Ian Woodward's Investing Blog

As most of you know, I have been a strong follower of John Bollinger and have built on his Bollinger Bands techniques.

Here is a response to a good friend of mine, Paul Reiche, whom I have known for over 15 years, who was a Seminar Attendee this past week and asked an astute question as follows:

Ian,

When the bandwidth starts to widen in a rally, above 0.11 as we see now, is that to be regarded with the same caution as on a down stroke?

Paul R

Hi Paul:  The quick answer is “No”.  You crafty fellow with those beady eyes that spotted what I saw as well.  I had to go back to the Stake in the Ground on October 2008 and the Measuring Rods using that Benchmark to understand the dynamics of what you and I saw!

However, the short answers are:
1.  You must pay attention to where %B is relative to Bandwidth
2.  The famous Bandwidth Squeeze which can take you either way
3.  After a disastrous quick drop, any recovery will show a widening of the Bandwidth AFTER the Market starts to come up out of the Mire.
4.  Watch for a Hockey Stick on the Lower Bollinger Band to see a Recovery forming

So What:  Rest easy on what you see UNTIL the Market Heads down sharply again. As long as %B sits up above 0.7 in the Champagne Buckets, have no fear!

Now for the long answers that come together clearer with pictures, which are worth a thousand words:

The first chart shows the dilemma with the “red” creeping back into the Bandwidth as shown below.  There is no concern as long as %B stays up in the “Champagne Buckets” of %B >0.7.  Note the strength of the market in the middle of the chart with the Average Composite %B for all Indexes at 0.97 on Thursday.

It goes without saying that all Type 3 and 4 Investors are itching to get in and those who are in, be they any Type, are wondering when this Market will break down again after the huge surge from the euphoric news from Europe that they have a solution for the Debt Crisis in their domain.  My notes in the body of the above chart say it all, since the key clue to being overbought is the 0.97% for the Composite Average of all Market Indexes.  In my previous Blog Note of Thursday, I mentioned that a reading of 45% of all S&P 1500 stocks >1.0 (above the Upper Bollinger Band) was very high…only one other reading has beaten that in 12 years!  That was on 7/1/2011 with 48%, and you have only to go back and look at my previous blog notes of August 1 to 4 to see the handwriting was on the wall then, which followed a month later.

Now please understand that the 48% on July 1 was at the end of a long Bull Rally from September 1, 2010; it was the culmination of a week of %B running up outside the Upper Bollinger Band on light volume, tantamount to a Climax Run as we discussed at the Seminar.  However, this 45% is at the start of a New Bull Run which is still trying to dig itself out of the MIRE.  Expect a Correction, but what happens after that is the Key clue.  Does it hold at above %B 0.5, the Middle Bollinger Band or fall down again to make the Rally short lived?  Understand that this Market lives day to day and is totally News Driven.

Also, take heed of the note in red that says “Start Counting 12 Drummers Drumming for a Correction” which I have covered several times on this blog.  It suggests that when all markets are this overbought with %B registering 0.97 for the Composite Average, one should expect some form of a correction within twelve days as a rule of thumb.  If that occurs, then the Market Indexes must hold above 0.5 for %B for the Rally to continue without another round of gloom and doom.  If Kahunas and Phoenix don’t appear in quick succession, then the likelihood is that the Rally will hold and continue upwards.

This next chart is all you need to know about Bucket Skipping, but be rest assured if you don’t understand the importance of Large Bucket Skipping then you may never stay on the right side of the Market.  Those at the Seminar now understand that this is their lifeblood, so digest it:

I showed you in my last Blog Note that yet again, a couple of Eurekas sprinkled with simultaneous Kahunas and a 3-bucket skip to the upside was the ticket that a new Rally was on and all of this preceded the official Follow Through Day (FTD) by a couple of days.  Go back and digest it.

Now let’s move forward to understand how you can use the HGSI software to analyze the key characteristics in anticipating good and bad moves in the market using the weapons that John Bollinger describes in his book “Bollinger on Bollinger Bands”.  If your eyes are rolling in the back of your head move on, but if you are interested the key to coming out of the current MIRE is a Hockey Stick!  In my youth I used to be a decent field hockey player, being captain of my college team at Faraday House and later with the Treble One aerobatic squadron of the Black Arrows at RAF North Weald.  Happy Days!

I know there is a lot to take in, but since you were one of the lucky ones who attended the Seminar for which Ron and I thank you for your support, this should be a snap for you!  It all comes down to Hockey Sticks!  Let’s fast forward to now and you will soon see what I mean on the following chart:

A good supporter of ours, Gary Lalone, wrote to me much earlier and suggested that the Institutions (Large Players) closed out their long positions back on 6/1/2011 with that five bucket skip down on that day, and then waited for an opportune time to short.  And that’s my Story for Today!

Best Regards, Ian

It is exactly a Year to the date that I last used this picture and said “I can tell from the ‘hits’ I get on the blog that there is a faithful following that enjoy my blog, and I hope the picture below assures you that I had not forgotten you, but I was extremely busy doing the October Seminar”.  We had a most exhilarating Seminar thanks to all our faithful supporters, guest presenters and “newbies” who learned a lot and we all had fun:

The next slide is the sobering thought I used at the Seminar to explain the current situation with regard to the Problem We Face as a Nation:

Given that dark cloud that hangs over the Nation and the Globe, the Market is on a strong Breakout as shown below…it is what it is:

At long last the VIX has broken down below 30, and today we had the real signs of a Market Recovery, but as you will see we are now overbought:

As I explained in my last blog ten days ago we were in the middle of a strong rally with the Bulls now in full control, but we shall see if it will last:

…And here is a Summary of the key points in the last month which shows that the process we have used since March 2009 works well for a Fresh Rally:

The pendulum has swung from Despondency to Euphoria  where we now have 45% of the S&P 1500 stocks above the Upper Bollinger Band, i.e.>1.0:

…And the following chart shows the extent of the powerful move the Rally has produced as the Bears have been forced to cover, for NOW:

Now that many Market Indexes have broken up through the 200-dma resistance, the next moves will either hold at that support line and then head up again, or we fall back below to find support at around 2655 or lower.  These are explosive times in the Market both ways so play with caution.  Good luck to you all.

Best Regards, Ian.

I see that some of you like this picture which I conjure up from time to time, as this is turning out to be the crucial week for the Stock Market given what is in store for us by way of Late Breaking News which I will get to in a minute:

But first let me pay a tribute to the man who best exemplified “Think Outside the Box”…Steve Jobs:

Last week’s performance was very encouraging after the three Fakey’s we have endured so far.  I’ve shown you this slide before, so it should need no explanation, other than to point out that the market behavior this past week is very similar to that of the March 2009 Template I show at the bottom of the chart and is what we must achieve to assure the start of a decent rally.

As we can readily see, the see-saw, Marjorie Daw roller coaster action we have witnessed these past two months, and particularly this past twenty days, has provided us with an easy scenario to read the Next Bull Elephant Stompings…either up or down:

Now here is the Upside Scenario, which as you would expect is Europe News Driven, and couldn’t come at a better time if we are to see a continuation of the good rally attempt last week, based on the %B chart I showed you up above.  We will have to see if there is a positive reaction tomorrow in the Asian and European Markets before we can tell whether the news by the German and French Leadership has any positive effect to at least stem the tide from downwards for the start of the week.  You will note that I show that Alcoa, Google and J.P. Morgan Chase kick off the new earnings season next Thursday; also, tomorrow is Columbus Day so some markets may be closed, so we will just have to wait and see:

We will just have to wait and see if this is more rhetoric to kick the can down the road or that the European Governments will produce the muscle to clear up their mess.  If there is any further bad news out of that quarter or if we pussy-foot around here at home then we are staring at the next obvious Low Road Scenario which I depict below.  Most of the Market Indexes are already knocking on the door of a bear market drop of -20%, and some like the Russell 2000 (RUT) are already there:

Well, have fun this week as Ron and I continue to work feverishly for the Upcoming Seminar which is now down to two weeks away.  There are still seats available and those of you who indicated that you were coming need to sign up to help us help you.

Best Regards, Ian.

It goes without saying that both Ron and I are working feverishly to give you another great Seminar in three weeks time.  We still have seats and I can assure you that we will raise the bar one more time.  I can tell from the lack of enthusiasm for the current market that many of you are turned off, but now is precisely the time for you to understand what to look for in both Down and Up Markets, so bring your better half along and you will learn a lot and have fun.  I am reaching out to my friends in the Kingdom of Tonga, Australia, New Zealand, England, Scotland, Switzerland, Europe, Israel and my good friend Kevin from Qatar to name a few who owe us a visit!  Let’s not forget all you who are faithful supporters here in the good old USA.

Now, if you don’t believe me that you will learn far more in person and be two years ahead of where you are now, then realize I gave you the clues of where this Market was headed and why back in my blogs of August 1 and then nailed it on August 4…go back and read that good stuff for yourself.  Here is the upto date picture of that clue:

I know, I know, that some of you are saying to yourselves “Ian, I can’t even read the chart, and this is far too confusing for me to understand”.  Not so say the Seminar Attendees…they know which way their bread is buttered.  But for those of you who don’t know it, we simplify all of this by then making it easy for you to follow with Ron’s part of the presentations that takes this and produces the easiest of pictures in the HGS Investor Software.  Please also understand that we will be addressing the latest Version 8 of the HGSI Software as well, so that you will see all the goodies on many fronts.  Add Chris White of EdgeRater to the list with the new tricks he has up his sleeves. Now let’s not forget Dr. Jeffrey Scott, who will as usual be sharing his latest insights with us and you have a powerful set of information to look forward to.  Let’s not forget the banter back and forth by the attendees in the room and all in all you will go away with knowledge coming out of your ears.   Yes, of course it’s a sales pitch, but we need your support right now.

Now here is the Calendar of events for the next week, and  you will see the Employment report comes out on Friday:

I’ll leave you with one Ray of Hope!  AAPL will talk about their iPhone on October 4:

Best regards, Ian.

Bruce who is a fellow investor I have known since the days of chatting on Prodigy over 20 Years ago asked me today “Ian, I would be interested in your opinion on Gold and whether it might have bottomed. It often goes the opposite direction as the rest of the market, especially the dollar.”

I don’t pretend to be an expert in Gold, but in view of the alarming fall these past three days, I did a little research today to see if I can shed some light on the subject.  This precious Metal is tops with the Middle and Far East Markets, and particularly in India of which this is an example of a shop in a Bazaar in Mumbai, originally Bombay:

If we look at the SPDR Gold Shares ETF (GLD), we can immediately see that once the shares went into a steep climax run lasting almost two months and finishing in a double top, its days were numbered.  The precipitous drop came four days ago and may have been triggered by the Bubble in the price but also fueled by the uncertainty of the Greek Crisis and all the fru-frau regarding European Banks, and the Euro, which may have caused a flight to cash.  At any rate, it is surprising to see that Gold may even beat the S&P 500 and the Nasdaq to a Bear Market of -20%!

Although we woke up to a precipitous drop in Gold Futures overnight, the subsequent Bounce Play was encouraging.  The damage was done the previous two days when the price gapped down below the Lower Bollinger Band, and that is what must be watched carefully.  With a close to 17% drop from the recent high don’t expect a miraculous recovery…these kinds of shocks take time to work themselves out of a hole.  The clue for recovery is typically a retest of the Low and a “W” Double Bottom.  If the Index moves sideways inside the Lower Bollinger Band on the retest, that is a point in time when there may be a serious rally to the upside.

Looking at the recent behavior of the Gold Futures for clues to recovery, %B is down in the mire with a reading of -.1879 as shown on the chart below and I show you what to look for to get a quick recovery on the extreme right hand side where I suggest %B must get above the middle band of 0.5 in a hurry.

I found a good site in www.kitco.com which covers several precious metals with statistics coming out of its ears, and here is just one snapshot I captured which shows the one day performance of the Spot Gold, where you can immediately see that it got back to where it started the day, but gave up 100 points from top to bottom and back again.   Note that the entire move was accomplished in the first six hours, so it ran into resistance at the 1625 level…so look for a retest of the lows somewhere along the way.

One other thought is to put yourself in the shoes of the Investors in Mumbai India.  In other words, it pays to watch the likes of the India Fund (IFN) and you will see the Far East which includes China has taken a drubbing this past year.  So it is no wonder that eventually this would flow over into the gold market.  I don’t have to tell you that the pundits have been touting Gold 2000, and with it the super hot commodity of the year, it can surprise us all and rebound quickly.

The temptation is to jump in with both feet, but when a Security is broken it is usually prudent to wait for a base to form or at least some sign that the worst is over before you barrel in.

Best Regards, Ian.