Ian Woodward's Investing Blog

This past month has been dreary with little to write about since the Japanese Calamity and the Libya Conflict.  Stalemate with a slight upward bias is the word of the day:

…And here is the evidence, with most Indexes in the low 50’s:

…And here is another view using the S&P 1500 which tells us the same thing:

Those who attended the Seminar a few weeks ago will understand the value of this view, which suggests we are in the Buy/Hold area:

The Nasdaq broke out nearly three weeks ago and fell back to support at 2735 where it is pausing to refresh:

Here is the most surprising picture which presents a conundrum…totally complacent, the lowest we have seen since the Peak in 2007:

The leaders count is the most encouraging picture to suggest we may have one more rally in the making:

…And here is a selection of New America Stocks to keep a beady eye on to tell you if the Market turns up or down:

The Index chart of this list looks strong and ready to go again…we shall see:

There you have it…play it close to the vest and pick the stocks with the right credentials for quick gains, until you see which way the wind blows.

Best Regards, Ian.

The Roller Coaster Ride is not over yet, so you know you are playing Snakes and Ladders.  However, over the course of the last couple of weeks we have learned a lot about the Game Plan for the Large Players.  The Magic of POMO, i.e., QE-2, is still alive until “May be Out”:

There is an old Scottish saying which is “Ne’er Cast a Clout till May be Out!” which translated means “Do not discard your Winter Woolies until May has come and gone”.  So, take a tip from that old saying and don’t be too quick to get rid of your stocks until May is out”.  Likewise, the big boys trot off to the Hamptons with “Go Away in May and Come back in October”, so expect things to get a trifle dull and in the doldrums in the summer months.  We shall see what we shall see.  Judging from the volume these days, they may have already trotted off into the sunset. 

The net result is that the KISS Approach for the High, Low and Middle Road Scenarios become pretty straightforward:

The bottom line “So What” Message is the Market is still in Stalemate at the 50-yard line and the Bulls have the ball and are attempting a new move to the High Road Scenario yet one more time.   I feel it is time to dust off my old favorite view at this time for another fight at the OK Corral between the Bulls and the Bears which I have used many times before in the past.  In all these years I have never seen the game plan to be around numbers that are easy to remember – the Market always likes to play around 100’s and 1000’s.  In the case of  the Nasdaq the current game is being played between 2600 and 2900, with the 50-yard line at 2700.  Below 2614 is 8% DOWN from the current high of 2841 and as you well know by now history shows that 77% of the time the S&P 500 turns back up at or around this number.  Below that it can land anywhere.  Therefore, Type 3’s and 4’s longer term Investors should take heed if it breaks down at this level to protect their Nest Egg:

As I told you in my last blog, you need to watch the Canary in the Coalmine and that is AAPL.  In addition it pays to watch the Apple Food Chain and in the next two slides I show charts of AAPL and OVTI, with the latter already breaking out based on its recent strong earnings report as this market turns up:

I mentioned in my last Blog that the way the Markets behaved after these terrible Calamities both in Japan and in the Middle East and particularly in Libya, would give us a great clue as to what is the Large Players Game Plan.  It for sure has shown us that POMO still rules the roost in their minds and they are not yet ready to let this market die.  Can you imagine in other times the VIX giving a spike up for only two days to just collapse into tranquility again.  It is now well below 20, which is what is needed for a long haul rally to continue.  At any rate we now have an excellent cushion as I show on this next chart, as the real resistance is above the 200-dma:

We all enjoyed an exhilarating seminar and we thank you all for your support.   As you will see I have recouped from an exhausting three days of hard work and fun and have been able to collect my thoughts to give you all a Game Plan that should last you for a while.  Let’s see how it plays out.

Best Regards, Ian.

In my last blog I gave you the simple short term three road scenario for last Friday: 

1. High Road Scenario – Big Bounce Play
2. Middle Road – Pause to Refresh
3. Low Road – Correction with %B below a ratio of 30:70

Well, we got the bounce play which was strong but not strong enough, so we now sit at “Pause to Refresh”.  This means that we wait for next week to see if the tug-o-war between the Bulls and Bears can resolve the Stalemate of the QE2 vs The Middle East Crisis & the resulting Price of Oil:

So why do I say “Stalemate”, you may ask?  It is just my way of stating the CURRENT Status going into next week.  My good friend Chris White who will be at the HGS Seminar from March 26 to 28 gave me the keys to paradise with his special set of software add-in that allows me to show you all this good stuff in relative terms.   You will recall the picture which I first gave you all of three months ago before the Santa Claus Rally where we were at a similar stage of events.  You will also recall that I informed you that the natural bias of the numbers for equilibrium is not 50:50 but 55:45 with a slight bias to the right hand buckets, otherwise the market would not have risen all these 100 years; so loud cheers for Chris with a Hip, Hip, Hooray!  Note that Bucket #8, >0.6 <0.7 is the one to watch in the sloshing exercise as the market swings to and fro.  When that is at a peak, you can expect a “Normal Distribution” which says the market can go either way.  Here is the picture for the S&P 1500 at that time:

So now, by comparison, we fast forward three months later and we are back to Stalemate, but with a decided positive bias from the previous day and a major gloom and doom picture (not shown) from the day before that…so you see a familiar picture:

Well, you say “Ian, that is only for the S&P 1500; what about the ten Market Indexes which you have taught us to follow?”:  Immediately you see that big shot across the Bow on 02/22/2011 and 02/23/2011, which took us from the Safe Zone up in the 80’s and 90’s to the dreaded 30’s in a matter of two days flat.  In addition, you will note that the Twelve Drummers are Drumming once again, and we shall see if the market will cave in or resurrect itself with all the QE2 pumping that is underway.   Note that the Bounce Play is not to be sneezed at as three Indexes gave Kahunas and the rest were close to that…look at the bottom line:

…And now for the clue by comparing the “Internals” of the Bucket Sloshing for this week to last week, and as you can see there has been a marked deterioration.  Also, note how %B itself for each of the Indexes has dropped in concert with the sloshing, confirming the picture I have just shown you above.

“What’s all that yellow stuff at the extreme right” you might ask?  That shows a quick way of seeing that the so called “Bucket Sloshing” is leading or lagging the Bollinger %B for the Market Indexes.  When the signs are minus in that column, the Internals are leading.  It stands to reason…no matter how overbought or oversold the market is, the buckets themselves above and below 0.5 are not going to be 100:0 or 0:100, unless there is an utter calamity ala 1987, which I haven’t seen in this work so far.  In other words there will always be a “residual %” in either the top or bottom half, and I have done the homework that says a good rule of thumb is around 85:15 or 15:85 for overbought and oversold, respectively.  Take that rule of thumb to the bank.  The precise numbers for recent tops and bottoms are shown below: 

Notice how the top and bottom buckets of >1.0 and <0  for Market Tops and Bottoms, respectively, vary substantially depending on the strength of the sloshing at the extremes of the Market.  It clearly shows the ebb and flow of the market which this is intended to demonstrate.  It’s no wonder that we hit rock bottom with 48% in bucket <0 at the time of the recent Flash Crash when the average of all ten Market Indexes came down to 4%:96%, the worst I have seen so far in these past two years.  Don’t forget that the resultant correction was >17% over three months.

So where does all of this leave us for next week?  I return to our favorite summary chart that shows the road map we have followed faithfully for the past 26 weeks of this rally and I have color coded the last week in orange to depict “pause to refresh”.  We are by no means out of the woods and although the Bounce Play on Friday was encouraging we need to see a follow through day with an Eureka to stiffen our backbones that the Middle East crisis has subsided for now and that oil is once again in check; and let’s not forget that Uncle Ben with his QE2 pumping remains alive and well and continues to rule the roost for now. 

This time in four weeks we will all be engrossed in the HGS Investor Seminar which goes from March 26 to 28 and it is high time you signed up if you intend to come.  Thank you for attending the Webinar that Ron and I held last Thursday night which had a good turn out.

Best regards, Ian.

After today’s action in the stock market, the Three Road Scenario in the short term is simple:

1. High Road:      Bounce Play Tomorrow
2. Middle Road:   Pause to Refresh
3. Low Road:       Full Blown Correction

This next chart needs no explanation and is the evidence that we are at the critical point.  In my last blog note I said the critical level is 30:70 and we are currently at 34:66…close enough for Gov’t Work:

Ron and I look forward to seeing you at the Webinar tomorrow evening.

All the Best, Ian.

At long last the Bears are licking their chops and wondering if it is their turn  after 26 weeks of patience.  The Bull and Bear action of the next few days and the outcome in Libya will tell the story:

It goes without saying we had a Major Shot across the Bow today, with nearly a 4 bucket drop:

The drop is severe enough that there may be a reaction bounce, and it is the extent of that bounce together with whether the Bulls can hold the line which will determine if this was again a one day wonder or at long last the time to pause to refresh if not have a decent correction.  The oil spike needs to be watched tomorrow, though the Futures Market shows a small positive bounce as I write for the DJIA, the Nasdaq and S&P 500.

On Friday we were back up in the “Safe Zone” with %B above 0.5 for the S&P 1500 up at 0.80, a very healthy reading.   Today it is sitting at 51.8 which implies that we are at the “Caution” Flag.  If it drops to 30, the Party is over for now as shown by the following chart which you have enjoyed from the past:

I hope to see many of you at the Webinar that Ron and I are doing on the third session on Impulse Indicators on Thursday.

Best Regards, Ian.