Ian Woodward's Investing Blog

Is it any wonder that the general public is completely turned off by the shenanigans of this market?  High Frequency Traders (HFTs) and Hot Shot Intra-Day Traders are just loving this volatility, but Type 3&4 longer Term Investors will do well to stay in their cubby-holes until the dust settles.

Helicopter Ben came flying in today and dropped different leaflets than Dollar Notes, acknowledging that the economy remains “unusually uncertain”.  All of that was enough for the Dow Industrials to drop 109 points to close at 10,120.53.   The S&P 500 Index lost 1.28% to close at 1069.59 and the Nasdaq Composite fell 1.58%, closing at 2187.33.  Treasuries and the U.S. Dollar gained ground.  Volume was a lot higher today than on yesterday’s up day, and as Bill O’Neil reminded us last night at an IBD Meeting in Palos Verdes this would again be another sign of distribution to once again confirm the Phoenix of 7/16/2010 and that the Bears were in complete control.  Today’s action negates yesterday’s reversal from an abysmal opening of over 100 points to finish up 75 points.   He had precious little to say about Follow Through Days (FTDs) and he intimated the best place to be was in cash, recognizing that he was talking to the general public. 

Virtually all of these Major Market Indexes have Death Crosses now so until that problem of getting the 50-dma once again above the 200-dma is rectified, make no mistake about it that the general trend is still down.  There is too much resistance right now to break through above these moving averages which are all bunched together, and it will require some stunning positive news unlike the gloom and doom that Uncle Ben delivered today, who is invariably a straight shooter.

I thought it would be fun to show you how the last two years of Fear, Panic, Capitulation, Hope, Relief, and back again through the prism of the %B Above and Below 0.5, and here it is:

And finally, I am sure you would like to see the shift from yesterday’s action to today in the 1-Day Change in %B for the S&P 1500 which shows that any form of rally is one step forward and two steps backwards these days:

Best Regards, Ian.

Sad to say I got hijacked and my address book was pilfered.  I apologize to any of you who got a spurious message from me, but I am sure you ignored it if you did.  I am back in business thanks to my good friend Bob Meager who sorted the bug out.

As a follow up to my last blog where we were at the crossroads, Friday’s debacle leaves little for the hopes of a bull rally except for a miracle this coming week, and suggests the Fork in the Road is bent to the downside:

 My friend Armand asks among other things “…The logic would suggest that if the distribution was also a Phoenix, it would dramatically increase the chances of the failure rate.”  As Ron and my supporters of the High Growth Stock Investor Newsletter will know, we now have good insight not only in the fact that a Eureka or Phoenix occurs, but also the intensity of that Impulse Signal.  As a follow up to the HGS Investor Newsletter published last Friday, here are two slides hot off the press to give you a feel for the power of Friday’s Distribution Day, but also what we can now do in gauging its strength or weakness as well.

The Pie chart depicts the three day shift from Tuesday to Friday of those stocks in the S&P 1500 which were above (Green) or below (Red) the Middle Bollinger Band of %B at 0.5.  The shift is dramatic, and shows the extent of about a 2% one-day change in the Index.

The chart above shows the history of all Eureka and Phoenix Impulse signals for the past 21 months or so, and as you can see from the reading at the bottom right, we suffered a -33.5% 1-Day Change in the Database of some 2550 stocks to the downside of the %B 0.5 line.  It is the second worst reading recorded.   We can now measure the intensity of the Impulse Signals.  Friday was as bad as they come.  So, Armand, you got more than you asked for and don’t forget the “Diamonds for Suits!”

Best Regards, Ian.

My good friend Mike Scott sent me this picture some time back which I felt was appropriate to use on this occasion.  The Bears are saying “What Fork in the Road?  After this little rally from an oversold market, we will be headed down once more.”  And the Bulls are hoping that with supposedly stellar earnings to come starting this week, the worst is behind us and we are in the recovery phase, albeit a trifle tepid by way of a rally without good volume so far.

Since you are now all familiar with the Roadmap chart which shows the rise and fall of Key Market Indexes, I need only point out the most recent changes since you last saw this picture.

1.  When a Market suffers a Major Correction where the High to Low % change is 16% to 20%, we are just short of a Bear Market and it takes a lot to extract oneself from the mire.  That is precisely where we are.

2.  We have learned that two Eurekas in a row coupled with a Kahuna is not good enough to avoid a Bull Trap, which we saw over a week ago.  The same thing goes for Follow Through Days (FTDs) which got equally bounced around two days after they were declared. 

3.  Minor Corrections of the previous three we had in 2009 and the recent one in Feb 2010 can sustain a potential one or two day drumming from the Bears through Phoenix signals, but when they have either an Intermediate or a Major Correction under their belt, watch out for a Fakey!

4.  That is precisely what happened.  We had three Phoenix Impulse Signals in quick succession on 6/22, 6/24 and 6/29 to take us down to a -17.4% Correction, High to Low on the S&P 500, with Black Crosses appearing two-a-penny on most of the Indexes.  So the Bears were whooping it up.

6.  Not even a % B reading of well over 0.8 could protect the Market from tumbling into coming down to break the Bandwidth (red line, top window) yet again, the likes of which we have not seen since Black Swan days back in early 2009, when this market was trying to recover from an extremely oversold situation (look back to the left hand top of the chart).

7.  The Bulls are now nibbling from an extremely oversold position with the Eureka signal on 7/7, and we have had a tepid rally these last four days.  I say tepid since all the pundits will tell you “There is no beef in the volume”.

8.  I don’t have to tell you that we have an extremely Volatile Market as recorded by the yo-yo signals as shown at the bottom right hand side of the chart.

9.  The Bottom line message is that until we see the type of conviction we saw in March 2009 where we had a powerful move up on all cylinders: price, volume and momentum, the Bears will continue to enjoy the power they have missed for all of 15 months. 

Very short term Type 1 and maybe Type 2 Players can make hay in this market and  like Rumpelstiltskin spin straw into gold, but Types 3 & 4 need to be patient and wait for Goldilocks to give the all clear. 

Best Regards, Ian.

The other day I was discussing with Ron Brown and Chris White how I had found a way to expand our repertoire of uses for the Bollinger Bands %B, and here are the fruits of those efforts.  Having shown him what I was doing, Chris not only came up with a Back History database of what I was looking for using his EdgeRater Software, but also suggested using Heat Maps as a quick way to view big globs of data to show the results…so here it is with a tribute to Chris for his good work and friendship.  There is no way I could have so easily developed these pictures without Chris’ EdgeRater Software at www.EdgeRater.com.

I have shown you many times on this blog, in the newsletter, and at the seminars how we traditionally evaluate the strength or weakness of the market using Accumulation/Distribution for both Industry Groups and Stocks.  I usually refer  to this as learning your ABCDE’s, and here is one of the Charts I use:

Using Chris’ idea, we can look at similar data with a Heat Map in Excel and it would look like this for the last 10 weeks as the Market peaked and then gradually deteriorated to the point where it is now broken.  The colors are enough to give you the concept since a picture is worth a thousand words…or in this case numbers.

By now, I am sure you are saying “But Ian, the previous chart gives me a better picture of when the market is rising or falling.”  And, you would be right, but stick with me as I unfold the concept I came up with to get a better feel for the changes in the Market as well as its volatility, which unfolds a lot faster before your beady eyes:

Since this is a new view, it needs some explanation to understand the technique I have used for %B:

1. Besides the Date and S&P 500 Close Price Columns, the next two are the most illuminating. 

2.  They are the % values for stocks above and below %B of 0.5, i.e., the Middle Bollinger Band. 

3.  You don’t have to study the numbers…the colors say it all, blue in the LHS depicts a weak market, and in the right hand column a strong market.  The Market peaked on 4/23/2010 as shown in yellow and as we see, the market was strong being blue.  It didn’t take but five days for the blue color to shift to the <0.5 column showing that the Market had weakened within that timeframe, and stayed that way essentially all the way until 6/9/2010.

4.  We then see a small patch of blue on the >0.5 Column for five days where the bulls thought they were off to the races one more time only to find that the promise of Follow Through Days, Eurekas and Kahunas all died on them. Their hopes were dashed with a quick return to big blue numbers in the <0.5 column where we have been the last four days.  It turned out to be a Bull Trap as shown on the diagram.  This Market is Broken.

5.  The Message is clear:  The shift is very quick when the Market has very high volatility, the likes of which we have not seen since Black Swan Days in Oct-Nov 2008.  This quick shift is invaluable in giving an early warning of which way the wind is blowing, and more importantly with what degree of strength.  %B is the quickest way to see Market Rotation.

6.  The rest of the chart shows how I broke the “buckets” down into smaller intervals of 0.1 at a time, i.e., those stocks less than 0, followed by those between 0 and 0.1, etc. etc., with >1.0 the last column.

That should whet your appetite for my Newsletter which is due out in a week and will show you the Rest of the Story, including what to look for, if it has not already happened by then.  I will dove-tail the Heat Map concept with Filters in HGSI and you will enjoy Manna from Heaven!

The Market is so oversold that we should expect a Bounce Play next week…how long and how strong is in the lap of the gods.

Best Regards, Ian.

Many thanks to many of you who wrote expressing your positive feedback on the last Blog, where you liked the Limbo Bar and more especially the piece on the AAPL Food Chain Index.  For those of you who have the HGSI Software, here is an idea of how to keep an eye on which way the wind is blowing.  Just watch how the %B changes on a daily basis.  You don’t have to go through all I have done below, but just five minutes of your time will give you the answer: 

The Bottom Line Messages: It was essentially a Standoff today: 

1.  %B is up from 0.69 on Friday to 0.74 today which is good

2.  Three stocks were up, four stocks were down, & the Index was down slightly

3.  OVTI was the biggest up and SNDK the biggest down

4.  Volume was generally down as was the Market, except for OVTI and CRUS

If you get different results, don’t blame me because you forgot to Index from 03-09-2009.  Go to the Designer to set the date and then build it for this one Index.

Enjoy!  Best Regards, Ian.