Ian Woodward's Investing Blog

IAN: IS THIS A CUB BEAR MARKET OR A FULL SIZE BEAR. i.e. HAPPY DAYS ARE HERE AGAIN???  XLF OFF TO THE RACES??   Bob

     

     

Hi Bob, let’s review the bidding: 

1. We are already in a “Full Size Bear”, i.e., >20% down from the high last Oct 11
2. We just finished a Bear Market Rally of ~15% in two months from March 17 to May 19
3. We have just had an Intermediate Correction on top of the Bear Market of ~17% down for two months to July 15, so this “cub” is a trifle bigger than we wish!
4. We had Capitulation on July 15, where the XLF bottomed and produced $8 Billion Dollar Volume
5. XLF bounced with last week’s shoring up by Bernanke and Paulson of Fannie May & Freddie Mac
6. Whether XLF fully recovers or is just a bottom fish Bounce Play depends on the Markets.
7. The Markets have bounced mainly on Short Covering these last three days
8. The Markets recovering are dependent on:     

• OIL continuing to drop     
• The Dollar rising     
• Strong EPS Reports over the next three weeks, beating estimates     
• Institutions buying into Finance, Technology, Health-Care to replace loss of leadership in Oils   
• Global Stability   
• Inflation controlled, including Energy and Food Prices, which are killing the public at large 

Now that we have temporary Capitulation, What are the clues to look for in a Bear Market Rally? 

1. A Strong Follow Through Day (FTD) with >2.5% rise in all Indexes and Nasdaq Volume >2.5 Billion
2. This MUST occur in 3 to 12 days from the Low of July 15 
3. HGS Investors will expect at least 2 or 3 Eurekas along with Kahuna signals
4. By that time the New Highs on the NYSE must show at least 100 New Highs and <30 New Lows
5. Ideally the New Highs should rise above 150 for several days with New Lows down at <30
6. Technically we must get above the 17-dma, then up to 1334 on the S&P to the 50-dma
7. That requires a 10% Bear Market Rally which is the minimum, since >15% is considered normal.
8. Otherwise consider anything less as a Bounce Play and expect a retest of the lows

Net-net: Don’t expect Manna from heaven any time soon.  It will take a long time for this market to repair, and don’t be surprised if we trot down to 1150 on the S&P 500. 

Best Regards, Ian. 

This entry was posted on Saturday, July 19th, 2008 at 7:50 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.