Ian Woodward's Investing Blog

This Stock Market is Long in the Tooth.  Be thankful for small mercies…It could have been
a lot worse if the Gloom and Doom Camp had their way last week.  After Monday’s big
down day they were cock-a-hoop and then the Market turned around and here we are in
New High Territory again, with the Rally intact for now.

As I reminded you in a couple of blogs ago, Don’t forget there are always Three Camps:

        a.  Camp Sunshine
        b.  Camp Gloom and Doom
        c.  Camp Stay Light On Your Feet

There is a time to be in each one…right now “Light Feet”.  Nimble is our trump card.  Always remember that although most are wondering that there is only a narrow set of stocks of High ERG quality that are showing Leadership in a Market such as this, there is another approach to High Growth Stock Investing and that is to spy recent EARNINGS Momentum.  That coupled with the wind at your back, i.e., Wolf Packs that are moving, can provide ample opportunity for short to intermediate term gains.

I must say that I am very surprised that there is NOT ONE mention on the bb that we have had two Eurekas and umpteen Kahunas last week to understand there is still strength in this Rally.  Now of course there can be a Bull Trap as the pundits will point to a double top if the break out does not materialize and fizzles this coming week (say).  Likewise, there isn’t one of us who doesn’t realize that from a FUNDAMENTAL standpoint this market is running on fumes.  Also, the Junk off the bottom theme has taken hold in the minds of the thoroughbred Growth officiandos that has left them gun-shy and mainly sitting out. 

Like my good friend Aloha Mike Scott, I endorse that he said  the “HGSI software is great for  cutting to the chase quickly”.  So let me cut to the chase and show you that of all things, Paper Products is the Hot Industry Group of the moment, and it seems there has been ample evidence as to why.  I will admit Paper Products is not the most glamorous of Industry Groups, but we all do understand that if you want to make money in the short to intermediate term while using our core principles, the following process helps to stiffen our backbones.  Some of the Stocks are extended, but watch the Wolf Pack for Opportunities :

1.  Is the Wind at our back…Market, Market, Market (MMM)?
2.  Which Industry Group stands out with the Rel Strength Momentum: Wolf Pack?
3.  Which stocks in the Group Have EARNINGS Strength and/or Earnings MOMENTUM?

Well that is the process.  Whether this particular Group stays strong from here is to be seen and is in the lap of the gods.  At least you now know the value of “Box 7 Stocks” for finding Wolf Packs when the Growth Stocks are pausing to refresh.  It is a proprietary feature of the HGSI software.

For those who are curious as to where to find that last chart, I cut and pasted the Earnings rows for each of the stocks listed with data from the Charting Module.  This made it easy to make my point of the huge Earnings Growth in the last two quarters.  That is key.

Best Regards, Ian.

Ian,

Thank you for the blog. Would it be possible to post a list of the symbols … am having a difficult time getting some of the symbols right due to shadows? Also, would be handy to have a link to the blog included in your update notice.

Thank you.  Earl

Hi Earl:  You have been a faithful follower of the HGSI bb and teachings for ages.  I know you won’t mind a leg-pull if I say you are behind on this one, as you should know better than that I would leave you guessing.  It is one of the “Articles of Faith”  all HGS Investors know of what to do at peaks.  All you had to do was scroll down to the blog preceding this one and you would have found a more legible list of the identical stocks.  Here is that snapshot:

But you should know that I would have been posting this list earlier and right before your
beady eyes if you dared to go back a couple of months, I posted the good stuff again and
this time with the list of symbols listed at the bottom, because someone sitting out in
Israel couldn’t read the original list:

Now to answer the other questions:
 
1.  You will note that in this last list ONLY one stock, ADY, has been dropped.  Realize this
list was displayed two months ago on the June 16th blog, and for some rhyme or reason
ADY got hit hard and never recovered, so it was an “oddball”.

2.  I did not remove it until we were assured that the MARKET was on a new leg up.  It
would defeat the purpose of the Leaders List.  Do NOT change the list as you would have
removed the “Stake in the Ground” and your “Measuring Rod” would be useless.

3. We usually change the list and produce the RonIandex as it is now called at the Seminars. 
A couple of years back it was the JIRM list of >$35 and <$35, which served us for a while.  It
is one on the exercises the attendees look forward to participating in, as then they have
skin in it.

4.  The list can be used in two ways:
     a. Its primary purpose is to give an early warning sign of a Rally top and correction.
     b. Its secondary purpose is to buy the very stocks on the list as they are the leaders.

5.  It all depends on your stomach as to whether you do item 4b.  I have two such instances
where it paid off handsomely.  The most recent one is when one of the attendees said he
bought a few stocks on the Monday morning of the seminar and had made enough to return
to five more seminars.  The other occasion was at the last Telescan Seminar I gave in Houston in October 1998, where a Doctor out in Hawaii had friends who attended that seminar and the list was already in his hands before I got back to L.A.  They again made out like bandits.

6.  The more important point is that these hand-picked stocks are in several Industry Groups
and are the best of the best from March 13, 2009.  You can tell this by using the new percent
change feature in HGSI, which will be another feature we will cover at the Seminar.

Best Regards, Ian.

When I was a young man still in College in Jolly Old London, I used to pass a
Newspaper Man selling his three Newspapers standing at the corner of Holborn
Tube Station and shouting out “News, Star or Standard…read all about it!”

Since this is an Educational Blog to help you Protect the Money you make and
hopefully learn to Make More Money (MMM), I felt it important to give you a
heads up before the News got stale and to show you the value of this trick.
Always Watch the Leaders to give you the earliest clue of the possible direction
of the Market.  They are fat with profits and are the first to get hit hard.  Today
was such a day.   If you do not have this list of stocks in your Users Group in the
HGSI Software, you are flying blind.  Take the time to enter the symbols into a
Users Group and watch the Index every day.

I show you two quick examples, one from two years ago at the Top of the Market,
which I used in the October 2007 Seminar, and the other fresh off the press which
is today’s “Read All About It!” The markets were down around 2.0% to 2.84%,
while the leaders dropped a hefty 4.39%.  Of course that is just one day, and can
only be considered a shot across the bow at this point in time, but watch their
behavior and see if the first chink in the armor turns into a massive tear:

A Picture is worth a thousand words, so here is what all the fuss is about:

To be fore-warned is to be fore-armed.  The Leaders Index is at a critical juncture. It must bounce back fast or the rally is over for now.

Best Regards, Ian.

I have always taught that it is imperative to have three scenarios identified and to then let the Market lead you to which one to be on.  Wishing for your pet scenario seldom works in the stock market and those who constantly can anticipate being on the right side are gifted as there are few of them.

I was struck by an excellent article written by Jay Kaeppel of Optionetics.com who thinks in a similar vein and I felt I would take a leaf out of his book as I liked the  way he described the “Three Camps” that people can be pigeonholed in as to their investment sentiments.  He sugested “Camp Sunshine”, “Camp Just You Wait” and “Camp Go with the Flow”.  I took his first one, but changed the other two to suit what I have taught you before now, and here it is:

In scouring the web, I found an excellent site called dshort.com where I found the following two charts to describe the first two camps of Camp Sunshine and Camp Gloom and Doom.  They are self explanatory, so I need say no more than show them:

The third camp of Stay Light on Your Feet, is the one I suggest you stay on and I cover
the rationale in the next two charts below.  Always watch the Gorilla Leaders:

It is important to review what has transpired this past month in the continued rally of 17% since the last minor correction which ended in early July:

1.  We are now over 50% up from Low to High on Most Market Indexes
2.  The Golden Cross is now behind us whether you are in the dma or ema camp
3.  But now we are once again at the crossroads, since the Golden Cross can either stay solid or melt down into a Lead Cross.

For it to continue upwards, three items must remain solid, otherwise it’s curtains:

a. %B of the Bollinger Bands stays above the Bandwidth, and preferably above 0.7
b. The Di+ must stay above the Di- of the Directional Movement Indicator
c. The Accumulation %A/D must stay above “0” and preferable above 20%

There is little point in my covering chapter and verse on the upside since the targets are obvious…breakout again above 1018 on the S&P 500 and head for the 50% retracement level of 1119, as shown in a previous blog.  Remember, this is feasible given the Volume Vacuum the Black Swan afforded us on the way down in October, which now presents us with an opportunity.

I have updated the  Downside Targets I gave you in an earlier blog.  Please don’t  misunderstand my intent as the glum and happy faces are there to make a point. They show how far away we are from meeting the target, but also with a rotten scorecard as this, the contrarian opinion would suggest that good times are coming soon.  It reflects the degree of extension by the current rally.  It also suggests that until most of these are met, it is HIGHLY UNLIKELY we will suffer more than another Minor Correction.  The Targets therefore represent a complete swing from Bullish to Bearish, which after all is a Gloom and Doom Scenario:

Best Regards and Stay Light on Your Feet.  Ian.

My good friend Ron Brown puts it so well in his Weekly Free Movie…”Some of the major market indexes are out to new yearly highs, but the NASDAQ, the former leader is beginning to lag.  Can the markets keep up this torrid pace?  It’s doubtful without a pullback to digest the recent gains.”

I had a Picture ready to go, but my friend, “Paxen”Mike Scott sent me a better one that describes the mood very well, so you will forgive me for showing both together as they both tell a story.  If you are a Type 1 and 2 trader, you can switch from Bear to Bull in a wink, a trifle disappointed but seldom hurt too much. 

Type 3 Swing Traders scratch their heads and realize they were fooled and should have stayed on the long side, or keep rubbing their hands which is always fatal.  If only the herd can find the right balance between Fear and Greed.  However, the rally was saved by the Jobs Report, the Bears had to cover their shorts as they found they were in a short squeeze ONCE AGAIN. 

Type 4’s, Long Term Buy and Hold now see that they have all the required longer term criteria in place, and wondering why they shoulda, coulda, and woulda earlier. However, at this stage they are playing with fire and would be prudent to wait for a pullback before they go for it.

I am again indebted to my friend Ron Brown for keeping my head on straight in this seldom encountered type of rally.  I have long been a believer in the McClellan Osc and Summation Index which my other friend, Aloha Mike Scott has made me focus on for the past twenty years, so I had already seen the phenomenon.  I digress, but here is the late breaking news which Ron sent me from Sherman McClellan himself in two recent notes, which give the Technical and Fundamental Reasons as to why:

“…Bear Market rallies do not display the sustained power that is showing now with the higher Summation posting.  When the Summation tops out in this move that may lead people to think that the bear market rally has been completed, but it would be very unusual for the price move down to be anything other than a consolidation of this initiation thrust.”  Type 3 and 4 Investors should take good heed of this point.

“…It only takes a look at the data from the St. Louis Fed to see that the past year has given us unprecedented money flows, economic outfall and FED creativity.  The US Government has dispensed exorbitant amounts in Clunkers rebates, TARPs and TAFTs and twisted CEOs arms and other body parts to ameliorate societal discomfort.  Fortunately the Summations do behave differently in Bull and Bear markets.  It is that difference that I was trying to point out.  While the economy and its operatives may be in an outlier situation, the Summations are telling their story using the same pictures they have always used to identify bear to bull trend reversal.  Sufficient liquidity does produce results.”  Here are the Results he refers to:

Given the above, I strongly suggest that those who look for comparables that you do your research with 1996, 2003 and 2009 to look for similarities in the force of this Index.  Now to take care of my High Growth Readers – there is no better old faithful than the Gorilla Index I have posted several times before on this blog.  I show two pictures, one of the numbers and the other of the chart.  Don’t quarrel with me as to where I placed the lines of demarcation. The only message that matters which we can all agree on is the Index is looking very tired.  Since these stocks are FAT with profits they will get hammered as many have already.  However, look at the % Pr Ch 6-Month column to see the great gains for these stocks, despite those they have already given up.

I will save the rest for the HGS Investor Newsletter that is due next weekend, but I have another piece for you called “A Case Study in Learning Your ABCDE’s” and Ron and I will unfold additional factors to look for as to when you should feel the Rally is confirmed to be broken.  Then we will look for new upside clues to start the process all over again. 

Meanwhile, pay attention to the above and don’t let the pundits sway you with what the Market should do.  It’s far better to let the market tell you what it is doing, and make your decisions accordingly.  Powerful corrections and rallies such as those we have endured the past year will invariably overswing the pendulum beyond that reasonably expected, so don’t count your chickens before they have fully hatched.

Best Regards, Ian.