Ian Woodward's Investing Blog

What goes around comes around.  Several times in October and November the FOMC handed out pre-Thanksgiving gifts when the Bulls were on the ropes in their fight with the Bears, but it seems justice has been served to the Bears this time around.  Helicopter Ben thought he would shave a little off the Fed Funds Rate, but the cut blew up in his face. The Stock Market felt that 25 basis points wasn’t big enough as they were already anticipating 50 basis points, and felt that the bigger problem is that there are a lot more shoes to drop on the sub-prime loans business to say nothing of the other problems of a weak dollar and Inflation/Recession raising their ugly heads. 

Today the Bears hammered all those darling Silverback Gorilla stocks fat with profits, and although the Indexes came down 1.3% to 2.48% for the DOW and Nasdaq 100, respectively, the Market seemed to go down in an orderly fashion with no panic selling evident.  Realize that this is triple witching week for Options Expirations, so we should expect Volatility tomorrow which is usually the most volatile of the week on such occasions, and Wednesday to be quieter and the most positive day for the week based on the past two year’s history.  Monday’s are typically the most negative so it behaved true to form.  

Turning our attention to the New Highs and New Lows the beat goes on to confirm that we are headed down as shown with a very low reading of 19 New Highs and a reasonably big reading of 359 New Lows.  Not panic stations as yet when one expects several readings at this level with some as high as 600 to 1000…then we might expect a bottom to set in.  Also Decliners and Declining Volume outpaced Advances by a ratio of about 4.5 to 1, also weak readings.

Sure, we can always have a bounce play off a very oversold situation, and certainly with the two pictures I showed in yesterday’s blog on the weakness of the leaders as measured by the “A” accumulation stocks being 5%, and the less than 35% of stocks above their 200-dma, we are due for a bounce.  However, I would expect that except for the day-traders and moment-traders will be playing for very short-term gains, longer term holders will take the opportunity of selling into any reasonable rally, since they have been caught on the wrong side of the momentum of the market.   Lastly, the place to make quick and big money is in the Ultra Short ETF’s with the biggest winner being the FXP…Ultra Short on the Chinese Silverbacks! 

Be careful in this market and settle back with an EGG NOG or two to enjoy the holiday spirit.  Best Regards, Ian.

I send Seasons Greetings to all my new found friends in various blogs around the world and especially my followers in Greece led by Thrassos who first found me with the mention of the Hindenburg Omen, and for his encouragement in the various Comments he makes from time to time.  Since he said they like the pictures I give them supporting my statements here are a couple of statistics which they would not normally see to show how poor the underlying internals of the market are at this juncture when the Grinch seems to be winning over Santa!

It goes without saying that after this past week’s roller coaster market the Grinch is winning so far.  The leadership of “A” Accumulation stocks has narrowed to a paltry 5%, with an alarming drop in the last three days from 7.5%.  As we can see from the diagram below:

1. We are heading for the 2.5% level if this current trend keeps up, and that will be the time to sharpen our pencils.  We are just over 100 stocks at present and when this shrinks below this level we will have some clue of where to find the survivors.  The place to look will be the high “B” accumulation stocks that have had less than 15% correction from their highs.
2. The leadership we used to enjoy back in 2005 and 2006 with peaks of “A” accumulation stocks has dwindled from highs over 15%, have now got lower and lower in 2007 where 10% is all we can expect these days. 
3. This suggests that the nifty-fifty phenomenon I mentioned all of two months ago will ultimately get cleaned out with a Major Market correction and we will see rotation and a new birth into new Industry Groups and fresh stocks taking over the leadership. 

I am indebted to my good friend Mike Scott for these views and here is another gem from him which shows the weakness in the overall Market as we have deteriorated from a healthy 89% of stocks above the 200-dma back in January this year to just above 30%.  Again we can see that we will soon be testing the recent lows down at 25% we set in mid-year, 2007.

While the rest of the country is suffering from a terrible snow storm, we are basking in sunshine in our world on the West Coast just 15 miles south of the LAX International Airport.  Unfortunately, Ron is shoveling snow in Nebraska.  Good luck to you all is the sincere wish of your friends, George, Matt, Ron and Ian. 

Another Year is almost at an end and the HGSI Team of George, Matt, Ron and I send you all our sincerest wishes and Season’s Greetings for this holiday period and may all your trades be winners in the New Year.    

I wish I had cheery news to go along with this time of the year of the festive season, but I will pull no punches and tell you that I feel the Grinch stole Christmas as the saying goes, and we are in for more rough sledding on this roller coaster market.  There is little more by 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.  Expiration week looms directly ahead and often provides some fireworks.  The following week will be the last opportunity to posture for the year-end.  Fasten your seat belts, the roller coaster ride, up and down, could be interesting. 

This month my Case Study has focused on identifying a few benchmarks for unraveling the mystery around the Tops and Bottoms in the Market.  It turns out that of all the parameters that we discuss surrounding the Hindenburg Omen, Eureka and Bingo signals there are three easy levels to remember relating to New Highs on the NYSE.  I hope you enjoy this insight and we will certainly keep an eye on this going forward.    

Ron’s movie and focus this month continues where he left off last month on how to milk the most out of the new Group Inclusion feature.  This month he concentrates on using user groups to prospect for both long and short candidates because after experimenting with the Group Inclusion report it has the potential to help HGSI users find potential winning stocks that do not appear when using filters and combos.  It always amazes me how Ron can conjure up new ways to squeeze the best out of the HGSI software.  It is very versatile as I am sure you will see from Ron’s movie.  The Newsletter will be posted later today.  Best Regards, Ian.

The DOW climbed a modest 41.13 points to 13473.90, after a session of wild roller coaster intra-day swings as the Market Gurus and investors tried to digest the Fed’s plans to add liquidity to money markets and also profit warnings from major banks:

1. The DOW jumped more than 250 points at the opening bell, which took the wind out of the sails of the Bears initially and then gradually, had a day-long descent.  Trading was very volatile in late afternoon, with the Index going down more than 110 points below its opening level before finally settling up a modest 41+ points.
2. J.P. Morgan Chase, and B of A were cut from buy to hold and Wachovia was cut from hold to sell.  Bank of America fell 2.7% after it warned of tough sledding to come, including larger write-downs on collateralized debt obligations and a fourth quarter that will be profitable but “disappointing.” Wachovia shares fell 3.4% after it said it sees higher provisions against credit losses and further mortgage-related losses.
3. Import prices surged today and the weak dollar is causing inflation beyond tolerable limits.
4. It is plainly obvious to the common person that the FED is trying to pull every trick out of the bag in dribs and drabs depending on how the market reacts to their medicine.  What that does is make investors more suspicious that this Global Sub-Prime loan crunch has many more shoes to drop.

This has to be a trifle frustrating to the Bears who once again have been thwarted unless they were exceedingly nimble and made their buy and sell decisions in nanoseconds instead of seconds, skipping over milliseconds and microseconds these days!  That’s meant to be a tame joke, but it is not laughable as I am sure genuine Investors are in a state of shock and disgust.

I will go back to my foxhole and enjoy my Nephew’s visit from England and leave you as frustrated as I am, as even the Crisis Counseling Phone is out of order!

The only smile I can offer you is that the Post Office unveiled a 41c stamp of Frank Sinatra with that infectious smile and wearing his fedora hat.  It will be out in late spring, 2008.  What other blog gives late breaking news like that?  Best regards, Ian.