Ian Woodward's Investing Blog

I am delighted that you folks have seen the value of this latest Woody Indicator, and have already scraped it into Trade Station.  Hopefully in time, you will find more value by having all this handed to you on a Silver Platter in EdgeRater.  You are also aware that the HGSI software will include the %B x BW and %B x BW 1-Dy Chg in its list of factors in the next upgrade which will enable screening, slicing and dicing.  Hopefully we will also see a similar feature to that of %B in the Charting Module so that we can have our cake and eat it without the need for the VFB feature.

Frank asks a couple of questions: 

So Ian, rally should go first and test the 405 on the Nasdaq composite at 2700 and then the peak at 2880?

I’ve programmed %BxBW into Tradestation. Just to make sure >= .03 green <= .01 red, rest yellow?

The answer to your second question is “That’s correct”…until we gain more experience.

 Now for your first question:

1.  The 200-dma is the first and most important hurdle.  The Nasdaq has been turned back three times so far and it should not    be a surprise if it meets the same fate this time.

2.  The News item for tomorrow is the Jobs Report and already the pundits are signaling problems

3.  However if it can hold this weekend then the next hurdle is the 405 Freeway at ~2700 (DTL from Highs)

4.  Let’s assume for a moment that it makes it through that hurdle, then it’s on to 2800, before it gets to 2900

I trust you faithful followers of this Blog realize that I call it like it is so before we get too excited about the Santa Claus Rally, it always pays to assess whether your stomach will allow you to get caught up in the moment.  With that in mind, please understand it is a case of Risk vs. Reward, and only you can decide whether you feel comfortable, especially if you are a Longer Term Investor.  I am sure you also know that as a general rule the biggest gains on a True Rally are made in the first five days or so.

Many of you have understood and watch carefully the 8% down rule, where invariably the markets will hold at that level and go back up ~75% of the time.  Likewise, you also understand by now that once we get below that level, the flood gates open up and there is a mad stampede for the exits.

Likewise, that same strategy can be played to the upside, especially with the Nasdaq which conveniently can be played in steps of 100 points as you have often seen me use at round numbers going up from 2500.  Why, you ask?  100 points up is 4% at a time and Markets tend to find support or resistance at round numbers.  Hence the Fight at the OK Corral and Custer’s Last Stand invariably give you that Heads Up.  Likewise, 12% up is the minimum for what one would call a decent rally, and it all depends on where you choose to get in.  The longer you wait for your pet signals to trigger the more you cut into the cloth of % Gains for that particular Rally.

For the benefit of the Types 3 & 4 Longer Term Players:

5. Now do the Math:

Recent Low = 2441.48

Current Close = 2626.20

% Up = 2626.20/2441.48 = 7.6%

Next level = 2700…%Up = 10.6%

Next level = 2800…% Up = 14.7%

Next level = 2900…% Up = 18.8%

i.e., essentially up ~4% for every 100 Points.

6. The FTD has not yet been triggered… has to be on the 4^th through the 9^th day.  So, it has already missed 7.6% of the Rally.  Therefore, the very best one can expect = 2700/2650 (say) = 1.9%; 2800/2650 = 5.7%; 2900/2650 = 9.4%.  Even the best number won’t cut it for a Successful Rally, unless we get above 2900!

7.  So What?  Net-net, the best of moves which would be the signal 2-days ago from the Sector ETFs would put us at 2800/2507.72 = 11.66% and 2900/2507.72 = 15.64%, i.e., a “Successful Rally”, but it must get past 2800 first!

8.  If you buy all of that mumbo jumbo (hopefully Good Stuff), this Santa Claus Rally can at best be for Short Term Type 1 and 2 Players only.  But nine-tenths of the world these days are playing double and triple ETFs both ways, and turn on a dime, so that is why the “Woody” Indicator of %B x BW has major appeal along with the well tried and tested Eurekas and Kahunas.  It gets you in sooner, keeps you in longer through Fakeys, and gets you out Faster when the world is rushing for the exits.  However, You Snooze, You Lose!  On the other hand if your stomach can’t take the heat, stay out of the kitchen.

9.  Three Buckets up and five Buckets Down on %B is Manna from Heaven.

10. Don’t expect a Golden Cross (50-dma coming up through the 200-dma) until March 2012 at the earliest, in time for the next HGS Investor Seminar if we are that lucky AND we push up through 2900, which has been the sticking point for 12 years when the Tech Bubble took off into the Ethernet…pun intended!

So What?  This Rally is for Short Term Players, don’texpect miracles, and beware of Fakeys, i.e., Bull Traps!

Best Regards, Ian

The Dow Jones Industrial Average had the best day since March of 2009, up 490 points or 4.2% to close above 12,000.  Actions by central banks worldwide to combat debt crises spurred the broad rally.  The Federal Reserve said Wednesday that it joined some of the world’s major central banks in a coordinated action to inject liquidity into the global financial system.

I can tell from your favorite hits on this blog that you are all itching for a Santa Claus Rally and for sure this has all the makings of a fresh run.  Three Buckets Up together with two Eurekas and two Kahunas within three days is just what the doctor ordered to spark this tricky market into a fresh move to the upside.

The charts below show the strength of the move at the close of the Day when all Indexes rose rapidly as the Shorts threw in the towel and volume surged for the first time in ages.  This explosive move is matched only by the likes of the sudden burst back in March 2009, so we can hope that this will follow suit and not fizzle out in a few days.

It goes without saying that all boats are now out of the mud and we have a healthy picture for stocks above and below 0.5 on the %B for Bollinger Bands.

Now for some exciting Late Breaking News!  My good friend Chris White has turned up trumps by adding a Template in his EdgeRater Version 5.0 Product which provides insight into the Sector ETFs for the XL_ Series.  You will note at the bottom of the following chart that these ETFs were already signaling that good things would happen today based on their movement yesterday with six ETFs and the Composite Average all showing “Green” signals just one day after the Turn Around Day which I mentioned in my previous blog:

Having the ability to compare both the Major Market Indexes as well as the Sector ETFs stiffens up our backbones by seeing both the similarities and subtle differences to give clues of when to act as shown below.  The colors explain the similarities and differences…the numbers are not important for this illustration.

Now let’s look at the action today first for the Major Market Indexes and then for the Sector ETFs.  We immediately see that we have another run of Kahunas across the board and %B x BW is completely Green for both charts, which suggests a strong “Go” as of today for both sets of Indexes.  Yesterday would be an Early Call using the ETFs only:

As I have mentioned many times before, a 3.7 Bucket Up Day is a sit up and take notice moment as it happens fairly rarely.  Of course when all Market Indexes are up over 4% it hardly matters as that of itself is very significant.  However, since we have essentially had this type of move twice within three days as shown on the next chart, that certainly shows that we have fresh strong momentum to the upside.  Just look at the 705 Kahuna Force Up moves registered today…that is not just short covering or I will eat my hat!

As we well know we still have the major hurdle of getting above the 200-dma which has been a bugaboo for this rally three times before and it could fizzle out once again.  However, as my youngest grandson of ten is known to have said “We will cross that bridge when we come to it!”.

There is always a balance between Risk and Reward, so play it the way the Market tells you to play it.

Best Regards, Ian.

Just when things were looking a trifle bleak with all the misery we put up with the past two weeks, we had a ray of hope today that we might still eke out a Santa Claus Rally.  U.S. stocks jumped as optimism grew that European leaders would come up with a new plan to resolve the region’s debt crisis and following a strong start to the holiday shopping season.

Except for the Volume which was disappointing for such a powerful snapback, it was a very strong day pricewise, and all Market Indexes had a Kahuna.  We also chalked up an Eureka after suffering three Phoenix signals to the downside last week.  A few more days like today are needed before we can even hope that the Santa Claus Rally is on, as it would seem that today’s volume action was mainly short covering, or the pundits were taking an extra day off to digest their Thanksgiving Turkey!

Let’s not get too excited as yet as one day does not a rally make!  The Market took a terrible beating as shown by the pie charts below which indicate that all boats were stuck in the mud and are still oversold despite the excellent day today:

Just to drive it home, here is the usual picture which shows the buckets for the S&P 1500 and we can readily see the damage that was done last week before we bounced back with a 2++ Bucket Skip up today.  This could be the start of a new rally, but we need a Follow Through Day and then some more momentum to get through the resistance that we now face:

…And Finally, we can see that we have a long way to recover with the 50-dma and 200-dma hanging over our heads as this Market tries to right itself and either drive for a strong Santa Claus Rally or fall back once again to head down and test the lows at 2300:

Let’s hope I can resurrect our favorite picture of Santa Claus in his Red MG having to contend with a few Moose Droppings along the way, but hopefully overcoming the grinning Grinch who might be waiting in the wings to ruin our fun.

Best Regards, Ian.

It goes without saying that the events of the past week have turned this recent Rally to Anemic:

Continuing with the recent theme on the blog of %B x BW, allow me a little sentiment with this picture:

Here are the recent results picking up from the last Blog Note, which shows the Process is working very well:

The Five Buckets down on 11/09/2011 turned the %B x BW to mostly yellow, nine days from the Market High, and despite an oversold bounce two days later, it was not enough to stave off the rot that had set in, and 11/16/2011 and 11/17/2011 cooked the rally to “Market in Correction”.  The Process got you in 4 to 5 days early and did the same on the way out.  Note the eight days of a Jittery Yo-Yo Market which would drive most to nightmares, but the technique kept you in until the true major warning sign of FIVE Buckets Down.  That Rule is Golden!  Take it to the Bank.  Likewise 3 Buckets up together with Eurekas and Kahunas within a week has proven solid for a Fresh Rally provided %B x BW is also Green as seen above.

Here is the corresponding picture that you are now familiar with, which shows the Market is very weak:

…And here are the %’s in each Bucket for the S&P 1500 with Color Coding to emphasize strength and weakness, which shows the score is -9:

The Score of -9 confirms the Anemic State of the Market, and here is what it means relative to past history.  Note that when the score is this low, it has a struggle to recover any time soon:

Let’s not forget the chief Canary AAPL, which is Gasping at this stage:

So What?…I don’t have to remind you that the Supercommittee of 12 have a deadline this coming Wednesday, and they are deadlocked.

Keep your Powder Dry! With Best Wishes for a Very Happy Thanksgiving from the HGSI Team,  Ian:

Ian,

The new charts and bigger size was very helpful to see the tools in action.  Would it be possible to update with 11-10-2011 data to see the change we got today with the market moving back up?

Thanks,

Jim

Have a heart, Jim, but in the spirit of answering you, here is just one chart updated.  If you had any idea of how long it takes me to do this stuff, I’m sure you would not want me to sit up late tonight.

In my last note I said that the %B x BW changed to just two yellow, with NDX and Nasdaq staying Yellow, but the S&P 100 changed back to Green.  You can see the change above.

Good luck, Ian.