Ian Woodward's Investing Blog

My faithful followers on this blog have been patiently waiting for me to put up a fresh blog note, and now that the Newsletter followers have had first insight into Ron’s and my thinking, it is now time to bring us all up to date.  I felt I should use the same picture as Newsletter Readers will immediately relate to the High and Low Road Scenarios.

I hypothesized that we either head on up for a Golden Cross of the Nasdaq (50-dma coming up through the 200-dma) a month from now or we trot down again for the Low Road to test support at the 200-dma or lower, the 50-dma.  My good friend Manu reminds me that we already have a Golden Cross with the DJIA, but all the other Market Indexes have still to achieve that significant event.

But first let’s look at the significant TIGHT moves all the Market Indexes have made not only this past week but in the last 20 days, which the picture below presents.  It all started with a bang coming out of the shute on the very first day of the New Year Rally on 01/03/2012.

The High Road Scenario:  I have overlaid a month’s worth of looking forward to depict how the Golden Cross comes to fruition in about a month from now, provided the move essentially continues as we have seen for the past month.   I say that we will need to see some more Kahunas, but given that %B is already in the 90’s that is unlikely, but if we have a small pull back then we could see that extra adrenalin to push %B above the Upper Bollinger Band, i.e., >1.0.

The Low Road Scenario:  This Rally runs out of steam and we head down for some form of correction.  Fortunately, at this stage we are sufficiently above the 200-dma, which up to now was the strong resistance, that we have a decent cushion to give the Bulls an opportunity to find support at that line.  All of this pre-supposes that we don’t get a Major Negative Surprise on the Global Economy front that has plagued this market the last eight months with a 17% correction in such a short timeframe of a matter of a week when most of the damage was done.

Having laid out the two scenarios simply in two charts, the next several charts show you the underlying pieces of the jigsaw and what to look for when a Rally gets a trifle “Peaky”.  Let’s start with two old favorites, the S&P 1500 Pie chart showing %B Buckets and then the %B for where the S&P 1500 %B for the Index sits and the disparity between them.

Note in this next chart where it seemed the Rally had run out of steam with the eight consecutive days stuck between 0.8 and 0.9, it got a second wind and %B for the S&P 1500 is now sitting up a notch higher with a Bucket skip to now reach 0.99 and 0.95 in the last two days.

We haven’t looked at this next chart in quite a while mainly because there has not been this kind of momentum for it to give us clues as to the potential strength of the move.  As you see on the right hand side with the two ringed numbers we are having healthy hits of over 300 stocks in Bucket >1.0…the overbought leaders!  That’s healthy, but as you can see on the one hand we need to see this number rise to >500, it also signifies on the other hand that once reached there is invariably a pause to refresh before moving up again or it is the signal of a Climax Run with a decent correction to follow:

As you would expect, the VIX has gone mighty quiet in the last three days, whereas there was a one day attempt that gave a spike up of about 2.5 points as shown by the white ring, which then immediately fizzled to the lowly 18.28 level which hasn’t been seen since last July.  As we well know this VIX Indicator is the “Go To” one especially as it just hit the lower BB, and so a rebound of some sort is near.  Readers of the Newsletter now know that I have come up with an even better gem in %B x BW which together will give us the early warning signs that the ballgame is changing.  Suffice it to say that any 1-Day change in the VIX which catapults it 3+ points will be a day to sit up and truly heed the shot across the bow.

Then again, another favorite Go To Chart is what is Chaikin’s Money Flow doing in three different timeframes.  You can view this in HGSI, but understand that 34 period portion has yet to prove of value as it has been just 20 days in this fresh portion of the Rally.  Note the major rush of Money Flow for the 13-Period and 21-Period which are at Record Levels.

…And now, last but not least, my favorite at tricky times like these, use the jolly old High Jump Tool only found in the HGSI software.  I have taught you several times of how to use it and if you don’t know, come to our next seminar on March 24 to 26.  I have done the homework for you and have given you that PROVIDED the Rally continues higher we have 50 to 75 points more to go based on past history before this Rally is really long in the tooth:

In summary, I have given you four different items to watch and those who have EdgeRater now have a fifth with %B x BW for the VIX as introduced by my good friend Chris White just a few days ago which I discussed in the Newsletter.  Just let the Market tell you which Road it is on, but these approaches to seeing which way the wind is blowing will help you protect your hard earned Nest Egg well ahead of the big shoe dropping if that is to be our fate.  Give us feedback.

Best Regards, Ian.

I note my faithful followers are wondering where I have been with the increasing hits on the blog.  I have been busy writing the HGS Investor Newsletter which Ron and I publish every 15th. of the month.  Here is the synopsis of what our contributors will get tomorrow of a 20 page document:

Overview:

The Stock Market is waddling along upwards since the last newsletter.  It goes without saying that the skittishness is the concern of the Global Debt Crisis compounded now by the latest news of Credit Rating downgrades of some nine European Countries, with France being one of them. There is no full blown commitment by the Establishment, but one cannot ignore the fact that the Market Indexes have eked their way into new high ground territory relative to the shambles we ended up with for a Santa Claus Rally.  I will define the High & Low Road Scenarios for a Golden Cross or a fall back into the doldrums one more time.

My report this month shows how the list of 36 Box 7 stocks I gave you hot off the press last month have done since then with an average gain of 8.55% (Blog Readers can see the list which I posted on the December 22 note); a review of watching Heat Maps for %B and Bandwidth; and my latest find which will give us the earliest possible warning of the next downdraught %B x BW with the VIX…the Volatility Index, which I feel is a new Gem!

This month, Ron continues his theme from the previous month of Buying Wolfpacks with strong internals showing you how to use screens that are supplied to you in the Woodward and Brown Reference files that are also explained in the video which goes with this Newsletter.

We look forward to seeing our faithful supporters in three months at the HGS Investor Seminar.  I will put out the usual details for the Hotel later this month on the Yahoo BB.

Good Luck and good hunting.  Ian. 

Well, at least we had a good start to the New Year, even though the Grinch Stole the Santa Claus Rally last year.

This is a strong breakout and the biggest gap up was in the laggards, the Nasdaq and the NDX:

However, the challenge is right now to get through the 200-dma and the 405 Freeway…Down-trend-line (DTL):

This next snapshot says it all in a wink which shows the strength of the move today:

…And this chart shows how close we came to another collapse, but survived to fight today:

Here is a new Chart for you to chew on…it shows in chart form the current status of %B x BW.  If you watch this carefully in the days ahead you will know if the Rally has achieved the goal of getting from 0.056 to above 0.1 to confirm the strength and that there is some conviction in the rally with strong volume :

This next chart shows that the drive has resumed and we are knocking on the door to getting %B >0.5 above 0.9:

%B above 0.5 is currently at 81% and has made a one bucket skip today as shown on the last line, above:

To start the New Year off, let me express my personal thanks for all the support and encouragement you have given to both Ron and myself over the 12 years that we have been associated with the HGSI Team.  We like to hear from you:

Best Regards, Ian.

We are down to the last few hours and the HGSI team sends you Seasons Greetings and all the best of wishes to you all.  I felt I would follow up my note of two days ago with the same charts I used so that this is an update and needs no explanation from me:

Sincere Wishes to you all…Monday is a Holiday! Ian.

Although we have been in a Yo-Yo Market these past couple of weeks, to say nothing of the months previous, we have become accustomed to what is almost a daily occurence driven entirely by news.  The general short term bias is up, but my headline says it all in that Santa Claus is stuck up the Chimney:

A quick Comparison of the Major Market Indexes show that the Small Cap S&P 600 is leading the charge, breaking out above the 200-dma today, with the DJIA, S&P 500 and NYSE knocking on the door, and the Nasdaq and NDX lagging:

Now let’s look at the S&P 1500 comparing %B x BW versus %B, and the notes on the chart speak for themselves.  It is little consolation for those who are intra-day or day traders, since they by definition are playing extremely short term moves, but for those who are driving to take advantage of Intermediate Term moves of a few weeks (at least), watching both %B and %B x BW can be very valuable in knowing when the wind is either at your back, wavering and/or swirling, or totally in your face.  If you compare the two Windows carefully, you will see where you can avoid Fakeys and get an edge of acting earlier to catch the big moves up or down:

The bottom line is that we need a big push tomorrow and next week if the year end rally is to burst out, and well it may given that there is at least a short term settlement on the Capitol Hill debacle that has been a farce for the last several months.  Hence the Yo-Yo market we have suffered as  investors are skittish to make major commitments.  Although it seems the short term cycles are down to 18 to 22 trading days both up and down, if the S&P 1500 can blow through 0.8 for %B Stocks we may have a fighting chance of a decent move above the 200-dma for most Indexes.  At least that’s the “Hope” for the Bulls, and we shall see how it unfolds.

At least the % Net Score picture is brighter as it is now at 6.0, though we can immediately see the ying-yang in the market these last several weeks with a week or so of “Green”, followed by a few days of “Black” and now three days of “Green”.

Let me wind up with a list of HGSI Box 7 stocks I captured a week ago that as a large group has delivered a 6.5% Gain and are mostly in the Green.  There are gems in this list, but you are on your own to do your due diligence and see if you can ferret out the ponies for yourself.  It’s my Christmas Present to you for you to do your own homework.

Best Regards, Ian.