Ian Woodward's Investing Blog

I need hardly say that any of us expected we would be hitting new highs with a resounding move upwards for the Bulls to continue this long Rally essentially since mid-November.

…And here is the picture of the Market Indexes which show the explosive breakout the last couple of days:

As we well know the Small Cap Stocks have recently been sluggish but the RUT is recovering and above its old high:

The Accumulation to Distribution ratio has now improved to 3:1, but we have a ways to go to show a 4:1 ratio:

The %B for the S&P 1500 is now back in safe territory sitting up in the 0.8 to 0.90 Bucket, so again we have a cushion:

…And the twin picture of the %B Net Score continues its upwards journey:

Now for the High Jump Spreadsheet which has served us well during this extremely difficult period of staying on the right side of the Market.  I have not seen such knee-jerky action in several years…this is a very tricky market, especially for the Bears.  You will note that we are now to the point where five Indexes have surpassed their Highest Jump Targets that I set back on 1/25/2003.  So that we can continue this process to show the High Road Target, anticipating that the Rally continues upwards, I have added a further couple of columns for what I have called “Highest Jump Plus” Targets which adds 4% to the 200-dma Stake in the Ground numbers shown in red as a reasonable next jump target.  Please also understand that I have shown a different method lower down and you can take your pick, as these two approaches give us a range of 1636-1646, to 1666 for the S&P 500.  When this plays out and we finally have a correction, we can then determine the best approach to use in the future.

For this second approach, I had a brainwave to use  a 50-period Bollinger Band with 2, 3, and 4 Standard Deviations, and as you can see I feel I struck oil.  The S&P 500 Index hugs the 50-period 2 Std. Dev. line and the entire envelope is tracking up in similar fashion to the 17-day MA.  In this next slide I took the past snippet and attached it to now to show the expectation over the next couple of weeks if the Rally continues upwards.

Going back into history, it suddenly struck me that the last time anything like what we have seen continue with the Rally far past May was in the Days of Wine and Roses back in 1995 when INTC was declared the World Leader in Semiconductors:

So what’s my point…it has happened before and Wonders Never Cease so don’t be surprised if it happens again.  In this new example of addressing Targets, I have taken the latest numbers as of 5/03/2013 (Friday) and applied them for the Higher and Highest jump records during 2012, so that I am using recent ratios and prorating them based on current performance:

I hope all of this is of value to you…so far it has proven worthwhile, and hopefully has kept you on the right side of the market.

Best Regards,

Ian

Every time the Bears feel they have collared this Market by the neck, it bounces back to the point where Fat Tails in the Bollinger Bands vernacular are now gradually turning to Long Tails.  Here we are but a week away from May when the traditional saying of “Go Away in May and come back in October” is much on the lay peoples’ mind like you and I to make sure we protect our well earned nest egg.  We are looking for every clue that finally the Big Guns have lowered the Boom and to avoid being trampled on when there is a mass exit.

Not only do we see whipsaws with 1 Week Up, 1 Week Down and then 1 Week Up again, but one can’t help being whiplashed and only very short term players are making good returns if they can consistently stay on the right side of the Market.  The chart patterns for the Market Indexes show the quandary of either hitting a Double Bottom or a Head & Shoulders Top.   Each Blog Note I suggest that surely the next week will resolve the direction only for us to find it is drawn out for yet another week, while the Market Indexes continue to inch up and regain the losses of the previous week!   Rounded Tops is the name of the game, but this time these Fat Tails are gradually giving way to Long Tails.

I have laid out the High, Middle and Low Road Scenarios using the Nasdaq in the following chart.  I have shown you that -4% is the first port of call to the Downside and that is exactly what happened in the drop from the high of 3307 down to 3166, which was just below the previous low.  This leads to the simple technique of using the Thick Blue Line to draw it from the Low back last mid-November to the recent high and then one down as shown , since it broke the previous low of a couple of weeks ago.  If the Market trots down again, that yardstick of 3166 becomes the Middle Road Scenario.  Anything below that level we look to the Low Road Scenario at around the -8% mark which also happens to be around the 200-dma.  The High Road requires us to get above the previous old high and aim for the Higher Jump Target for the Nasdaq at 3333…a convenient number to remember.  Anything less is essentially tantamount to Head and Shoulders Top…between friends!

I spoke of Whiplash earlier…well there it is staring us in the face with both Up and Down Small and Big Kahunas.  Now cast your beady eyes on the window with the High Jump and note how the line is essentially flat while the Index itself has trotted upwards.  I infer that this Market is under tight control and that by and large the giddy ups and downs are completely News Driven almost from day to day.  With the little guys essentially out of the market, given the Low Volume the Indexes record each day, the High Frequency Traders are having fun especially when we see what happened in the Market Indexes over 4 minutes due to a false rumor of an attack on the White House!

Again, the Russell 2000 (RUT) shows the struggle it has had over the last couple of months, and unless there is a decisive breakout above 953, we will head down into the doldrums again:

It is no surprise that the Accumulation versus Distribution is back once again to a 2:1 ratio, but the yin-yang is very evident now:

This next chart needs no explanation, as it shows the whiplash we have suffered this past month:

…And this chart confirms the struggle the S&P 1500 is having as it drives to new highs:

I felt you would like to see an update on the High Jump progress, and the bottom line is that we are back to about where we were two weeks ago with most Indexes having got back past their Higher Jump Targets:

Finally, I hope this last chart will bring a smile to your face as we look at how to measure GREED in Market Rallies by both Time and the High Jump.  Note that the 2009 to 2011 era was much more rewarding and robust than the past two years and especially right now for all the reasons I have shown you above.  The numbers are meant to be illustrative and not precise though they attempt to show the two different eras based on past history:

Good luck in the coming weeks, and let me know if this has stimulated you in your own research as to where we stand in this foggy Market!

Best Regards,

Ian.

After a week of turmoil both up and down, today’s action has given control to the Bears, but with the craziness of the Market we shall see where we go next:

Yes. most of you understand that Emotion Rules the Market, and the pictures I use to define Greed on the one hand and Fear on the other, but as you well know when the floodgates open to the downside, your Nest Egg gets killed:

It goes without saying that I have built much of my process based on John Bollinger, and it didn’t take me long to see that the big pay dirt is at the Extremes of Fear and Greed.  We know how to perform in between, but the stomachs come into play at the extremes , and I hope I help you most at such extremes:

A year ago, John Bollinger reminded me at times like this when markets get Overbought or Oversold they can remain that way for long periods of time before they break or rise again, and he calls them Fat Tails…so I fed him this as my version with tongue in cheek!

We have not seen a Market like this and short term Players can enjoy the volatility of a totally news-driven Market:

Let me show you the Explosive Growth we saw in the Indexes just seven days ago and then what transpired since:

Just focus on the columns I have highlighted to get the pulse of the Market in two minutes.  Here is Five days later:

The very next day, the Indexes bounced back and things were looking better for the rally continuing:

…And here we are one day later and completely down in the Doldrums again:

Net-net, this market is in total oscillation and wildly so…results not seen in 13 Years of History;  this speaks volumes:

…And here is Grandma’s Pies just back to two days ago:

…And finally, here is the spaghetti of the A+B vs. D+E scenario…back to Stalemate:

Keep your Powder Dry and the Best of Luck,

Ian

Yes, you guessed it, Uncle Ben did it again and the Bears are wondering what hit them.  Their turn will come sooner or later but for now we are back to New Highs and flying high:

We have now had several different occasions where Big Knee Jerks are followed immediately by huge recoveries in the Market Indexes but where Volume by and large has been relatively sluggish while the Indexes trot up to New Highs:

This next chart is an Eye Opener with explosive moves in all Market Indexes to the upside yesterday.  There are now seven Indexes in Overbought territory, and following through again today but as one would expect not quite the same enthusiasm:

Grandma’s Pies are back to being healthy with ~ 2:1 in Favor of the Bulls:

It is difficult to stay calm when we have these earth shattering days with big yo-yos in the Market Indexes, but it seems of late that when the %B Net Score is no worse the -5 it pays to wait for the next day before acting.  However, this is probably a situation of the times we live in where any bit of news around the world can cause the markets to go into a tail spin or reach for the stars almost on a day to day basis:

Uncle Ben used his magic wand again and drove the Market back up to Overbought in three days flat…we now show three Fakeys, all within the span of 3&1/2 months which leaves the Bears in a quandary…but one of these days their turn will come:

Naturally, with all this turmoil from day to day the Acc/Dist Ratio wobbles all over the place, but at present it shows bullish favor:

It goes without saying that the DJIA is riding highest of all the Market Indexes.  We can see from the following chart that it has now surpassed the Highest Jump Targets and that five more are only <1.5% of doing the same.

Of course, all good things eventually come to an end and few would disagree that we need some form of decent correction before one should reasonably expect to continue with a rally that is now all of four years old with corrections no worse than ~17% along the way.  Whether we shall see a Bear Market Correction of >20% is in the lap of the gods, but note that the Doom and Gloomsters are  out in full force touting the worst is yet to come.  I have added the line for a Bear Market Correction of -20% on the S&P 500 which is 1278 so we will make that a stake in the ground once the correction is underway.

Play close to your vest, and enjoy the move up while you can.

Best Regards,

Ian.

Yes, this was a Major Shot Across the Bow as the Market Indexes dropped down for most of the day.  Net-net the Bears had control today, and we shall see if they can continue to take the Market down:

This next Chart shows the damage done today in the Major Market Indexes:

Most of the Indexes suffered greater than 4 Buckets to the Downside, and the RUT was one of them:

…and here is the picture for the LOW of the day with the RUT.  Richard B. from Thailand taught me back in November to keep a beady eye for the %B x BW to fall below “Zero”, so both these charts are a tip of my hat to him, as they don’t get below this level more than twice in any one year.

It’s now time to pay attention to the downside targets from the Highs.  I’m sure you know by now the natural targets are -4% and then -8%, so here are the Measuring Rods using the Nasdaq:

Here is the picture in a nutshell of the damage done today as portrayed by the HGSI Software:

This picture of Grandma’s Pies clinches the story for you with a 2:1 ratio to the downside:

That 5.4 Buckets down on the S&P 1500 says it all, and now we have to wait and see if the Bears can really take control and take this Market into a full correction, or whether this was only a flea bite:

It goes without saying that the road to the Highest Jump Targets were hit hard today and as a result we have only the DJIA Above the Higher Jump Target, whereas there were seven just a couple of days ago:

Please remember that the Jobs Report comes out on Friday and we shall see where this Market goes.

Best Regards,

Ian