Ian Woodward's Investing Blog

We have all had three days to ponder on where next and it would seem that although the Market Factors such as the ABCDE’s are quite robust, the breaking news today is that Steve Jobs is taking a leave of abscence and that could cause a perturbation in the Market.  We wish him the very best as he faces new problems with pancreatic cancer.

Steve Job’s medical problems are not new to the Stock Market, but with AAPL being ~21% weighted in the Nasdaq, the market is vulnerable to easy pickings for the market makers to use the opportunity to cause a shake out of the longs and then establish long positions for themselves.  Likewise, there is the “Apple Food Chain” where several stocks move on the strength or weakness of AAPL, so it will be interesting to see how this plays out, especially as AAPL’s Earnings Report and Guidance is due after the close tomorrow.

After the shot across the bow on January 7, 2011 when the % of S&P 1500 Stocks with ~12% in %B <0 being the highest bucket, the Market Indexes %B themselves have all recovered nicely to the point where except for the DJIA which is at a healthy 0.96, the rest are all over 1.0!    All of this suggests to me that the Fork in the Road is back and both the High Road and Low Road could be in play this week, so we need to be on guard, given all of the above:

The optimistic longer term view is that we are only a mere 145 points away from that major check point of 2900, and although I am not suggesting that we hit it any time soon, the overall prospects seemed good that we could chip away at half that climb and at least break through 2800 in the near term.    My good friend Mike Scott produced this chart moons ago and I have faithfully kept it up to date and added to his musings, so enjoy:

So let’s review the bidding on the usual internal factors that give us a pulse for the Market health, from the McClellan Oscillator, knowing your ABCDE’s, and the % of Nasdaq stocks above the 200-dma:

Here’s a picture I haven’t shared with you recently, but it shows how the Market has added over 300 stocks in the last six months and is climbing at a good clip.  We can use it to our advantage when the number of stocks in the IBD Index falls below 5400 as that would signal a correction is in progress:

The Leaders with %A Accumulation is at a reasonable 17.36%, but we would prefer to see this above 20 to 23%.  Beggars can’t be choosers and we have to be thankful for small mercies since it is at least above 15%:

However, the %A + %B Accumulation look a lot stronger at a healthy 63%.  We could do with a push to ~70% if we are to see a Climax Run, but we do have a cushion at this stage until it gets below 50%:

Now for %E, the stocks that are being heavily distributed.  The % is close to 7%, but we have seen this rise as the market has risen, whereas it is normally quiet until the market gets long in the tooth.  Once above 7% it has a tendency to jump so you need to watch for that as that is a sure sign that the Market will correct:

The % of Nasdaq Stocks above the 200-dma is a very respectable 80%, so the overal breadth of the market is good:

We hit a critical point in this rally on January 7th, but recovered.  We are not out of the woods, but at least better off now:

You are familiar with this chart, so it needs no explanation…but it still shows weakness in the %B internals of the S&P 1500:

One scenario for this divergence suggests we are again headed into a climax run.  It may be cut short as a result of the late breaking news regarding Steve Jobs, but we shall see how this plays out the rest of this week.  It’s earnings report due time so be very careful at this time of the year.

Best Regards, Ian.

Well, I warned you that we might have a turn up for the books with a Highland Fling, but that was only to make sure we don’t count our chickens before they hatched with all the negative signs I addressed in my last Blog note.  It looks as if the Annual January Effect is on so we should at least see several days of driving the small cap stocks, though today the big push was in the beaten down NDX.

The Grinch has departed for now and the Bounce is big as we see from the Chart below:

So, with the experience of the last couple of days, we learn that the Bucket >0.6 <= 0.7 is indeed the “Swing Bucket”…the market either drops big time or it rebounds to regain the rally status.  One day does not a rally make, but at least it is a promising start:

…And here is the chart that shows the major shift in one day demonstrating there is a good degree of momentum.  Although there was no Eureka today, we had plenty of Kahunas in the Market Indexes and that always suggests strong momentum:

Finally, you can see the major bounce back in the Market Indexes showing their one day change on the left and the %B for each on the right.  Note that the numbers are again all green on the bottom line and that spells “Good”!

If you want to see the numbers more clearly, click on the chart and you will see a bigger picture.

Best Regards, Ian.

A Happy New Year from the HGSI Team to all our supporters and new friends with peace, prosperity and continued friendships for the coming year.  The Stock Market has had a long run and it is no wonder that it is running on fumes.  It is vulnerable now that the year is finished, but given the putrid volume these past several weeks, we may yet see a final Highland Fling before we see a much awaited correction for the Bears:

Now that Santa Claus has come and gone, the Grinch is lurking in the bushes and waiting to pounce.  This has been the period of the Calm Before the Storm and unless the Market gets a boost with strong winds at its back, all signals suggest we are headed down:

Forewarned is Forearmed I say and I will expand on the picture above as we review the bidding for the alternative scenarios:

The deterioration is very evident in the past week, and I have warned you earlier that once we get to >=16 in the “Swing Bucket” of >0.6 <=0.7, you better watch out below:

Don’t forget to click on the Chart to see a bigger view!  We are currently at “Stalemate” with an Early Warning Sign that the Normal Distribution is shifting towards the center:

…And here is a comparison with the Peak of the Market Indexes from  three weeks ago:

“Where Next”, you might well ask?  Who knows, but the odds favor a trot down.  As you well know the Market Volatility has been relatively calm and so we are due for a “2% Day” either way.  What that will spell is either a Phoenix with its 2 Bucket Skip to the downside and its corresponding Kahuna Down, or an Eureka with a 2 Bucket Skip to the upside and its accompanying Kahuna Up.  If it does neither, we wallow around in the Middle Road Scenario until there is some earth shattering news to make it get out of Stalemate. 

Now let me zoom out to when we had an Eureka just one month ago, and show you the favorite map of how the Market Indexes have performed since then.  Note that we have not had either an Eureka or a Phoenix for the past month, indicating that there has been relatively little volatility, but of course the seasonal volume has been dismal.  However, New Year’s Eve showed the first signs of deterioration on a day-to-day basis with three Indexes showing at least a Half Kahuna drop to the downside.  More importantly note that the NDX, which after all contained the favorite leadership, is the weakest of them all with a %B for the NDX of a paltry 0.55.  Grandma’s Pies are getting a trifle soggy.

Last but not least we have the chart we have now tracked for the past 18 weeks with Santa’s red car now being replaced by a lurking Grinch.  We can certainly tolerate a 3% dip, and maybe even a 7% drop, but any more than that and the Bears will have a field day and be in total control until the Bulls get an appetite to buy into this market with gusto.

So there you have it.  Have a wonderful year, and we hope to see many of you at the March 26 to 28 Seminar.  Drop me a line and tell me you are coming. 

Best Regards, Ian. 

Give my HGSI supporters an inch and they take a mile!  Joe came up with a great new term for all this %B good stuff I have thrown at you and “Bucketology” sure fits the bill.  The hour is late so here in two slides is my New Year’s gift to you. 

In my last blog I covered all the bases for you and showed you how the Market was deteriorating.  We must recognize that this week is a very quiet week with little volume since most people are still enjoying their holidays despite the turmoil on both the East and West Coast with snowstorms and heavy rains, respectively.  We all are saddened for those who have suffered so much these last few days. 

I have followed up with what I had suggested should be an early warning sign and to watch carefully for the #17 or greater in Bucket #8,  >0.6 <=0.7, and here is the first signs of chinks in the armor.  Not full blown yet, but if this downward deterioration continues one more day, it will be interesting to see what happens next:

Don’t forget to click on the chart to see a bigger view if the numbers are too small for your beady eyes, but I have highlighted the three 17’s/18’s that “fired” today as shown.  As you all know this is a new concept evolving as it is happening, so take it for what it is worth with a pinch of salt, and we shall soon see if the Market bounces from here as it must do to maintain the rally, or it fizzles in the next few days or early next year.

Best Regards, Ian.

Santa Claus has come and gone and sputtered this last week, but that was to be expected as we have had the best part of a 17 week rally if you accept that the two week “Pause to Refresh” in mid to late November was only a minor correction of about 4%.

The $64 question is “What’s Next?” Never ever have only one outlook or bias.  By all means develop the High, Middle and Low Road Scenarios, but in the final equation let the Market tell you which road it is on.  Certainly, when the Rally is this long in the tooth, it is prudent to take profits along the way, lighten up and be cautious.  But how many times have we all been fooled by the Market Behavior, so although the odds favor a correction soon, don’t bet on it until the evidence is cast-iron.

So let’s turn to “Fly-Specking” Sherlock Holmes style using all we have learned these past several months to see if we can develop the three scenarios for the High, Middle and Low Roads.  The objective is to identify some Early Warning Signs using %B criteria, given what we have observed in the recent past.

Allow me a little indulgence in that many of our supporters are realizing the value of watching more carefully what I call the “internals of the market”.  We each have our own favorites, but many of you are seeing the value of observing the EBB-Tide effect as the percentage of stocks in the Market Indexes slosh back and forth from oversold to overbought.  The extremes are usually not difficult to see when they happen.  However, it is that important phase of just a few days grace one can look for without being caught in an avoidable downdraft that can make all the difference to your pocket and your confidence.  No one can foresee Flash Crashes, but it is the Fly-Specking that may catch the early wind either up or down when the Market is sitting in Stalemate.

The first place to start is to establish a Stake in the Ground and Measuring Rods.  ALWAYS establish the latest Base Low…it used to be back on 3/06/2009 but once we had that over 17% Correction back in May and June, we moved the Base Low to 7/1/2010, as shown on the Chart below.  I use Heikin-Ashi Weekly Charts to determine the trend and you can do this in HGSI as shown.

78 Trading days is long in the tooth by any stretch of the imagination, hence the concern by many.  Leading stocks are being pummeled, rotation is clearly visible from the NDX to the OEX, Large Caps to Small Caps, etc., etc.  We have the recent heads-up of the infamous Hindenburg Omen coupled with the VIX at lows, and %E’s rising with the Market for a little while and then falling back again (strange behavior), to say nothing of Distribution Days two-a-penny as all the usual tell-tale signs that we are on borrowed time.  To top it off, oil is up and rotation to Energy stocks is well underway.  What all of that adds up to is that the Market is climbing a Wall of Fear, and will ultimately have to move out to an obvious Climax Run or fall apart at the seams very soon.

For those who are casual readers, we now have great insight into the sloshing from High Tide through Stalemate to Low Tide with the Pictographs I show below: 

I suggest that although there are no chinks in the armor as yet, there are subtle signs that we are fast turning to “Stalemate”, and let me lay out the logic through the next few slides.  Let’s start with the fact that so far in the past three weeks, the MOMENTUM of the market reached a peak on December 10 by showing ten Market Indexes at that snapshot and for comparison as it is at the close of business on Thursday, Dec. 23rd.

Understand that the chart depicts the % of stocks for each Market Index by “bucket” of 0.1 slices making 12 in all, and also the % Above and Below 0.5, the Middle Bollinger Band, and NOT the %B of the Indexes themselves, which are usually higher as I have shown you several times before.

The first point to note is that it is nine days since December 10th, so we have three days of cloth on that score before the market should correct, OR we move to a higher level!  We have not long to wait on that score.  Look back at the previous notes if you don’t follow that logic.  There is a lot to take in, but let me direct you to look at the heat maps on the two “Average” lines which I highlighted in Yellow.  Note how the Dark Blue has slipped two Buckets to the left between the two timeframes.  Please understand that I maintain right now that the Markets are still positive, but it doesn’t take much imagination that if the next downward step were to come it would move the center of gravity still further to the left with the likelihood that Bucket >0.6 <=0.7 will be prominently higher than the rest. 

I told my HGSI supporters I would give them a clue that when that Bucket hits 17 (or higher), which is my oldest grandson’s age, watch out below.  I’m sure you are wondering where on earth did that piece of logic come into play, and I offer you the next chart which shows the Heat Maps for four Market Indexes:

I have highlighted with a dotted red line the critical area where the market Indexes all hit “17” or greater before the pause to refresh occured.  The numbers are shaded in gray.  By the way, if you really want to see the numbers more clearly, just click in the window of the chart and it should open up larger in a separate window.  Better yet, use Snagit to capture the picture and you can blow it up to whatever size suits you.

Now let’s zero in on the S&P 1500 and look at the Pie Charts and Spikes for the period 11/11/2010 to 11/16/2010 to show how the  shape changed dramatically within four days as Box # 8 (>0.6 <=0.7) moved through two days of peak at 18 and 17, respectively, and then the dramatic shift to the left on 11/16/2010, where the Bears were once in control of the Market for the Two Week Pause to Refresh period.

The next chart unfolds the strengths and weaknesses from the peak in 11/4/2010 down through the valley for two weeks and back up again these past three weeks.  As my new found friend, Joe, points out, we have hit our head against a wall at the 81:19 level several times recently, and we are right at that mark as we speak.  Note that I have highlighted the “23” in the bucket just before the famous one to watch and that number of 23 is higher than any previous one when the Market was at 81:19…suggesting that we are weaker right now.  There must be a holding of the fort on Monday to take the Market higher or we look for the now famous 17% in bucket #8.

In the next two charts, I show you how easy it is to watch for this phenomenon using HGSI software and it becomes even easier when you use the NDX and the OEX in the Major Market Components Folder, since they both have 100 stocks and the percentages fall into place immediately.

So what then are the High, Middle and Low Road Scenarios:

High Road:  An Immediate bounce play this week, with the Nasdaq ultimately reaching 2700 and then 2727 which would give reasonable targets for the High Jump.

Middle Road:  The tug-o-war continues with little ground being given up through the first week in January, and most likely a move to the downside depending on world events.

Low Road:  The observed weakness continues and we trot down with both the 12 Drummers Drumming and the count of 17 in Box #8 fulfilling our Sherlock Holmes Fly-Specking!

Now we have done our homework and we let the Market tell us where we are headed with one finger on the Eject Button!

Best Regards to you all.  Ian.