 2, 5 and 6 to show the details.

Here is the picture of the Buckets and key data for Item #2, the period of Oct to Nov of 2009, a 7% Correction.  Note that the first Warning sign was three weeks earlier before the Rally Paused to Refresh:

Let’s now look at a bleak picture which shows the dismal results for the Debt Crisis kerfuffle last August:

As you well know, these numbers of 93% in Bucket <0 and 100% of the Stocks below 0.5 are the worst seen.  Now let’s turn our attention to today, hot off the press.  We are sitting on a knife edge where we either see a Major push back up or the floodgates open and we either Pause to Refresh or go down for a full blown correction:

Those who attended the October Seminar are looking at the Leaders Index and scratching their heads as to what to do as we have not seen Leaders holding up so well while the rest of the market is exhibiting decay.  The “go to” stocks of AAPL and PCLN were actually positive today.  Since Anindo gave a list of 10 stocks he is following, I felt I would give him a bonus of his Leader Group chart which also shows the familiar pattern we all saw at the Seminar.  One of these days we might see him and a few others who sit down in San Diego again at the Seminars!

Before you get too complacent, we have now had two Kahunas down on the Nasdaq within three days.  Just cast your beady eyes back to August 2011, then try September and November to decide the odds for and against you hanging on.  The answer is simple…we must see equally strong upside Kahunas right away if we are to counter the inevitable pause to refresh at least and may be even worse.

As the popular saying goes on the HGSI Yahoo bb, “we will know in the fullness of time” and the time is NOW!

Best Regards,

Ian

Let me pick up from where I left off on my last blog note.  The “PIGS” story has got a trifle stale along with the QE-3 stuff, but none-the-less enough to cause jittery markets.

Counts of distribution days abound, so the topping action in this rally continues to be the headlines.  However, AAPL and PCLN continue to hold and grow so they are the ones to watch for signs of serious knee jerks.  I gave you chapter and verse in my last blog note so I thought I would focus on the one point that matters at this stage of the Game Plan…a Knee Jerk Volatility action in the VIX leading to a full blown swoon of 5 Buckets down in the Market Indexes.

I have a confession to make regarding my last Blog Note picture of the Look Ahead function I use with the VIX and %B x BW.  The hour was late when I put that note up and I inadvertently used a “rough and ready reckoner” template which helps me stay on top of the “What If” game I play to watch the VIX action in real time.  Far be it for me to lead you astray as I am usually meticulous in my work, but although the Concept of the Look Ahead was golden, the numbers were not quite according to Hoyle!  I thank you for your feedback that you have your beady eyes on me!  Note that the Woody Indicator is still green at 0.165 after yesterday’s tepid action and is a long way from the 0.400 level to cause serious concern.

You all know that the work Chris White of EdgeRater does is impeccable, so when in doubt use his numbers and do your own What If exercises to look one day ahead.  So with that preamble, here is the Look Ahead for Monday if we are to see a Run for the Hills clue on the Woody Indicator:

If there is a Landslide day next week, the quick answer is around $20 on the VIX will do the trick to Run for the Hills.  For those who prefer to look at Charts instead of numbers, here is the familiar picture of the VIX and %B x BW:

Best Regards,

Ian.

The market swooned on two counts…QE-3 is dead and the weak Spanish Bonds Auction upset the Global Markets.

The Market Indexes are now showing either Double or Triple Tops and a trifle tired.  Any moves below the White Lines on the Charts will mean the Party is Over:

AAPL has held up very well through all of this and continues in its up channel.  The Upside and Downside Targets are shown on the chart.  The first caution is whether it can hold at the middle channel line:

We have had two shots across the bow in this past month, the Greece kerfuffle and the concern regarding the Spain Bond Auction.  In the chart below, I show what it would take for the VIX to really wake up and deliver a Fear Warning tomorrow if the downward action is to continue.  Watch for it to rise to $19.12 with the %B x BW Woody Indicator hitting the magical 0.400 mark:

…And here is the Chart view of the VIX:

We need a Strong Bounce Play in the next two days or we are headed down.  As you can see from the chart below there was major damage done today:

If that is not enough to suggest we are at the Crossroads then look at the Bucketology which shows major deterioration:

Chaikin’s Money Flow is also turned down, but still holding fairly well compared to the picture of the Flash Crash period:

Grandma’s Pies have turned more than a trifle soggy:

Hold your horses…those who attended the HGS Investor Seminar will be watching the Leaders Index we developed together and will see these leading stocks are holding up at this stage:

Net-net, tomorrow will be a key day with regard to where we sit for this Rally…It is at the crossroads.

Best regards,

Ian

It has been a while since I posted a Blog Note, but I am sure you understand that I was busy with the HGS Investor Seminar last weekend.  Fortunately the Market has stayed up and dwardled around since my last note and we are now at the stage of either a well deserved “Pause to Refresh” or a Market Top with hopefully no more than a small correction.

As we look at the next chart we quickly see that although the general trend is up the Market Indexes have been see-sawing for the past ten days compared to the previous ten, and this breather may be just what the doctor ordered before the Rally continues.  It is now all of four months in a tight upward move, which has at long last brought some respite for the 401-K Nest Eggs you all have:

The $64 question is whether the Market will continue to Pause to Refresh with a slight correction or continue up further.  As long as the Nasdaq stays above the 17-dma (green line) the Market is intact.  If the 9-dma (pink line) crosses down through the 17-dma, that is an early warning sign that we are headed down and is your “Get out of Jail Free” card.  By then the Nasdaq Index itself should be down to around the 23.6% Fibonacci Line at 2990 and must hold there.  Last Call would be at the 38.2% line or around 2900 which is also 7% to 8% down from the high and as Seminar attendees learnt is where 70% of all pullbacks hold for the Nasdaq.  These are Rules of Thumb that have served us well over the past twenty years, so the Game Plan is very simple given that the Volatility Index VIX has been so quiet!

As we learned at the Seminar, Earnings Report season does not really get underway until the last two weeks of April and the first week of May.  Those who are Bullish will recall a favorite Yorkshire saying “Ne’er Cast a Clout Till May Be Out”, which means don’t get rid of your woolens, or in this case your stocks until May is finished.  That goes in concert with the Long Tails Mustache Scenario I mentioned some time ago, where an extended Market to the upside can get more extended ala March 2003 and 2009, respectively.  If there are no Global surprises, that is the High Road Scenario.  However, the go to indicator will be %B x BW, and a reading that shoots up through 0.4 coupled with a strong push upwards in the VIX which has been unusually dormant will be our first clue that all is not well and we are headed for a correction, small or large:

Using the Three Road Scenario, you know full well that we are in Stalemate…the Middle Road Scenario waiting for a signal one way or another:

So, stay light on your feet, find the ponies, and let the Market tell you which way it is headed while watching the clues for which way the wind is blowing as I taught you to watch to stay on the right side of the Market.  The first clue is Grandma’s Pies which is at 65:35…getting a trifle soggy.  Note also that the % of Stocks in Bucket 0.6 to 0.7 is the highest of the bunch and sitting at 18% with the market having reached a high 13 days ago.  I also taught you that 12 Drummers Drumming and Sweet Sixteen (>16%) or more in that bucket is a warning sign that the BIAS is downwards as I show on the next chart:

This next Chart shows that we have had a four month rally and except for a shot across the bow with the Greece kerfuffle, it has been mighty strong running into a top on 3/13/2012, when we start the count for twelve drummers drumming.  It has now been 13 trading days since then and we have gradually trotted down, where it must hold at the 0.5% middle Bollinger Band line if this rally is to continue as shown on the chart:

…And another look at the % of stocks in each of the twelve Buckets confirms the to and fro of the Market to show you how it is not difficult to know which way the wind is blowing as you use the Rules of Thumb from past experience:

So there you have it.  Ron and I wish to thank you for your support at another successful seminar where these Blog Notes should be duck soup to you who attended and made it such a wonderful experience for us all.  Those who are regular viewers of Ron’s Weekly Report will do well to insert the Leaders Index into the HGSI software we established at the Seminar with Dr. Jeffrey Scott leading the way, as that list will give you a quick clue if and when the Market Breaks.

Best Regards, Ian.