Ian Woodward's Investing Blog

Most of you are familiar with the concept of the Iandex, which then became the RonIandex, where towards the end of a strong bull market rally, we select a minimum of 15 stocks in at least 12 Industry Groups, with no more than two stocks from the same Group.  We watch the Index behavior to give us a feel for what the Market is doing.   

We can take that concept a bit further and take a similar set of stocks after the market has corrected say 8% or so.  They are Leaders with solid Fundamentals, have just delivered an excellent EPS report and are essentially bucking the Market trend though have naturally given up some profit, but are not broken stocks.   

That is what I did with the Game Plan Blog Index of 18 stocks just one month ago on August 4^th.  In that note I gave you the criteria, so I won’t repeat it here, and I suggested that if these leaders died the market was in for a lot more turmoil. Here then is the performance for the last two weeks compared to the S&P 500: 

I also suggested that from a Charting perspective, you should watch three important facts: 

1. All great leaders rise above the 9-dma, and as long as the Index stayed above that Moving Average the Index was very healthy.
2. A healthy Index will stay above the 17-dma, but will often correct to it and then bounce.  Since the Index should stay above the Middle Bollinger Band, i.e., %B >0.5 (50%), there should be few Kahunas either up or down.  Ideally one would like the Index to have %B >0.7% to give us a cushion against a sudden drop in the market as a warning sign to liquidate ones positions.
3. If the 17-dma is broken and then heads for the 50-dma and/or breaks it, watch out below.  The Chart of the Index still looks healthy though it certainly dipped down to test the 50-dma at the same time that the Market Indexes were floundering, but then quickly recovered on the bounce.

Summary Results:

1. The Index is up 98% and 157% on the S&P 500 after one and two weeks, respectively
2. The Index is above the 9-dma, and all great leaders rise above it 
3. 15 of the 18 stocks are still positive, i.e., 83%, and 61% are up from last week
4. Although Acc/Dist is drooping, all signals are go on the Ready, Set, Go
5. The two Eurekas for the NYSE though suspect with low volume, signifies a bonus plus
6. A C&H formation and the %B at 0.8, which gives room to act if the market goes down
7. A gain of 2.78% per week for 18 stocks shows overall strength 

The Message is the Market is still healthy, but this coming week should be the real test.   In my next Blog I will summarize what these three HGS Principles mean as mini-stakes in the ground and then reflect on the Macro picture for what will be the two most important weeks to come.

In the August 26^th Blog I showed you how to ferret for Wolf Packs.  The particular one I showed you was the Chemical – Specialty Industry Group which caught my eye since there were 10 such stocks in the top 20 when I applied the 0a Key to All Securities, and sorted on the Combo Rank column.  No matter what list I look at, I always look for Wolf Packs as they often give clues as to “What’s Working Now”. 

Wolf Packs come in at least three different forms: 

1. Industry Groups that have been trashed and show signs of life usually for a day or two and is invariably news driven.  An excellent example was a spurt of life the other day based on a rumor that Warren Buffet was buying the beaten down Housing Stocks.  Stay away from such wolf packs unless you are prepared to sit with dead money for a long time.  
2. Industry Groups that are hot due to a theme or story in the market, such as the Energy Alternatives recently during the past several months.  These are excellent Wolf Packs provided you catch them early enough. FSLR, TSL, JOS come to mind in this group. 
3. Industry Groups that have had a long run, have a very high long term Ian Slow Group Rank, but have recently been trashed and are showing signs of a re-birth.  This is the example I chose when I showed you the Chemical Specialty Group.  Here were the stocks I showed a week ago:

The key point to observe is that the GROUP RANK for Ian Slow has gone up from 92 to 94 and this is a significant step showing continued long term strength.  I’m sorry I couldn’t maintain the same order, but take my word for it eight of the ten are up, albeit some only slightly.

The more important picture is the comparison for the short term Group Rank which has jumped appreciably since a week ago.   However, the real message is to watch the wolf pack and wait for a down day and then on the next move up take the pick of the bunch.  They were FTK and ICOC at the time and I took the latter (as it was breaking out) for a 10% ride so far in less than a week.

Finally, the chart says it all…the Wolf Pack is alive and kicking, again showing that the Market itself is healthier than the flat performance of last week shows in the Indexes. 

Best regards, Ian

About a week ago I chose four different Investing Styles to give me clues for what’s working now.  You probably looked at the list and hopefully paused to think about what my message could possibly be, as I am sure you scour the HighGrowthStock.com website all the time.  Those who attend our seminars know me better by now, but I wonder if you got where I was taking you with the snapshot I showed you only ten days ago. 

Here is the update to the same four Investing Styles and we can certainly glean quite a few points out of this updated view:

I know your eyes are squinting at this view, but the detail is not important…it is the color green! So what are the Messages:

1. Pick the groups from StockPicker from the DAY BEFORE once you see a strong up day in progress in the market.  I originally showed this same set of groups after I saw a strong move upwards on August 22^nd in my note “Looking a Gift Horse in the Mouth”.
2. Go back and look at that note.  You will see that after one day Growth Investor and Swing Trader both delivered strong performances of 5.5% and 3.0%, with Value Investor and Best Stocks Under $10 behind, but respectable with 2.4% and 1.6%.
3. The exact numbers are not important…what is important is that a basket which delivers 3% in one day is a strong basket, and Growth is better than Value at that time.
4. Now fast forward to yesterdays results…granted on another strong day finishing up the week and eight trading days later.  11% and >9% for the same two groups of Growth and Swing Trader with all ten stocks positive tells me several things:

• Say what you will, this market is healthier than we think and there is money to be made
• Growth Stocks that are Leaders is the place to be
• Doesn’t that sound familiar after watching  Ron Brown’s Movie today
• There are five big winners in these two groups with 20% gains or better
• It speaks well that STOCKPICKER groups give you a good starting point to ferret�

Now dig further to get to the nuggets…take a look at the top 10 stocks from the four groups or whatever other menu you like.  Here is what you get:

It is exactly what you would expect…Technology, Telecom and Health Care is where its at.  Look at the # of Box 7 stocks and look at the Fundamentals in the last three columns. 

At this point, I’m sure you are saying “But I don’t have time”.  Of course not.  Ron and my job is to teach you how to fish, your job is to catch the fish.  More importantly, doesn’t that stiffen your backbone that there are opportunities to be found and that the HGSI software brings the cream of the crop to the top with its StockPicker Groups.  What you should get out of this note is to know the What, the Why, the When, the How, and the So What of ferreting for HGS Stocks.  Best Regards, Ian.

My colleague and good friend, Ron Brown, showed you all the useful tricks of the trade in his Movie today by focusing on Leaders.  There are always opportunities as long as you stick to the HGS Investing Principles. His movie says it all and demonstrates how he and you can squeeze the best out of the software to understand the current pulse of what’s working now.  So trot over to the HighGrowthStock web-site and enjoy and use his movies as a companion piece to what I have been showing you these past several weeks.    http://www.highgrowthstock.com/WeeklyReports/default.asp 

One of the basic principles I use is Benchmarking.  Benchmarking comes from past history and/or experience.  I know the usual hue and cry is “But, Ian, History never repeats itself”.  My favorite come back is “But it is worthwhile to know if the Market has ever been there before.  Although all ballparks are not the same size, there are minimum requirements for the home run markers but the diamond is ALWAYS the same”.   Be that as it may, I have found that Benchmarking and Target Setting are basic approaches I use to determine whether the Market is on the High Road, the Low Road or the Middle Road Scenario. 

Another strong principle is to have Stakes in the Ground.  How can one measure unless you know where you are measuring from?  One of the most important Stakes in the Ground is the Base Low.  It is the recent last low after the NASDAQ has had a decent rally and has corrected more than 12%, i.e., more than an Intermediate Correction.  All new Bull Market rallies are measured from that Base Low.  The NASDAQ Base Low is 2387…lightly tapped in for now until the next bull market rally is confirmed. 

At critical times in the market such as around market tops and bottoms, it is essential to have a few mini-stakes in the ground so that one can make assessments as to which way the wind is blowing.  We all have our own pet items to watch, including the VIX, the New Highs and New Lows, Accumulation/Distribution, P-E, EPS, and the list goes on. That’s good.  But again I ask “What do you measure against and the answer is always “Past History”.

Net-net those are the Standard Building Blocks based on known factors which help to keep us on the right side of the Market.  But then what about the new items that are currently in force under present circumstances which are not yet implanted in the history books or for that matter may never be. None-the-less they are useful in real time.  They are personal ways of giving you comfort in what you see and re-assurance in what steps you should take. These are the mini-stakes aimed at spying opportunities.  Sometimes they turn out to be worthless, and sometimes they are gems.  Over time they become your tricks of the trade. 

Here are three tricks of the trade which I have shared with you recently: 

1. Use different Investor Styles from the StockPicker to assess which type may be working now
2. Identify Wolf Packs that are stocks in the same Industry Group moving on the same day/week
3. Use a basket of about 15 to 20 Stocks that are Leaders when the Market is being trashed 

Depending how each and all of them perform subsequently give me clues of the pulse of the market.  Net-net, plant a stake in the ground, wait a week or two and take a measurement. I will show you over this long weekend what I got out of each of these and summarize what they collectively tell me at the end…all while watching the golf and trying to cool off.  Best Regards, Ian.

A picture is worth a thousand words, so I hope you will agree the picture sums up the Message. 

Talk is cheap but let’s “Cut to the Chase”:  There was a strong reaction today to all the talk that led the market to go up.  Whether that will last or not is for another day?  What is far more important on this long weekend is to take stock of the targets we set a while back, see how we fared compared to a strong or weak bounce and assess the alternative roads ahead.  I reviewed the progress in my August 25^th note and update it now:  

      Index Criteria                                  Low     Target    Actual     % Up    8/31 Actual     % Up

• The S&P 500 above the 50-dma      1371      1485       1479       7.9%          1474           7.5% 
• The NYSE back to                         8812      9750       9607       9.0%          9597           8.9%   
• The NASDAQ must get back to       2387      2575       2577       8.0%         2596            8.8%   
• The DOW needs to get back to      13209    13400     13379      1.3%         13357           1.0% 

You will recall in the August newsletter, I talked to the importance of “Change Management”. So the assessment over the last week is essentially flat.  I also said that we should feel more comfortable once we get over the 50-dma and have a >10% bounce.  The numbers themselves are not the end; they are the means to the end.  These benchmarks are tests-of-reasonableness that determine which way the wind is blowing and which way the psychology is shifting. Going forward into next week we remain with a stand-off at the OK Corral, as neither of these two hurdles has been crossed.  

A Fundamental Principle of HGS Investing is the use of Stakes in the Ground.  You measure against known Benchmarks based on past experience as you walk through history over the years, and you know when to tap them in lightly or firmly or uproot them based on performance.   I know that some people love numbers, others hate them.  So I will simplify the targets for those that can’t remember numbers.  For the NASDAQ, I gave it to you ages ago, 2400, 2600 and 2800.  For the S&P 500, 1485 is key, but I will simplify it again…call it 1500.  If it is 1600, the Bulls will be standing on their heads and clapping their feet!  If it’s 1400, watch out below, the Bears have it.  Others who are adept at Technical Analysis will tell you where Fibonacci meets up with Moving Averages and High Jumps and Limbo Bars and folklore, but it all comes down to the same thing. My Way is to do the detail analysis first and then simplify it to the bare essentials.  

Listening to the jabber-jabber-jee of the CNBC gurus can have your head spinning, but if you cut all the noise out and bring what the market is telling you down to your terms, then you will not get flummoxed and make a hasty and/or wrong move.   

Please understand that as participants of either the Bull or Bear Camp, we are assessing the degree of negativity relating to the spill out of the housing mania into the lending markets which manifested itself as a liquid market turning 180 degrees to an illiquid one.  How the Fed deals with bolstering the confidence of the Stock Market is front and center right now, but the negativity will remain part of the inherent concern for the next three to six months.  

The saving grace this time with the Housing bubble is that we do not have an exorbitant P-E accompanying it as we did in the dot.com bubble.  But don’t take too much comfort from that as Fundamentals will take a back seat to Technicals right now, until there is a general consensus that the Gunfight at the OK Corral was won or lost by the FOMC’s action or inaction.  

Since it is a long weekend, I will give you a double dose and follow this with obvious winky- winkies you should have caught from my previous notes.  There is always a method in my madness. The only way I know of to read the tea leaves is with little stakes I put in the ground along the way, and then revisit them later to see if there are any nuggets or just pebbles. 

I will tell you ahead of time to re-read “Stocks are Like Wolves…they hunt in packs”,  “Looking a Gift Horse in the Mouth”, and the Game Plan List (of 18 stocks) for the Short Term.  That latter was written one month ago, and if you are not watching it, you don’t understand the key principles of HGS Investing.  

I leave you with a fitting thought for this Labor Day Weekend, as my good friend Manu Kapadia reminds me:

Have a great weekend and enjoy your family.  Best regards, Ian.