Ian Woodward's Investing Blog

Ian,

The S&P 1500 Point Score was -7 today, a potential sell signal. At the same time the Major Markets %B x %B Bandwidth chart remain all green.  One reads sell and the other says hang in there.  If I were to make a sell decision, which chart should I give more weight to?

Stephen

I’m sure Stephen won’t mind my posting my response of yesterday to the Blog, as it is of general help to all during these tricky times:

I’m busy with the Newsletter…they filled the Island Gap.

Good Luck.  Ian.

Akiva from Israel asks the following question:

Hi Ian,

I am not sure I am following your logic.  If you are looking for stocks that may go up:

If in slide: “In the Warehouse Module”, the selection is on “Wolfpack up..”.

Why do you screen OUT (per 4 )- RS>80 and Stock > 200-dma)? These stocks with Box 7 should have the best potential of
going up.

Thank you for your dedication and close assistance.

Akiva

Akiva:  With the HGSI software you can tailor your needs to whatever your heart desires!  My lesson yesterday showed you the value of using Box 1 and Box 7 stocks primarily, and that has been the case over all these years.  However, it all depends on Market Conditions at the time you start to ferret for winners.  At least from the responses I got, most of you know that Box 7 stocks are where you will find the goldmine.  For those who didn’t know it was right under your nose, now is the time to do some homework, and by the responses I got, they are sitting up and taking notice!

Now, coming to your specific questions, the reason I chose the approach I described were three considerations:

1.  Market Conditions – Stuck in the mud with 200-dma Resistance
2.  Showing Strength in a Weak Market
3.  Eliminate Laggards for Best Results – and personal time factor.
I have been preaching to the choir for several weeks and even months that this Market is stuck in second gear and until it breaks out significantly to the upside of the 200-dma, we will yo-yo around until the cows come home or until they fill the Island Gap which they sniffed at today.  You noticed that all it took yesterday to focus on the problem in the market was the opening chart I showed you.

Building on that point, I wanted to show you how to prune the list from several hundred stocks down to the few that were the leaders in this current environment, so naturally any stock that had an Accumulation/Distribution of “D” was a laggard, so those are the first ones to prune.  Again, if the stock itself was below the 200-dma, it too must be considered a laggard at this point in time, so out they go.  Last but not least you want to work with Stocks that are showing some signs of life, so Relative Strength Rank of 80 and above pluck out those Leaders.  So that was my rationale.

Now let me turn the tables on you…Are you interested in Bottom Fishing in this environment?  I always say that your stomach is different than mine and if that is your bent be my guest, but you will soon see the frustration of playing with laggard stocks just because they are beaten down and supposedly cheap.  Cheap can get cheaper.

But more importantly the key question is did I MISS something by pruning the way I did?  Let’s take a look.  Here are the two week results I showed yesterday for the selection I chose:

We had another “Shot across the Bow” today, and I haven’t waited to see the nightly results as we are back to the same old Yo-Yo Market that all of us are getting fed up with.  Those that are firmly in the Bear Camp are chuckling about the heavy resistance at the 200-dma and until that gets broken or the Island Gap I mentioned a week or so ago gets filled we will ying-yang around.  So I will summarize the Market situation with just one chart which says it all.  I can’t make a silk purse out of a Sow’s Ear!

Those of you who are HGSI Software users will get a treat in this blog note as I have stirred up enough interest to quickly demonstrate a feature you will only find in it, which should convince you that one can find profitable stocks in rotten markets for the short, medium and long term if you will use the HGS Boxes Concept I developed over 20 Years ago.  It is still as fresh today as it was back then:

Those who follow Ron’s Weekly Movie were delighted with his subject of WolfPacks and his approach to ferreting for profitable stocks at times like these.  Building on his concept, I have chosen to use his same screen and use HGS Boxes to find the big winners.  It will be no surprise that the Box 7 Turn-around Stocks lead the way.  You and I know that the last two weeks have been a nightmare, but let me quickly show you how the various Box stocks performed recently, where you could have theoretically made 100% over the S&P 500 by just working with Box 7 stocks alone.  Let me first give you the results and then I will unfold how to find these gems in HGSI:

…And here are the stocks for Box 7 on the list.  The Majority are over 10% in ten days and a few as much as three times that, so it is impressive:

Some may turn up their noses at low priced stocks while others find it their cup of tea, but there is enough of a mixture of quality stocks to go around, especially when small-caps are again in favor.  The important factor is that they all have good RECENT Earnings Credentials by way of Earnings Growth in the last two qtrs. compared to a year ago…i.e., they have “Gas in the Tank”.

So how do you ferret for these stocks is now your burning question?  By the way, thank you for responding to my question on the HGSI Bulletin Board, many of whom already knew to watch for Box 7 stocks.

…And here are the Steps in the Process, which to most is a ten minute exercise if you are familiar with the program:

Here is the Pie Chart that provides the ability to ferret further:

If you know how to apply the Group Performance Analysis Tool, then you have manna from heaven as we have demonstrated to you at the seminars we hold.

Now for those who are still sceptics, you have heard me many times before tell you the road map to Hog Heaven is two Eurekas and Kahunas in a row, coupled with three buckets up so feast your beady eyes on when we had that signal it was time to get aboard and take the Roadmap to Hog Heaven, or you snooze you lose.  That signal was back on 10/05/2011 which you have faithfully followed if you keep up with my blog notes.  Don’t all shout at once that these stocks did not all have earnings out back two months ago…that’s left as an exercise for you to try your hand at now that you may be convinced there is a pony in here!

From time to time I get a gem of encouragement for the tireless hours I spend at this stuff, hopefully giving back to you what I have learned.  I would like to share with you the comments my good friend Aloha Mike wrote on the bb.

“I have used this method for many years – since we first developed it to use as a measure of risk. We soon discovered that it was a great sorting technique for ferreting out the fast moving/leading stocks.  This was back when we only had the paper and had to do most of the work by hand.  Early 90’s was a great learning and playing experience. Hiding out at Ian’s house and Malaga Cove Library basement we learned much. The new library is nicer, and more technologically driven but never forget the basics.

Stephen asks an astute question at a critical point in this Rally:

Ian or anyone,

We have a sea of green on the %B x %B Bandwidth chart. This is good.  Is the fact that the %B chart is showing us a Sweet 16 condition a reason for concern or does the sea of green override this concern?

Stephen

I’m watching the golf while putting this together so I hope that the pictures speak for themselves:

We are at that stage where we are Pausing to Refresh, sitting with an Island Gap below us which is asking to be filled.  The Rally is at a vulnerable point where the promising move so far can turn out to be a Fakey or the Bulls are determined to make this a meaningful Santa Claus Rally:

Understand that it is hardly ten days ago that we were in the dumps with 53% of the S&P 1500 Stocks below the Lower BB.  So this rise has been meteoric to say the least, and thereby lies the concern…too far too fast?

As a result, the internals are all looking rosie:

Don’t worry about reading the numbers, just look at the colors and my comments on the next two charts for Markets and ETFs:

Net-net:  Next week’s action is crucial to deciding whether we continue or have yet another Fakey to contend with.  Now for the Dark Side of the Equation:

And Finally, Watch for the Island Gap to be filled, or we trot on up to attack the resistance at the 200-dma one more time:

Best Regards, Ian.