Ian Woodward's Investing Blog

Last month I said that “I feel the Grinch stole Christmas as the saying goes, and we are in for more rough sledding on this roller coaster market” and in hindsight, he has stayed for January as well.  I hope you have read my two blog notes on Chairman Bernanke’s talk last week, and there is even less by way of new good news to come unless the FOMC pulls another rabbit out of the hat and conjures other ways to prop up the market that can improve the lack of confidence that is now permeating through the Investment Community.  Need I say more than the tom-toms are now beating daily with the Recession mentioned by the pundits at every twist and turn?  IBM came in with stellar earnings on Monday to send the market prancing upwards.  Wonders never cease. 

This month I cover several Case Studies.  One Study focuses on Rotation, Rotation and Rotation.  I will show you that the New Year RonIandex was trashed ten days ago and that the new breed is exemplified by the Candidates my good friend Jeff Scott chose at the weekend to do his fishing.  This shows one can buy stocks to buy in a down market provided you know where and when to fish. I also show how the LAG FACTOR problem that other software has is not a problem when you view Ian Slow along with % Pr Change 3 Weeks in the Ranking Module.  I also capture the two days DOW Index reaction when Bernanke spoke last Thursday, for posterity sake.  In addition I have a one page reprise on the famous Mark Pharr chart which I produced 14 months ago to identify the process of when very Long Term Investors should consider this 5 Year Bull Rally is first close to over and then over.  We are there.  

Ron’s movie and focus this month is on an RSS Reader that scours for news on any stock that you are following.  It’s called Stock Spy.  There is some good cross promotion for HGSI and like Quote Tracker it integrates well with HGSI.  As you well know investing these days is very much event driven and news good or bad can cause major swings in a matter of minutes rather than days. It’s a versatile tool for us. 

Best Regards, Ian

If you haven’t already heard the news, Intel Corp (INTC) disappointed with their Earnings Report and there are major after hours’ repercussions.  Many of the market leaders are down on top of the bad down day they have had today.   

I am busy writing the newsletter, but I felt my overseas friends would appreciate a Heads-Up before they go to bed.  Thanks also to Trading for the Masses who feature my blog notes and send people my way. 

Best Regards, Ian.

I said yesterday that I must take time to write the newsletter. But I am full of surprises…like the Stock Market these days. So here’s once around the park for my blogging friends.  

One Objective I had when I started this blog over 6 months ago was not only to teach you how to marry the HGS Investing Process to be in tune with the Market Ebb and Flow, but to also give my faithful followers of this site the PULSE of What’s Happening Now!  News gets stale very quickly these days where information rather than data is always at a premium, so here is a News Break for you to ensure that I strike while the iron is hot and show you there is always a method in my madness behind what I cover in these blog notes. 

Late Breaking News: 

For months I have identified two key concepts in the Process of HGS Investing:

1. Always have a recent list of Current Leaders as exemplified by the RonIandex.
2. Identify the Super Gorillas and watch their action – as they go so goes the market 

I am sure you have had that drummed into you that you wondered when I would say something else other than watch AAPL, BIDU, GOOG, GRMN and RIMM.  You have also heard me say watch the chart of the overall RonIandex, a feature one can only do in HGSI, and if it breaks the 17-dma watch out below and if it breaks the 50-dma, watch out PERIOD.  Likewise, you have heard me say that these leaders are excellent candidates that will give you great entry points to buy on pullbacks for either short or intermediate gains, and you have all played that trick to the hilt. 

The beauty of this Blog is that I can get a quick note out to you that not only makes you money, but saves you money on the fly, while I am pressured to get started on the Newsletter. 

Sit up and Take Notice:

1. The Iandex has broken the 50-dma and is on the hairy edge
2. The top Guns are not behaving properly…they are sluggish and have no life
3. Even the likes of CF…one of the few stocks out of the remaining hot wolf pack of fertilizers gave up its excellent breakout of two days ago and is sitting now right at its breakout or breakdown point for a false breakout at $112.60
4. Yes, we all know this market is badly oversold, but at times like these it is the feel of the pulse of what is happening that is most important.  Of course we are looking for a bounce.  I say the Market is FEELING lifeless and has no bullish follow through on all I covered in the previous two blogs on Uncle Ben.
5. Those of you who are adept at playing both sides and can turn on a dime can make money.  Don’t commit your money to one side and if you play…well you know what to do.  Others hunker down in your foxholes.
6. Finally, never try to guess what the market will do…its better to go with what it tells you.  This is an EVENT driven market and it can do U-Turns which is always difficult for Freight Trains and Trucks to do in real life.  So be on your toes and don’t dig in your heels.

So my friends, the rest will be covered in the newsletter which I must hurry off to get started on.  Keep your Powder Dry and please tell your friends that this site keeps you abreast of Late Breaking News at the Most Critical Points in time, and cuts through the chaff to try and give you the beef.  Stay tuned.

 Best regards, Ian.

From time to time Bill Luby at the vixandmore.blogspot.com has kindly pointed his clientele to my blog starting with the blog notes I wrote on the Hindenburg Omen and as recently as yesterday on the discussion on the “retrospective play-by-play account of the Bernanke speech and the market’s reaction.”  I felt it was time for me to return the favor and mention that since the VIX is an important tool in our assessment of the Market trends, you might find some interesting articles on the subject at that site.  

1. Since mine was highlighted as “one of several posts that may have some archival significance well beyond the day they were posted”, I felt it might be worthwhile to continue this discussion and format for just one more day.  
2. In addition I have expanded the timeframe to show the reaction of the markets for the four previous Interest rate cuts starting from August 16, 2007.
3. I also suggest that if you have not done so, please read the “Comments” made at the bottom of the previous blog with my good friend Maynard Burstein on the motivations and priorities of the FOMC relative to its allegiance to the financial structure of the Country or to save the market.      

 The Grand Ole Duke of York may soon be running out of rabbits to pull out of the hat to provide a cure

Let’s Review the Bidding of the Stock Market’s Reaction to Helicopter Ben:  

As far as the Stock Market is concerned, the quick assessment over five months is the Grand Ole Duke of York has marched his ten thousand men up to the top of the hill and marched them down again.  It is now five months since Helicopter Ben made his first surprise appearance, and saved the market from the abyss on August 16, 2007, when his first injection to the Sub-prime problem started a strong drive upwards in the Stock Market.   His first two recovery pills helped buoy the stock market as the Financial Markets applauded the actions to assist in the sub-prime debacle coupled with the Administrations actions to assist bona fide household owners keep their homes.   

However, with the general concerns about the slowing Economy, the Weak Dollar, the poor Retail Results at its peak selling period, the last two infusions have done nothing for the stock market.  It would seem that the general conclusion is that the entire Economy is beginning to stagnate and these infusions are not having the effect that was intended as the Banking System is seizing up.     

Likewise it is becoming apparent that after yesterday’s initial fillip of hope on Chairman Bernanke’s strong assertion of substantive action, there is still a growing concern that they are behind the curve as witnessed by Friday’s sobering downdraft of -247 points down or -1.92% on the DOW. It seems the Market is saying “Where’s the Beef” and actions speak louder than words.

Now I must turn my attention for the next few days to the newsletter which is due on the 15^th of the month.  Best Regards, Ian.

Fed Chairman Ben Bernanke indicated in a much anticipated speech Thursday that more rate cuts are on the way. “In light of recent changes in the outlook for and the risks to growth, additional policy easing may be necessary,” Bernanke said in a speech to a business group. Bernanke added the central bankers “stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.” Bernanke said the Fed has seen evidence that banks are cutting back on lending to consumers and businesses as a result of the financial market turmoil. He said the December unemployment report was disappointing. In recent days, the outlook for growth has worsened.

As you can see from the minute by minute reaction, Bob Pisani of CNBC summed it up nicely in that “The Market doesn’t want a history lesson”.  However, the Bears had second thoughts and began to cover in anticipation of the next “Big Shoe to Drop!” as shown below:

My purpose in going through all this detail is to focus us on the psychology of how markets turn on a dime and react to the Fed speak and then the actions that follow…”Walk the Talk”.  This now sets up a very interesting situation and let me try to piece together the potential scenarios at play.  I really hope my spending the morning recording all this detail gives you insight in what to do in your own investments.  Some of you are in your foxholes waiting patiently for a Bingo on the NYSE Index.  Some are buying established Fallen Angels like AAPL either for the short term or for an intermediate play.  Others are on the short side and were licking their chops, but now are in a quandary.  They either covered quickly or are waiting for more shoes to fall.  I strongly suggest you review once more the thoughts I expressed on “Big Foot is Back and Others are Looming” in combination with what I now offer.  I felt sure something would be cooking when I asked “What tricks will the FOMC and Administration have up their sleeves in advance of the next Fed meeting towards the end of this month?”  Be sure to read the others as they still apply. 

The entire strategy from here to the next FOMC Meeting at the end of this month is centered on the two questions at the top of the second picture.  Nobody in the audience asked “Bennie and the Feds” as to what he meant by “Substantial”, so there will be a lot of second guessing on that.  In any event, Uncle Ben has signaled: 

1. A reaffirmation that he is prepared to cut interest rates.  Whatever he meant, it is obvious that the Market will begin to bake in a 50 basis point cut.  Anything less will be a disaster.

2. It will be done sooner rather than later so that the anticipation is that it will be done before the next meeting around the end of the month.  Patience can soon run out.  Likewise, some of this action today was the news that the Bank of America will bail out Countrywide Credit. 

3. The Fed, although caught between a rock and hard place, leans to cutting rates at the expense of inflation, a weaker dollar and all the other baggage that goes with that scenario.  They are prepared to bet that although the economy is slowing, and the common or garden man in the street is hurting, we are not yet showing signs that we are into a recession.  Of course a recession can only be established long after we are already in it, but they feel they can pull off a soft landing instead of a hard fall in the economy.

Who said that investing in the stock market was easy?  There are several schools of thought:

•            We are already in a Bear Market of which this is just the first leg.  There will be rallies along the way, but be rest assured it heads on down for another leg or two.  Not only are we in a bear market, but we are heading into a recession.

•       We have had yet another correction, which is over 11% for three such corrections in the past six months and once we retest this low, we will trot on up again with a fresh bull rally. 

•       We have had a third correction in six months, the market is so oversold that we will now have a V bottom and head on back up to new highs.

Take your pick, but I would be very leery of betting on the last one.  The odds are that any MAJOR downside are in favor of being postponed until Uncle Ben shows how big his shoe is and really provides the action to back up his words.  Since the Blue Pencil Line I taught you a good few notes ago says the trend is down, the extent of the medicine the Fed hands out will determine if they can stem the tide long enough to right the ship and change the direction of the market.  In any event, the odds are that we should at least retest the lows for a “W” bottom.  What has changed after today’s events is that the Bears are now caught between two stools, but will only postpone their efforts until any rally peters out.  

Lastly, one thing is certain.  UNTIL we see sustained New Highs greater than 150 per day, any hopes of a strong rally are a pipedream.  Today’s action should convince anyone that they cannot participate unless they can turn on a dime and are short term oriented to go either way.

Best Regards, Ian.