Ian Woodward's Investing Blog

Those who follow my musings, including the large number of Hindenburg Omen followers I have as a result of my early warnings back in November 2007 of potential Market Tops, will strike a chord with this Blog Note today.  I value the mention in Wikipedia of one of the Blog Notes I wrote back then which has attracted a lot of attention from those followers over the years and especially of late.  It’s called “The Hindenburg Omen Signals between 2005 and 2007.”   I knew something was astir yesterday when I noticed a  large number of “hits” on the blog from the Hindenburg contingent, including four inquiries regarding the possibility of a Hindenburg sighting!

As you are well aware, my work looks for the extremes in Market Internals or as John Bollinger would say “The Fat Tails” ends of the Equation, i.e., the unusual Impulse Signals that the Internals of the Market give from time to time.  I realize that to some of you that the “mish-mash” of terms you have had to learn may have little meaning, but I also believe that over time these very signals have been a god-send to us who now see their value.  That’s part of the fun.  Terms like Bingo, Bango, Bongo, Eureka, Phoenix, Kahuna, and Hindenburg Omen are now part of the vernacular and can only be found to help you by using the HGSI Software.  They help in understanding the moods and emotions that rule the Market from Euphoria to Fear, Capitulation, Hope and Optimism to name a few.

So, let’s start with the Definition of the Hindenburg Omen:

Please understand that a single Hindenburg Omen (HO) “firing” does not constitute a confirmed condition…it requires a minimum of two within 36 days, so even if we were to have a spurious signal it is highly unlikely that we will see another one given what has just transpired yesterday.  Furthermore, these signals come in bunches at tops in the market usually after Long Rallies of at least a couple of years or more.  In addition, it would be extremely unusual for one to get such a signal after having just tolerated a >17% Correction in the market only a couple of months ago. Yes, of course, we have seen a spurious Hindenburg Omen fire but they are to be ignored.   Here for the record was the last time we saw such signals in droves, despite what you might read elsewhere on the Internet:

Now as for yesterday, you can see we have a clean slate.  The 52 Week Lows were not quite enough to meet the criteria, and the 52 Week Highs were more than double the 52 Week Lows, thereby violating Rule #5.  Of course times have changed since these rules were made several years ago, especially with the High Frequency Trading (HFTs), doing their stint…or should I say stunt?!  If the market continues to deteriorate, then the chances of the NYSE 10 Week Moving Average continuing upwards is mighty slim to nil, and will also negate any chance of us seeing multiple HO’s any time soon:

My Good friend and partner, Ron Brown, who does a Weekly Report which you can get at
http://www.highgrowthstock.com/WeeklyReports/default.asp nets out the current situation as a Trendless Market:

However, that said, I do have a new “Fat Tail” Measurement of Euphoria using %B Buckets to Identify Early Warning Signs of a Correction in my Newsletter which will be out this weekend.  I will leave you with the following status of the tug-o-war which the Bears are winning hands down.  Remember that what you are seeing is the Percentage of S&P 1500 Stocks which are Above (green) and Below (red) the Middle Bollinger Band of %B = 0.5.  The Bears have it by a whopping 77% to 23% as of yesterday:

Be very cautious how you play this market until you see which way the wind is blowing, but for the moment it is in your face.

Best Regards, Ian.

Last week we had the dogs in a tug-o-war and I felt “Somethings Got to Give”.  We had a relatively quiet week after a great Monday with an Eureka Recorded to give the Bulls hope, but we are still in stalemate:

In the last Blog Note, I finished with this chart, but I have updated it to show you that two important things happened for the Bulls this week: 1) The 50-dma has turned up from Flat, an absolute pre-requisite for a Breakout, and 2) As I said above we had an Eureka on Monday, which showed Bullish Momentum:

You will recall that I showed you that we had an extremely bullish signal 10 Days ago when we saw 536 Stocks of the S&P 1500 (over 30%) were above the Upper Bollinger Band.  This had only happened three times since the March 2009 Rally:

So, let’s see what has happened since then and we find that the Index has held up for nine days since then and that we had a small shot across the bow on Friday, since we see that three of the “Buckets” are showing >100 stocks in each below the 0.5 level (Pink):

So let’s take a look at the 4 most popular Market Indexes and we see that they are all poised at the Down Trend-Line as shown, but the S&P 500 and S&P 1500 are leading in that they have already made some signs of breaking out, while the Nasdaq and IWM ETF, which is a surrogate for the Russell 2000, are lagging and the latter is not quite at the red line.  Realize that there has been recent rebalancing of the Russell 2000, so it might be a trifle sluggish at this point:

The Next Chart shows the Pie Diagram for the past two week’s performancer of the S&P 1500 showing %B above and below 0.5:

It shows at a glance that we have come down this last week to a reading of 66%:34%, which is still respectable, but it is getting borderline.  There are now three “Buckets” which have 100 stocks in each that are below 0.5 for %B, so there is some deterioration.

Lastly, the Battle is still on and depending on whether you are Bullish or Bearish, I can tell you that it is still a tough call, but maybe we will know which way the wind is blowing, i.e., do we continue up or do we fall back.  I show the picture…you decide, but tread carefully:

An Eureka or a Phoenix at this stage of events will be the clue.

Good Luck and Best Regards, Ian.

Each week we get closer and closer to seeing if Golden Crosses prevail over Death Crosses or vice versa, or Head and Shoulders Tops win out over Inverse Head and Shoulders Bottoms!

We are now at the point where “Something’s Gotta Give”. Last week was a ho-hum week, and the results of %B above and below 0.5 is shown for each day last week, below:

I’m sure you would like to know how the Nasdaq finished the week with the Bulls and Bears tug-o-war, so here it is for Friday:

We had a Bad Spell with a couple of Fakey’s where the %B came back down through the Bandwidth, causing yet another Bull Trap a couple of week’s ago. As you can see we have now weathered the storm and the Bull’s have control at present with the Eureka on 7/26/2010 and the %B ratio as mentioned above:

My good friend Bob Meager came up with a way to show the %B and Bandwidth on the Think or Swim Software product, which allows me to display all that I have taught you about Phoenix, Bingo, together with Fakey’s (Bull Traps) and how to spy Early Warning Signs of weakness when the Index Skips Buckets on particular days. A Bucket is defined in this instance as a %B Spread of 0.1, i.e., 0 to 0.1, 0.1 to 0.2, etc. Note how the Phoenix Signals and the %B Skipping Buckets as shown below gave early warning and could help the alert trader that it was time to change from Bullish to Bearish before the big fall:

…And so we come to our favorite “wc” chart which clearly shows the congestion around the various moving averages, and so we wait to see which way it will break out or down this week:

Good Luck this week, with Best Regards, Ian

My good friend Mike Scott sent me the following picture to use when appropriate.  The Bears are saying “Not so fast my friend”, and they are right until the Bulls turn Death Crosses into Golden crosses.  Only then Longer Term Players can “Reset the Market”.

So, let’s review the bidding as we go into a fresh and critical week.  I offer you two charts using %B for a User Group of ~2750 stocks and the S&P 1500 showing their history over two years.  They are self explanatory.  The Message is “CONSISTENCY.”

The next chart I used in my last blog, but felt it important to show again here for the continuity of the message which is that things are perking up for the Bulls, with a big swing to the upside in %B stocks for the S&P 1500 over 0.5:

This next chart has a lot of information in it, which you should study carefully.  It starts with the Phoenix on 6/29/2010, leading to a Base Low on 7/2/2009, as shown.  I have shown a heat map to depict how %B was predominantly down in the dumps at below 0.2.  It has risen rapidly in the past two weeks to finally sit with 300 stocks of the S&P 1500 above 1.0, i.e., above the Upper Bollinger Band.  “So What?” say you.  This is a significant milestone as it has occurred only 22 times from the Base Low  of March 2009, so it is a rare beast.  On the one hand it is a sign that the Market is repairing.  On the other hand, expect the market to peak usually within 1 to 7 trading days for this particular run, with the longest run being 13 trading days in July 2009, after the Index hit >300.  This is insight I garnered using Chris White’s EdgeRater Software…good stuff.

Bulls can also take heart in that Chaikin’s Money Flow is also looking strong:

Likewise, the Oversold Impulse Indicator we call Bingo, is now well off its lows of below 33.50 when it signalled back in early May, 2010, and is now at around 55.  It needs to show more strength with RSI getting above 60:

Furthermore, the New Highs vs New Lows Picture is improving with new high coming out of the ashes to a respectable >300 shares.  That also needs to continue:

There are many Industry Groups perking up as a result of their Earnings Reports and one that caught my eye given their big Earnings Reports is the Semiconductor Mfg. Group:

So all in all the Bulls seem to have many friends around them and it takes Solidarity to drive this market to new heights.  The bears are waiting rubbing their hands at the usual spot of a Head and Shoulders top, but until then there may be the ghost of a chance for the bulls to drive this market once again for a decent rally.  Of course there can always be the “Fakey” we experienced less than a month ago, so be on guard:

May the Wind be at your back is the wish of your friend, Ian.

There has been a dramatic change in the “Internals” of the S&P 1500 Market Index this past couple of days.  We show a big swing in %B above 0.5 to where the ratio is now 83:17 above and below 0.5, respectively, as shown below.  I have included the top two pie charts from the previous blog just to show the big swing in two days since then :

Most Market Indexes have now poked their heads above the 200-dma, but a few notables have not, namely the NYSE, S&P 500 , OEX, S&P 1500 and the Wilshire 5000.  The Nasdaq, NDX, and SOX are all sitting right at or above their declining tops line from the highs last April, so next week will be a critical week to see if the Bulls can once again gain control and start a fresh rally.   This is particularly important regarding the congestion of the moving averages at this stage and to drive them back up where Death Crosses turn once again into Golden Crosses with the 50-dma coming up through the 200-dma.

The Earnings Season is in full swing and mostly with positive surprises so this also bodes well for the coming week.  Unfortunately, the entire mood of the market is driven by “Late Breaking News” and the Dollar Index, which has been falling of late and is therefore supposedly good for the stock market.  The late breaking news is what causes the wild swings intra-day…witness the Tuesday shellacking when Helicopter Ben acknowledged that the economy remains “unusually uncertain”.  By that evening the %B of the S&P 1500 stocks had shifted to a 18 point negative swoon to below 0.5, destroying the hopes for a new move up from the previous day’s positive outlook.  However the moves on Thursday and Friday have confirmed the sudden rush in enthusiasm to the upside as shown by the big two-day swing on the chart above.

The VIX is once again right at its 200-dma and needs a strong nudge down to once again allay the fear factor element which has recently crept into the equation.  Since the Semiconductor Mfg. Group is the standout this earnings season along with BIDU in the Internet Service Group, here is their recent performance to give us hope for a new Rally led by Technology:

Best Regards, Ian.