Ian Woodward's Investing Blog

Camp Sunshine is rubbing their hands with glee and they can do no wrong as they see their 401-Kegs turn again to 401-K’s almost 12 months later.  (For those who haven’t been regular visitors to this blog, please take a moment to have a laugh and scroll down to my Blog Note of Monday, October 6th, 2008.  Better yet, just type in 401-Keg in the Search Window and enjoy).  I had nearly 27,000 hits that month and it went around the world for a “relief humor” joke in what then turned out to be panic times with a Black Swan soon thereafter.  On the other hand Camp Gloom and Doom is waiting patiently for this Market to get into Nose Bleed Territory as they have been thwarted several times along the way, and are now licking their chops to “bring it on”…albeit one more time!

As followers of Ron and my efforts know we keep you informed with a balanced picture, we are not Soothsayers; but use Commonsense and the HGSI Software with its plethora of Proprietary Indicators to let the Market tell us where it is headed.  Furthermore, we let our respective Weekly Movies and Blog Notes do the walking for our talking.  Likewise, we don’t trumpet our wares very often, but this is a reminder of what you will get at the HGS Investor Seminar from October 24 to 26, and you have just five weeks to hurry, hurry, hurry for the last few seats!   Here is just a taste of what the attendees will be getting with several winky-winkies as well:

What was a calamity a year ago, has now turned out to be a Blessing as this Market has risen 61% for the S&P 500 from the Base Low of 667 last year.  The Black Swan is something few of us have experienced except the quick Knee Jerk back in 1987, until we go back to the Deep Depression of the 1930’s.  Oddly enough it has produced Opportunity in a cussid sort of way.  I refer you to the August Newsletter Picture of the Black and White Swan showing that that mighty fall of two weeks produced a Vaccum in Volume at that stage which spelt Future Opportunity when we got back to 1000 on the way back up.  The Message then was “In this Crazy Market, don’t count out a return to 1200 on the S&P 500.”  That would be an 80% gain!

Now hold your horses:  I have not taken leave of my senses, so here is the News and Game Plan in a Nutshell.  The Chart below says it all, and in a month’s time when we are feversihly preparing for the Seminar, we will see where we stand then:

Here is the Saw Tooth Plan which has worked successfully for all of us since its inception at the HGS Investor Seminar last March.  By the way…we make you work with us on Case Studies on these occasions.  It’s not all Beer and Skittles:

Now, let me give you two important charts for you to focus on as I busily trot off to keep working on the Seminar Material.   The first is my handy-dandy overlay chart that shows what the Nasdaq MUST DO for the Rally to continue.  That will give us a template to watch if it succeeds or fails:

At this stage of events, among all the Internal factors we watch carefully, the one that will give us the earliest warning of whether we have a runaway Bull Market or are heading for a correction, be it shallow or deep is the VIX.  Its Performance these last few weeks has played right into our hands:

Enjoy, and keep your powder dry. 

Best Regards, Ian.

When there is a chorus saying “It can’t possibly go higher”, the Market confounds us and it does.  At times like these we see the gurus bringing out their trusted tools of Gann Wheels and Chart Patterns from the past such as the latest one to hit the airwaves of “Three Peaks and a Domed House”, and eventually it comes to pass.  In the meantime, the Market continues to go up, and those shorting the market find themselves having to cover time and time again.

I prefer to use a simple tool which I called “The Ian High Jump Indicator” – © Ian Woodward.  The concept is to look at a panoramic picture of how the stock has behaved over time relative to the extension from the 17 Day MA, the 50 Day MA and the 200 Day MA – the very yardsticks we use to decide when to buy and sell stocks using moving average crossovers. The HGS Investor Software program (HGSI) provided by Industry Monitors incorporates this feature in its Charting Module, so it plots it for you. They also provide the individual extensions and the High Jump numbers in the Fundamental Ranking Module, so that these are all done automatically for you.

You might wonder why I call it the Ian High Jump Indicator.  If you look at a panoramic picture of any stock or any Market Index, it is an interesting fact that at certain times in a stock’s drive up from its base low, the stock or Index will invariably come to rest at the same peaks and valleys. These peaks are rarely beaten and more importantly, are at around the same level though they may be reached three or four years apart. We all know that the world record for the High Jump is 8 ft. & 1/2 in. and the chances of that being exceeded are small, except when the Olympics or World Track and Field meets occur.  In other words, they are difficult benchmarks to exceed.  The same occurs with stocks and Market Indexes when it comes to the degree of extension over the years.  They usually peter out at around the same levels; usually one can see three, which I call High, Higher and Highest.  Understand that these highs do NOT mean that the stock is about to “die”; but it does mean that the stock is about to correct. 

With that introduction, here is an exercise that gives us reasonable boundaries of extension for the Nasdaq Index.

1. What is the highest jump from the 200-dma since 2000? The answer is 24.5%.

2. When did that occur?  Back in 2003 around September 18.

3. How many times did it exceed 24%?  Three times back then.

4.  How long did it consistently stay above 20%?  From 8/29/2003 to 9/23/2003 and  again from 10/3/2003 to 11/7/2003 (with just a few days below 20%) when it went from a high of 1813.82 to 1992.27 for a further gain of nearly 10%.  The bottom line is that if this market trundles along and surprises everyone, it can meander its way for another 10% up.

5.  Where is it now?  23% up on the 200-dma.

6.  How often has it exceeded 24% during this rally?  Once, on 8/28/09 when it reached 24.04%

7.  How consistent has this drive been from the 200-dma?  Since 7/23/09 it has stayed in a range of 18.47% to 24.04% (on 8/28/09), which is very consistent.

8.  If there is to be another top what should we look for?  A Total High Jump of 40%, the 200-dma over 24%; the 50-dma at 10% and the 17-dma at 6% (BETWEEN FRIENDS).  Can it go higher?  Of course, but let’s first take one small step for HGS Investors.

9.  Where does that put the Nasdaq at that time?  The 200-dma is currently at 1679.13, so 24% to 25% up from there gives us 2082 to 2099 (say 2100, between good friends).  It hit 2084 today.

10. Does that mean the Market dies there?  No, but it should correct, especially if it reaches 2100.

11. How big will the Correction be?  NOBODY Knows…don’t let fear take you out.  What does the High Jump tell you:

     a.  If it corrects to a 200-dma reading of 18.47%, it will go down to 1989, or just below its 17-dma.  I am sure you will recall that all Great Leaders rise above the 17-dma.   No panic at that stage since if it even reaches 2100 that would be about a 5% correction.

    b.  8% down would take us to 1932, which is just below the 50-dma and is currently at 1941, so just below.  Again, no biggie, but the Bears may now be in control, and out will come the hue and cry that “I told you so” and we are headed for the deep correction that the Gloom and Doom Camp have been touting for ages.

   c.  Anything worse and they are correct as the sentiment will change from Bullish to Bearish.

The bottom line is that there are many ways to get your arms around this beast, but at critical points in time, there is no simpler and better tool to guide you than the High Jump, WHEN THE INDEX HAS WORKED IN A TIGHT RANGE.

12.  Lastly, I specifically chose 2003 since that is the current best Measuring Rod.  It can go on up for three more months if that is any guide.

Where am I…In Camp Light on Your Feet for now.   It’s not difficult.

Best Regards, Ian.

How does one play a tricky market like this?  Camp “Light on your Feet” is the answer.
What does that mean?   Type 1 & 2 Traders who are used to the volatility and are very
nimble have no problem as they are adept at taking what the market will give them.
It’s the Type 3’s who are swing trader’s who are prone to suffering and the Type 4’s
who are buy and hold…they are the one’s who get a trifle frustrated, but have now
learnt that they too must be nimble.  You must have tight stops and then you put up
with the frustration or you don’t “play”.

Alright, enough of that standard stuff, but where are the signposts from this week?
We had a Phoenix after four down days so it was ripe for one to occur.  That said the
Bears were now in control.  Two days later we had an Eureka, and it was followed up
by another one the very next day…Friday, so the Bulls are back in control – until next
week!  But take a little additional comfort as there was a Kahuna or two to go along
with either the second Eureka, or the first one as well.  What does that mean?  In
these modern times it is a simple way of showing you signals of:

1.  Which Camp, Bull or Bear is currently in control?
2.  The extent of Irrational Exuberance by the Bulls (Eureka) or the Bears (Phoenix)
3.  The potential Staying Power of their exuberance by Kahunas up or down

Those of you who are interested in far more in depth methods of these simple concepts
would do well to read Value in Time by Pascal Willain, who has delved deeply into
segragating this Exuberance through Effective Volume for Large Players and Small Players.  We all struggle for being ahead of the “News” and his methods provide the trader with the breakthrough valuable tools that develop the Money Flow.  I am very impressed with the work he and his colleagues have done and I will uncover more of this at the seminar in seven week’s time.

The HGS Investor must focus on two sets of tools that the HGSI Software provides that become  part of the daily routine:

1.  The Gorilla Stocks Index established nearly three months ago on 6/15/2009
2.  The landscape of the Proprietary Indicators as exemplified by the “wc” chart
3.  The feel for where the Accumulation/Distribution stands using Ron Brown’s “Ic” key

So let’s take a look at each of these pictures in turn:

We know from past experience these take a long time to roll over and die, and just when
we felt they were giving up the ghost, lo and behold, they have popped their heads up
again.  I have featured this chart several times before, including providing you with the list of stocks; you have only yourself to blame if you don’t follow this Index regularly.
What’s more, if you have patience they usually provide you with substantial gains over a
short period of time…just see for yourselves; there are no tricks up my sleeve.  I have said it before and I will say it again, STEC is one of the potentially BIG Stocks of the future.  Of course, you have to buy it right and you should know how to do that by now.

There is a plethora of Bull and Bear footprints, which become second nature to those who want to take the time to read them.  It’s not difficult.  Here is this week’s lesson:

1.  A Phoenix signal after four down days, where the Bears picked up courage to short
2.  Indecision by them, which gave the Bulls encouragement to come roaring back
3.  This was evident by two Eureka signals which trumped the Bears’ control
4.  Sure volume for the Indexes were light last week, but it’s the last holiday weekend
5.  In addition cast your beady eyes on the ribbons at the top…mostly green.

However, despite the two Eurekas that trumped the Phoenix, we had a CONFIRMED high for the NYSE on 8/27/2009 of 6737.60 with a Close of 6722.31.  This conflicting situation will only be resolved this coming week if that high is taken out or the NYSE goes down once again to test the 50-dma which is at 6293.  We are currently at 6637, so we need a 100 point move and a lot more to the upside before the Bulls can really breathe a sigh of relief.  It all sounds a trifle “iffy”, but I would rather be iffy than mislead you.  It’s all too close to call so the call is “Stay Light on Your Feet”.

I showed you a glimpse of the detailed Acc/Dist numbers for ABCDE last week, and I am sure you got the feel that we were steadily distributing all of last week.  Also, note that the Di up to Di down for the Industry Groups are even-steven at 49%:51%.  We must see a rapid improvement this week, or the Bulls will still be vulnerable showing no follow through on their part.  Net-net, stalemate and sideways until we get more news; make no bones about it, this market is totally event driven and moving up on fumes.

For the Type 3 and 4 Investors, the single most useful item to watch at this juncture is the VIX.  I gave you an excellent chart last week and give you the updated one below:

As we can see, the VIX is acting like “The Grand Old Duke of York”…he marched them up to the Top of the Hill and marched them down again.  Until it breaks one way or the other as shown we will probably meander in a trading range.

And now you know all I know for next week.

Best Regards, Ian.

Question: What chart in HGSI will show the Phoenix and the Eureka?  What index/user
group?  Larry 

Answer:  You need Major Market Indexes; then select NYSE Composite Index (though
any would do, such as the Nasdaq, Dow etc) and then in the View you should select
“wc Price & Volume Force Bongo w Hindenburg and Bingo”…all you have to remember
is “wc” for “Water Closet” and you will never forget where to go.  Then cast your beady
eyes down to the bottom two windows, the 2nd last has the Eureka and Phoenix and
the bottom window has the Kahunas.  We have a Phoenix and a Little Kahuna red today
…bad news.  I show the Nasdaq below with all the trimmings:

Question:  Thanks for the answers, it is truly amazing how much info can be derived
from HGSI.  So are there any indicators to look for to see confirmation of the downtrend
or is it time to move to the sidelines for a while?  Larry

Answer:  Larry:  I don’t usually do this but let me try to give you some guidance:

1.  I always start my presentations at the seminar that there are 50 stomachs in the room
and they are all different.  It depends on the amount of Fear you are prepared to tolerate. 
We are all guilty of erring on the side of Greed, but when the Fear sets in most are saying
“If only I coulda, shoulda, woulda got out earlier”!

2.  I will get into a litany of all the things to look for lower down which you should already
know from the blog I posted last night.   However, let me cut to the chase and give you just
one Golden Rule that all HGS Investors know by heart and that is there is a 77% probability
that all S&P 500 Corrections will be <8% high to low.  The ones that cause the major damage 
are anything larger than 8%, and you will feel the pain.
 
3.  We have come down from a high of 1039.47 to a low of 996.28 or 4.2%…half way.

4.  The 50-dma is at 956.46, which is exactly 8% down from the high!  That’s your yardstick. 
If it doesn’t bounce from there, watch out below.

5.  I’m feeling generous, so let me focus you on several pointers that I already gave you in
the blog I put up last night.  Maybe 9/10th of all the mumbo jumbo (good stuff) went over
your head, but there were several ponies in there which we call winky-winkies!

a.  The best Bear Market Rally we have had since 2000 was 51%, and we have already
surpassed that with 54%, so we were on borrowed time.

b.  We had the first major shot across the bow today with a 2% down day on all the Major
Market Indexes.  I advised my older Son to take half off by then, which he did as his
objective is to protect the 401-K he has worked so hard for.

c. I said in the blog, we must expect an Eureka immediately to cause this market to bounce
back from a rotten day.  Now that we have a Phoenix, the control has turned to the Bears. 
If you don’t believe me just look at the very chart I just put up for you where the two
preceding Phoenix signals on 6/3/2009 and 7/2/2009 took us down 9% from the highs, there
were no Eurekas to support the Bulls, and the Index BROKE the 50-dma.  So the expectation
is that if the tide has turned we at least will see the Index go down to testing the support at
the 50-dma. 

d.  If that happens, it is a given that the %B of the Bollinger Bands will be below the
Bandwidth – the green line below the red line in the 4th window down from the top on that
“wc” chart.

e.  By then you will also find that the ABCDE mumbo jumbo (good stuff) would have turned to
pink if not red, the third ribbon from the top.  Likewise, the (A+B)/(D+E) picture I gave you last night on the blog has dropped from 7x to 5x to 3x in the last two days. Losing Strength.

f.  If that is not enough for you, then the Bongo Weekly which has been green for the past five
months will probably turn to red, and Bongo Daily will be red throughout that time, which is
where it is already.

g.  If we have another 2% down day, wouldn’t it seem reasonable that you will see another
Phoenix?

h.  I said in the blog that the Bears would win when the VIX was above 28.  It already finished
close to its high of 29.23.  I also showed you that they win “Big Time” if it gets above 30. 
Watch that tomorrow.

i.  The Gorilla Leaders Index will be decimated and the market will be leaderless until a new
set of groups come to the front…probably defensive such as Healthcare, Foods and the other
similar stuff that is favored at such times.  It is already a hairs-breadth away from testing its
50-dma.

j.  If all of that is not enough for you to take action then wait for the cacophony that follows
on the airwaves that it was inevitable.  The psychology will change from ignoring any bad
news to accepting any good news as passé and will be another reason that we are going
down a lot further.  By then, all will say it was painfully obvious.  The Gloom and Doom Camp
will be out in full force, but watch China which is now well tied to us at the hip.  The Hang
Seng is already down 1.63% as I write this and all of Asia and Far East is blood red.

If all of that has scared the pants off you, the only thing to watch for the upside is an Eureka,
which can only come if the market decides it is too oversold and the Bulls come rushing in. 
Of course the perennial-bears will be rubbing their hands to catch the bulls in a trap, as they
have too often had to swallow crow by shorting this market too soon.  So one Eureka is not
enough, but you need two in quick succession…why do I say that? Just look at that same chart
and you will find two on 7/13/2009 and 7/15/2009 together with a small Kahuna up to give you assurance that all was well, and the bulls were in control again.  You need that same assurance.

The lesson learned is that the Proprietary Indicators in the HGSI Software give you the
Signposts to stay on the right side of the market if only you trust them and use common sense
with the rules of thumb we know so well from experience over the years.

Good Luck.  Ian.

We are back in the mode of a sideways market with both the Bulls and the Bears looking
for any chink in the armor.  Today’s action of 0.81% down on the S&P 500 may be a mild
first shot across the bow for the Bears to pluck up courage and short the market again.

We are yet again at the crossroads of either making one more leg up for a >60% Cyclical
Bull Market Rally during a Consolidation Phase or making a Correction.  We are just 54% up from the Base Low of 667, and since there have been nine previous occasions where the rally has been >=63%, we must stay alert for a next leg up…against all odds as it would seem.

We have come a long way since the hectic volatility we suffered back six months ago.  The VIX, which is the best symbol for the Fear Index, has been dormant but has made alternate spikes during the past two weeks where both the Bulls and the Bears have dodged a bullet:

What then are the realistic expectations for the upside scenario?  The bigger question that finds the pundits in two camps, Sunshine or Gloom & Doom, is “Are we in a Bear Market Rally, or is this the start of a New Bull Market, in which we have already bounced 54%?”

I used the following chart 2&1/2 Years ago to suggest we were long in the tooth at that time, since it was then over four years since we had a Big Correction, and subsequently with the help of the Hindenburg Omen Indicator we were able to pinpoint the top:

72% is the best we have done this Century when we came out of the 3 year Bear Market from the Technology Bubble.  So take your pick between 63%, 67%, or 71%, but before we even comtemplate that we need to get past 1035, and I would be very leary this time if we trot up to 1050 – 1070 (57% to 60%) in a hurry.  That would strengthen the Bear argument that:

1.  September is traditionally a bad month in the stock market
2.  This Market is moving on fumes which cannot be supported by the Fundamentals
3.  China is already showing signs of weakness, which in turn is reflecting on the US 4.  The market is very event driven; it only takes a negative surprise to bring it down

This time, I would prefer to leave you focused on three recent topics which relate to the
internals of the market to guide us as to the current health of the market.  Then let the
market show us which path it is on by either confirming or denying the results we use for the Signposts, Stakes in the Ground and Measuring Rods.

Net-net: Weakness:  The comments on the chart give you the key items to watch.

Net-net:  Holding but Weakening.  Watch Ron’s “Ic” key which shows that the “All 50%
Institutional Ownership” Index is holding.

Now I turn to two charts to feature the Phoenix Indicator which is the signal for Irrational Exuberance by the Bears as they left their footprints in the sand in 2002-2003, and how it looks now.

Net-net:  The short answer is we do not want to see a Phoenix, or if we do, it must
immediately be trumped by an Eureka signal soon thereafter.  I am glad to see that customers are beginning to understand the value of these two indicators, and how to use them.

The Bottom line is to be in the Light on Your Feet Camp and act accordingly.  Thanks to those who have recently signed up for the seminar – we have seven weeks to go and if you are coming we would appreciate you signing up as quickly as possible.  It does help us with the planning at this end.

Best Regards, Ian.