Ian Woodward's Investing Blog

Let me pick up from where I left off on my last blog note.  The “PIGS” story has got a trifle stale along with the QE-3 stuff, but none-the-less enough to cause jittery markets.

Counts of distribution days abound, so the topping action in this rally continues to be the headlines.  However, AAPL and PCLN continue to hold and grow so they are the ones to watch for signs of serious knee jerks.  I gave you chapter and verse in my last blog note so I thought I would focus on the one point that matters at this stage of the Game Plan…a Knee Jerk Volatility action in the VIX leading to a full blown swoon of 5 Buckets down in the Market Indexes.

I have a confession to make regarding my last Blog Note picture of the Look Ahead function I use with the VIX and %B x BW.  The hour was late when I put that note up and I inadvertently used a “rough and ready reckoner” template which helps me stay on top of the “What If” game I play to watch the VIX action in real time.  Far be it for me to lead you astray as I am usually meticulous in my work, but although the Concept of the Look Ahead was golden, the numbers were not quite according to Hoyle!  I thank you for your feedback that you have your beady eyes on me!  Note that the Woody Indicator is still green at 0.165 after yesterday’s tepid action and is a long way from the 0.400 level to cause serious concern.

You all know that the work Chris White of EdgeRater does is impeccable, so when in doubt use his numbers and do your own What If exercises to look one day ahead.  So with that preamble, here is the Look Ahead for Monday if we are to see a Run for the Hills clue on the Woody Indicator:

If there is a Landslide day next week, the quick answer is around $20 on the VIX will do the trick to Run for the Hills.  For those who prefer to look at Charts instead of numbers, here is the familiar picture of the VIX and %B x BW:

Best Regards,

Ian.

The market swooned on two counts…QE-3 is dead and the weak Spanish Bonds Auction upset the Global Markets.

The Market Indexes are now showing either Double or Triple Tops and a trifle tired.  Any moves below the White Lines on the Charts will mean the Party is Over:

AAPL has held up very well through all of this and continues in its up channel.  The Upside and Downside Targets are shown on the chart.  The first caution is whether it can hold at the middle channel line:

We have had two shots across the bow in this past month, the Greece kerfuffle and the concern regarding the Spain Bond Auction.  In the chart below, I show what it would take for the VIX to really wake up and deliver a Fear Warning tomorrow if the downward action is to continue.  Watch for it to rise to $19.12 with the %B x BW Woody Indicator hitting the magical 0.400 mark:

…And here is the Chart view of the VIX:

We need a Strong Bounce Play in the next two days or we are headed down.  As you can see from the chart below there was major damage done today:

If that is not enough to suggest we are at the Crossroads then look at the Bucketology which shows major deterioration:

Chaikin’s Money Flow is also turned down, but still holding fairly well compared to the picture of the Flash Crash period:

Grandma’s Pies have turned more than a trifle soggy:

Hold your horses…those who attended the HGS Investor Seminar will be watching the Leaders Index we developed together and will see these leading stocks are holding up at this stage:

Net-net, tomorrow will be a key day with regard to where we sit for this Rally…It is at the crossroads.

Best regards,

Ian

It has been a while since I posted a Blog Note, but I am sure you understand that I was busy with the HGS Investor Seminar last weekend.  Fortunately the Market has stayed up and dwardled around since my last note and we are now at the stage of either a well deserved “Pause to Refresh” or a Market Top with hopefully no more than a small correction.

As we look at the next chart we quickly see that although the general trend is up the Market Indexes have been see-sawing for the past ten days compared to the previous ten, and this breather may be just what the doctor ordered before the Rally continues.  It is now all of four months in a tight upward move, which has at long last brought some respite for the 401-K Nest Eggs you all have:

The $64 question is whether the Market will continue to Pause to Refresh with a slight correction or continue up further.  As long as the Nasdaq stays above the 17-dma (green line) the Market is intact.  If the 9-dma (pink line) crosses down through the 17-dma, that is an early warning sign that we are headed down and is your “Get out of Jail Free” card.  By then the Nasdaq Index itself should be down to around the 23.6% Fibonacci Line at 2990 and must hold there.  Last Call would be at the 38.2% line or around 2900 which is also 7% to 8% down from the high and as Seminar attendees learnt is where 70% of all pullbacks hold for the Nasdaq.  These are Rules of Thumb that have served us well over the past twenty years, so the Game Plan is very simple given that the Volatility Index VIX has been so quiet!

As we learned at the Seminar, Earnings Report season does not really get underway until the last two weeks of April and the first week of May.  Those who are Bullish will recall a favorite Yorkshire saying “Ne’er Cast a Clout Till May Be Out”, which means don’t get rid of your woolens, or in this case your stocks until May is finished.  That goes in concert with the Long Tails Mustache Scenario I mentioned some time ago, where an extended Market to the upside can get more extended ala March 2003 and 2009, respectively.  If there are no Global surprises, that is the High Road Scenario.  However, the go to indicator will be %B x BW, and a reading that shoots up through 0.4 coupled with a strong push upwards in the VIX which has been unusually dormant will be our first clue that all is not well and we are headed for a correction, small or large:

Using the Three Road Scenario, you know full well that we are in Stalemate…the Middle Road Scenario waiting for a signal one way or another:

So, stay light on your feet, find the ponies, and let the Market tell you which way it is headed while watching the clues for which way the wind is blowing as I taught you to watch to stay on the right side of the Market.  The first clue is Grandma’s Pies which is at 65:35…getting a trifle soggy.  Note also that the % of Stocks in Bucket 0.6 to 0.7 is the highest of the bunch and sitting at 18% with the market having reached a high 13 days ago.  I also taught you that 12 Drummers Drumming and Sweet Sixteen (>16%) or more in that bucket is a warning sign that the BIAS is downwards as I show on the next chart:

This next Chart shows that we have had a four month rally and except for a shot across the bow with the Greece kerfuffle, it has been mighty strong running into a top on 3/13/2012, when we start the count for twelve drummers drumming.  It has now been 13 trading days since then and we have gradually trotted down, where it must hold at the 0.5% middle Bollinger Band line if this rally is to continue as shown on the chart:

…And another look at the % of stocks in each of the twelve Buckets confirms the to and fro of the Market to show you how it is not difficult to know which way the wind is blowing as you use the Rules of Thumb from past experience:

So there you have it.  Ron and I wish to thank you for your support at another successful seminar where these Blog Notes should be duck soup to you who attended and made it such a wonderful experience for us all.  Those who are regular viewers of Ron’s Weekly Report will do well to insert the Leaders Index into the HGSI software we established at the Seminar with Dr. Jeffrey Scott leading the way, as that list will give you a quick clue if and when the Market Breaks.

Best Regards, Ian.

Those who follow my musings in these Blog Notes have realized that I have recently written more than my usual number of notes, and this is the third one in as many days!  It’s my attempt to keep you on the right side of the Market.  As you also know, I have various Tools and Rules that give me the agility to anticipate Fear and Greed and I have plucked several recent examples that show you how I do it.

Let’s cut to the chase with this first view that I have given you time and time again:

Three weeks ago I gave you the High Jump Targets as the Market was getting very overbought and it demonstrates how this is a very useful tool which we have in the HighGrowthStock Investor Software:

I have always emphasized the Canary in the Coal Mine Scenario which for months is “AAPL”.  Five days ago I gave you what the probable outcomes might be for Up and Down scenarios:

…And here is what happened today:

In recent weeks my focus has been on the VIX and TVIX and with the problems in Greece it came to a head today.  I show you what transpired today when the VIX woke up and the Woody Indicator (%B x BW) jumped.  I go on to show you what to look for tomorrow if there is a further big move to the downside to drive %B x BW to 0.40 as shown.  It pays to ask “What If” so that one can anticipate should the Market head down on this particular occasion.  The number is 23.20…let’s see what happens, but at least we are prepared:

The TVIX on the other hand is still “Quiet”, so the Bears are not fully committed as yet, and it will take a lot more to get it moving with gusto:

Last but not least, here is an Indicator that Ron Brown and I developed to identify Market Turns both up and down, and there is no mistaking this down move as it has signaled two days in a row!  We call it Kahuna Force and again is only available in the HGSI Software:

Well there you have it.  I hope this helps you to fully understand the Tools and Rules I use to be agile enough to stay ahead of the Market but not to second guess it or fall in love with a particular scenario which is fatal.

Best Regards,

Ian

Friday we were on Pins and Needles.  Today we had a shot across the bow, and the net result was Stalemate.  What we Gained on the Swings we Lost on the Roundabouts:

Looking for a Needle in a Haystack, here are the bottom line pictures.  Below we have Grandma’s Pies on the the S&P 1500 for the various Market Cap Sizes at the Close last Friday on 03/02/2012:

…And here is what it looked like at the end of Today.  Large Caps lost Ground, Small and Mid Caps came back…net-net No Change in the overall %B breakdown for the % of Stocks Above and below 0.5:

However, Grandma’s Pies have turned more than a trifle soggy with 37% Above and 63% Below 0.5, so the odds favor a correction, though the Bulls are grudgingly giving up ground.  AAPL got hit today but again it recovered towards the close.  The VIX and TVIX remained very QUIET, which says that the Bears once again must be patient.

Best Regards, Ian.