Ian Woodward's Investing Blog

U.S. stocks were hammered Friday, pushing the Dow industrials to their lowest close since Oct. 11, 2006, after February’s unemployment report cemented thinking of a recession and central bank moves to stem the credit crunch failed to offset the damage. 

          

• “Folks, based on today’s employment report, if we are not in a recession, it is a darned good imitation of one; we are in an unprecedented real estate and credit crisis that is whipping its way through the U.S. economy,” said Kevin Giddis, managing director, fixed income trading, Morgan Keegan & Co. Dow Jones Industrial Average declined 146.70 points to 11,893.69, giving it a weekly loss of 3%. Since the year began, the blue-chip index has lost more than 1,370 points, declining 10% in value. We are close to a Bear Market with a -18.05% drop from the High on 10/31/2007 to the recent low.  My last blog suggested that if we do not hold at 2203 on the Nasdaq we would trundle down to -30% at 2010, and next week is the final chance for the Bulls to hold the goal-line.   
• At times like these, I revert to my most trusted tool which I call the High Jump, or in this case since the Index is BELOW the 200-dma I refer to it as the Limbo Bar.  It is the % from the 200-dma to the High of the Index, which as you will see from the snapshot below we are currently down -10% and at a critical point based on past history for the S&P 500 looking back to the Major Bear Market from 2000 to 2002.  In staring at the chart below, I couldn’t help but ask if what I see is a coincidence or another case of History does repeat itself in different but similar ways.

   

  

• With that said, I overlaid the next three months of the 2001 dip down to -20% on the Limbo Bar on top of where we are currently and this is what the picture looks like.  It is uncanny to my mind, and although I am not for one moment wishing this on us, it is a wake up call that if the Bulls do not hold here at the current Double Bottom, we are headed down to 1100 before we might see a proper Bounce Play:       

     

• For those of you who are not too familiar with the Value of the High Jump or Limbo Bar, I refer you to the Blog “HGS Investing Principles – The 405 Freeway” written on December 2, 2007, where I discuss this valuable tool when the market is headed for extremes, either Tops or Bottoms.

Best Regards, Ian.

This entry was posted on Sunday, March 9th, 2008 at 12:59 pm and is filed under HGS Principles, Market Analysis. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.