Ian Woodward's Investing Blog

I am very pleased to see so many other Blogs referencing my Blog since it seems there is an amazing interest in the Hindenburg Omen.  I have a Russian Blog and a Greek Blog referencing my work to say nothing of the many US Blogs that like to keep track of the Hindenburg Omen. So let me take this opportunity to thank them for their kindness and I hope it helps them too.  It started that way, but it seems that the interest is now more than that as I note from the statistics that the most popular Blog of late is the one called “The Hindenburg Omen Keeps Dropping Big Shoes”.  It seems that the list of Silverback Chinese Stocks shown in that Blog is the key attraction as these got hard hit today.  Few seem to care about Guy Fawkes Night! 

Today I celebrate the highest number of hits I have had in the four months I started this blog.  I am not complaining for one minute with this new found interest in what I have to say. However, I do want to give some perspective of the context in which Ron and I give you pointers of where to catch the big fish and yet at the same time know when the pond is drained and the Index’ we post give you an early warning of a downturn in the market.  Those of you who follow our work on a routine basis will recall that one of the earliest Iandex I posted on July 29, 2007 was eleven stocks called “The Last Chance for the Last Dance” implying that these gorilla stocks were the pick of the bunch at that time and if they broke we were due for a decent correction.  It turned out that was correct as it was little more than two weeks later that we hit a low in the market on August 16.  What our supporters also know from past experience is that if there is not a complete rotation and/or more than an Intermediate Correction these same stocks often go on to give major gains.   

Of course, we are all busy people and have so many other tempting stocks to buy from, but I want to wake you up one more time that Ron’s and my purpose in life is to both help to show you how to make good money and also to suggest when to protect the money you make.  I am a glass half full type with a healthy respect for Market Corrections. I am not a gloom and doom type though the exposure I have had on the Hindenburg Omen may suggest that to people who don’t know me.  It is a proprietary Indicator in the HGSI Software, along with several other proprietary indicators just as useful, and it is satisfying to us all on the HGSI Team to see its popularity grow.  Here is what I mean about knowing when to pounce and when to pull back.  10% to 15% per month is a pretty good return in a rough market:

The Last Dance Index is still as strong as the first day I published it and will tell you when the Market has given up the ghost, as it tried to do back in August.  Watch it like a hawk!  Also note that I have repeatedly said that GOOG, AAPL, RIMM and GRMN are the four to watch and GRMN has fallen.  Add BIDU to that list and if these die so goes our Market as well as the Chinese Market!  As an exercise left to the student, I suggest you look at the other Index’s I have listed throughout the past three months and see how they have performed.  Once you begin to see them turn blood red, the party is over and there are no more leaders until a rotation takes place and a fresh set of leaders emerge.  Those of you who are not day traders or swing traders hopefully have learnt a lesson that the Principles of High Growth Stock Investing apply to the gamut of Investing Styles, but it is your stomach for Risk/Reward preference that determines the degree of success you have. 

Best regards, Ian.

Guy Fawkes Night is celebrated in Britain annually on November 5^th.  The event is accompanied by firework displays, the lighting of bonfires and the ceremony effigy-burning of one Guy Fawkes, who was caught red handed before he could blow up the Houses of Parliament and is known as The Gunpowder Plot.  I trust we do not have a bad day tomorrow in the Stock Market, but if we do we can blame it on Guy Fawkes! 

There have been a good deal of fireworks on some of the leading stocks and this could portend more trouble to come with at least a reasonable correction and/or a rotation into new Industry Groups.  Here is the performance during the past three weeks of the Gorilla RonIandex since 10/14/2007.  Although some stocks, notably GRMN are down nearly 15%, the Group is still holding up.  We must understand that at EPS Report time, there is usually a fair amount of profit taking, and we will have to wait and see if these leaders get whacked further.

Best Regards, Ian.

The Hindenburg Omen chalked up the Sixth Signal last night. 

1. The probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen within the next 41 days after its occurrence is 77%, the probability of a panic sellout is 41% and the probability of a real big stock market crash is 25%.
2. The occurrence of a confirmed Hindenburg Omen does not necessarily mean that the stock market will go down.
3. On the other hand there has never been a significant stock market decline in history that was not preceded by a confirmed Hindenburg Omen.

The confirmed Hindenburg occurred on October 17^th, so we should expect at least a 5% correction in the S&P 500 by November 27^th…in time for Thanksgiving.  I wish this would get it over and done with before then so that we can enjoy our turkey with family and friends.  Let’s hope that rule #2 applies this time and that all of this was just a shot across the bow for now.

Best regards, Ian.

Over the course of the last four months I have shared with you many of the Principles I espouse for High Growth Stock (HGS) Investing, and I hope you have begun to see a pattern in how I approach the Market, the Industry Groups and the Stock Selection.  I covered many of these principles during the three day seminar we held last weekend and it seems fitting to recap a few of them that are most pertinent now. 

1. Never try to second guess the direction of the market…let it tell you where it is going. However, that does not mean that you do not prepare yourself for the direction it takes by at least identifying three scenarios for up, down and sideways.   
2. Skeptics say that History never repeats itself, and they are almost right, but it is uncanny how the lessons learned from History give us certain rules of thumb in order to develop a game Plan.  I use them all the time to tell which way the wind is blowing, the size of the current ballpark in which the game is being played, and where the important boundaries are for reasonable next moves.   
3. I call them Stakes in the Ground, and time and time again these simple stakes give me a compass for the direction of the Market and the decisions I must make to buy, sell or hold.  More importantly it tells me the shades of grey to apply, i.e. whether to lighten up or jump in with both feet.  Black or white decisions are easier to handle than the numerous shades of grey we face every day in our lives.  At this juncture, the Stock Market has played into our hands and we have two Stakes in the Ground depicting the black and white: 
4.      The recent bottom that occurred on August 16 which we call the Base Low
5.      The most recent top which happens to be slightly higher than the previous one 
6. It’s amazing what one can do with those two simple stakes to determine the size of the ballpark in which the tug-o-war between the Bulls and Bears are currently playing, and who has the upper hand depending on whether we are above or below the 50-yard line and who is carrying the ball at the moment.  I’m sure you now know that the Fight at the OK Corral is always between the 50-yard line and the Base Low.  All of this may sound very elementary to you sophisticated Technicians who use Fibonacci, count Elliott Waves and spy various proven shapes and forms, but it is always surprising to me that so many make such a big deal out of trying to decide whether to tip toe into the market or get out when the market reverses direction.  What I am referring to is indecision, that Ready, Aim, Aim, Aim and never “Firing” syndrome we are prone to get into when confronted with the important decisions. 
7. At this juncture, you must realize from all the past notes that we are cautious and sensing the possibility of a major correction since there has not been one since 2002. Hindenburg Omens are more frequent these days and although they don’t promise more than a 5% correction to come in the S&P 500, they usually appear at Market Tops signifying irrational exuberance by the amateur and stowing away the profits by the professionals. Furthermore, when we look at the so-called Internals of the Market, we note there are more “E’s” than “A’s” for distribution and accumulation, respectively.  This in turn implies that the market is gradually coming down to a select few stocks that are the gorillas still leading the market upwards.  Fresh from the Seminar where a young tiger sitting in the front row coined the term Silverbacks immediately taught this old dog a new trick…and silverbacks they will be from now on.  These are different from run of the mill leaders in that they are stocks that have reputation, have halo, are names instantly recognizable.  The key ones this time are GOOG, AAPL, RIMM and GRMN.  But there are others which have established a reputation for being the top two stocks in their Wolf Packs, such as DRYS and EXM in the Transportation – Shipping Industry Group, and POT and MOS for Chemical – Specialty, as examples.  The most important trait is that they are all rising above their 9-dma and invariably above the 4-dma for short periods, meaning they are the most in demand.  Net-net Silverbacks rise above the 4-dma.  Note that GRMN has recently broken that trend.    
8. I know there is a dear lady with her husband sitting in sunny Florida that now fully understands the meaning of playing Snakes and Ladders with their money, but still need a guiding hand to show how I think in sifting difficult problems into threes to determine the best path to take. So, before this note turns into a bunch of platitudes, let me show you where the ballgame is being played and when to turn from bullish to bearish based on the Base Low and the recent Top.

The Playing Field for the S&P500 is the Top with a stake at 1576.  The Critical Line in the Sand is the red line at 1490, just above the 200-dma at 1476.  The fight at the OK Corral is between 1490 and 1425, the New Base Low until and if that Stake is uprooted. I used the 1/8^th tool in HGSI for the demarcations…I wish they were tenths which would make it a football pitch.

1. Your job is to decide when your Portfolio has taken a sufficient haircut that you can’t sleep at night and your stomach (meaning your risk/reward preference) can’t take it any longer. Usually by then you will be saying “shoulda, woulda, coulda”.
2. The Bulls still have the ball just above the 50-yard line; they nearly fumbled it on Friday.  Notice how they have always recovered it from the Bears at that line going all the way back to June.  Always look for STRONG support lines and that is now at 1490.
3. The Last Call is always at the 200-dma which is at 1476.   
4. After that, which tool helps you the most…the Low Jump or Limbo Bar?  3% down from the 200-dma takes us to 1442 and 6% down is 1387, so it will be right down to the Base Low at 1371 …between friends.  Now you have a Game Plan and the only job for you is to execute.  An exercise left for the student is to do the same thing for the Nasdaq and show it to your spouse!   

Best regards, Ian.

Having given us a treat yesterday of the expected ¼ point cut in both rates which the markets enjoyed for all of one day, the FOMC injected some $41 Billion into the system today that sent all markets reeling on its heels, especially with the downgrading of Citigroup today.  It’s tough to win in this yo-yo market, and it goes without saying that the Chemicals Specialty and Transportation Shipping got whacked again today for -4.94% and -2.33%, respectively.  This was on top of yesterday’s -9.00% and -2.14%, respectively, as I reported in my “RoughSeas” Blog.  The Nina, Pinta and the Santa Maria are in very rough seas right now, as DRYS, NM and EXM took another hit today.  Down nearly 14% and 4.5% for those two Wolf Packs says they are licking their wounds and maybe the signs of topping for them. We are inclined to forget that the leaders in them which I gave you delivered about 50% each as selected Wolf Packs and only focus on the downside when they break.  That’s par for the course. 

My question yesterday was “Profit Taking or First Signs of Rotation?”  I think we will have our answer in one more week if not tomorrow!  One clue that suggests this may still be major profit taking is that the volume today in the Transportation Group had only four stocks above average daily volume, so you know full well that unless there is a major collapse tomorrow, the “buy on dips” types will be back in full force…i.e., more complacency.  But while that formula is still working that is where you make the money PROVIDED you are nimble.  The Chemicals Specialty got hit a bit harder…due mainly to FTK taking a shellacking on very heavy volume.  

Wolf Pack Hunting…at its best with HGS Investor (HGSI) Software! 

But from the Pain, now comes the Joy.  It is the beauty of being able to spot the rotation of emerging or discarded Wolf Packs so easily with the HGSI Software!  You will recall that all of five weeks ago I gave you Energy – Drilling, and quickly told you to forget it, as the stocks did not fire up during the following few days as we watched their behavior.  That Wolf Pack turned out to be a mighty hungry pack these past five weeks.  It may be early yet, but there are the first signs of life due to two things…one is that the likes of RIG and GSF have both delivered stellar earnings, and the other is the news that there is a shortage of supply of crude oil.  Pick your spots carefully and keep a beady eye on the market as most boats sink in extremely heavy seas.

Another Wolf Pack that was making noises of stirring was the BusSvc – Education Group which we spied at the Seminar just finished.  Although the leaders got hit today, they are certainly worth watching if this Market is to continue upwards and does NOT give up the ghost.  I’m sure you understand by now that these are only pointers for possible fresh opportunities and nine tenths of their success comes from the “Wind being at your Back and not in your Face”.  Whatever the immediate results, I ask you where can one find a software product like HGSI which serves these tidbits up on a silver platter?  

Best regards, Ian.