Ian Woodward's Investing Blog

My Father was a great bridge player and taught me well.  He would make sure to
say before the hand was played: “Son, always review the bidding”.  So let’s
review the bidding:

In my last blog of March 10, all of 15 days ago, I left you with a strong winky-winky
that said:

“Late Breaking News – We have had a confirmed rally…how long it will last in this
skittish Market is another story for another day”.  That day is today.  Unfortunately,
people are too busy these days as they spend time multi-tasking and don’t soak in
the messages that count.  Those that attend our seminars are taught to read
between the lines, so although they were prepared for gloom and doom, they
also knew that there may be a ray of sunshine. “Confirmed Rally” with an Eureka was the clue I gave you 15 days ago, before I had to prepare for the Seminar.

1. We certainly got that boost this past Monday with the strong move of 50
points on the S&P 500 which took us from 770 to 820.  A 6.5% rise in one day
is the reverse of what we endured during the landslide on the downside so
it was certainly time to sit up and take notice.

2. We have now had 6 Eurekas in a row with nary a sign of a Phoenix, so it
means that the shorts have scurried into their foxholes, are covering their
shorts mighty fast and for now are waiting for the Bear Trap to pounce.  The
start of that trap could well be today, unless that Bulls can hold the line
above 800.

3.  We know from past experience that a good rule of thumb for a reasonable
rally is between 20% to 25% up from the Base Low.  With the Base Low at 667,
we now have a potential target of 800 to 834. We hit 826 today at its high so
that is close enough for government work…first mission accomplished.

4.  Now What?  Either we come rattling down with the Bear Trap to wind up
with a -8% drop which takes us down to 760 or the Bulls will have none of it
and hold the fort above the psychological barrier of 800.

5.  Anything less than 741 means the Bears did the rally in and the Bulls must
re-group or once again throw in the towel as the S&P 500 trundles on down
to re-test and/or break the Base Low at 667.

6.  Seminar attendees now have the “Saw Tooth” Game Plan that either
confirms the rally is on or find that Type 3 Swing Traders must once again sit
on the sidelines waiting for another attempt off the lows to start a bear
market rally that has some legs.

7.  Now to give comfort to the Bears, the challenge is simple…their goal is to
hold the VIX at no lower than 40 and so far they have done that, despite the
rapid move of over 23% up from the Base Low.  Until this is broken vigorously
to the downside with “three black crows” (big red candles) to drive down to
30, we will meander in a trading range or once again have the fear of morphing
into the depression scenario which I covered adequately to show the dark side
of the looking glass.  Furthermore, an ARMS reading > 2.50 will trot out another
Phoenix sooner rather than later and the Rally will then be finished for now.
The Bears objective is to drive the Fear up with a VIX reading > 45.
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8. The Bulls would have had less than a month between Phoenix signals to bask
in the sun and they now know what to look for on that score before the odds are
heavily in their favor.  My point is that the HGSI Proprietary Impulse Indicators
have given us enough faith to follow them in these turbulent times to keep us
on the right side of the curve and to know when the odds are heavily in our favor
or no more than a toss of the coin.
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9. Follow Through Days in Bear Markets are little more than a toss of the coin,
while attendees learnt that we now have better tools to guide us out of this mess.

The Game Plan is now straight forward and there is no excuse for you to lose your
hard earned nest egg.  You and I know that the Market is totally “Event” driven by
the four principals as we discussed at the Seminar, so be leery and watch for
sudden bursts to the upside and downside.  Those events will be captured with
Bingo, Phoenix, Eureka and Bango.  In the words of the song “Bingo, Bango, Bongo
I’m so happy in the jungle I refuse to go!”

Best Regards, Ian.

A faithful supporter writes “Ron, I haven’t had a single message appear
since Mar 10.  Can this be with such a significant rally since then?”

Ron is basking in the sun in sunny Florida before he heads west to bask
in the sun in sunny Palos Verdes.  The forecast is for Sunny Weather and
75 degrees, but the nights get chilly, so bring a warm sweater.

The newsletter is out and several people are getting ready to descend on
us here, while we feverishly prepare the presentations for next weekend.
Thanks to your support we have a decent quorum, but still have a few vacant
seats if you  care to come at the last minute.

When the bulletin board goes this quiet or the once a month Saturday Meeting
attendance goes down, that is usually a good sign that the market has
bottomed and we are due for a decent rally.  However, we must remember
that the public at large has gone through Anxiety, Denial, Fear, Desperation,
Panic, Capitulation and are now on the borders of Despondency and
Depression.  So there is naturally a good deal of skepticism that this is
nothing more than an oversold bounce or a Bear Trap which is waiting to
spring loose shortly.

When things get this bad, the market can catch everyone asleep at the
switch and take off.  That is the Hope, but Relief can only come when a 12%
Rally turns into a 25% one and is followed quickly by a 40% one.  Until then
there is little Hope for Optimism turning to Excitement, Thrill and Euphoria.

At present, there are only two types of Investor who can make good money
…those that trade in moments both ways and those that trade intra-day and
are lucky if the market finishes on a high at the end of the day.  Swing Traders
usually get slaughtered and Buy and Hold types are safely tucked away in
their foxholes.  Again, we can tell since many of the faithful supporters who
have religiously attended the seminars are staying away waiting patiently for
the all clear sign.  However, this is precisely the time when they should be
spending their hard-earned money on learning how and when to pounce.

The message learned is that “Emotion Rules the Market”.  It is the cyclical
nature of Optimism to Greed to Fear and Hope.  It is the Psychology of the
Market which is Key.  Ron and I will teach you that the HGSI software is in
lock step with this message and that you will learn to make more money,
keep the money you earned and have fun.  We will look forward to seeing
you in less than a week.  Have a safe journey, and may all your “bets” be winners!

Late Breaking News – We have had a confirmed rally…how long it will last in
this skittish Market is another story for another day.

Best Regards, Ian

I am very busy preparing for the HGS Investor Seminar in less than two weeks,
so this will be short, but carries the message with the two pictures I have
developed for your review.  Since February 10th, 2009 the Market has spoken
and in a nutshell the key reasons are as follows:

Who can forget the 381 point drop when he had little to say but platitudes?
There has been no real solution to the banking crisis problem and this in turn has raised the stakes for Main Street:  layoffs, Jobs, Jobs, Jobs and 401-K’s.

Of course there are several factors, but Rome has been burning since Feb 10.
Don’t ever forget that Main Street is locked at the hip to Wall Street, and what
we have seen this past month proves it yet again, as I  have shown several times
last year and the year before on this very blog.  What the Administration, the
Treasury Secretary, the Fed and the Congress say is vital to the daily moves
in the stock market regardless of whether it is a Democrat or Republican in
the White House.  Is it any wonder there is no Confidence or Trust?

So what do we have today?  Barney Frank to the rescue on the Mark to Market
and Up Tick Rules…which they have been considering for over a year and now
were forced to say something to prop this market up.  Will his musings all be forgotten in a month?  Where was Chris Cox all last year on this issue?  Only intra-day traders need apply to make money in this crazy market.

The message is loud and clear.  Clear your profits off the table DAILY, and just
play in the direction of the latest EVENT relating to the Economy and the Market,
but be ready to switch from Bull to Bear and vice-versa from moment to moment.

Best Regards, Ian.

When I was a little boy of four, I used to love to play Snakes and Ladders.  In this country they call it Chutes and Ladders.  We didn’t have computers in those days, but dice games were the equivalent fun back then.

I took a look at the VIX – the measure of fear in the market, and it reminded me of playing Snakes and Ladders and/or Checkers. I am in my fox hole as you should never play Snakes and Ladders with your Money on the Stock Market.  Only very nimble Moment Traders can make a buck in this Market.

Short and sweet is my message for today. Cash is King or Short the Market.  You can tell I am poking fun at the idiocy of what “Investing in the Market” has come to mean in these times.

Best Regards, Ian

The headlines from the Geithner and Fed announcements today say “New lending program targets consumers, business”, and seems to have done the trick at least for now that the Government is taking appropriate action to jump start lending in critical areas.  Gone is any mention of TARP or son of TARP, it is now TALF…Term Asset-Backed Securities Loan Facility, and will provide its first loans March 25, the government said.  The reaction during Geitner’s testimony by the markets was mildly positive.

According to the pundits, don’t expect any results until the end of the second or early third quarter altering perceptions about the economy and boosting household, business and investor sentiment.

The Market had a ho-hum reaction to all of this and essentially gave a flat return for the day on all Indexes, but the S&P 500 dropped below 700…not good.

My good friend Mike Scott reminds me of an old rule of thumb I developed many moons ago when the QID and QLD were all the burning rage back in mid 2007.  It is the ratio of the Total Dollar Volume (Close Price of the stock x Volume for the day) of the QID to the QLD.  Since then we have accumulated a vast amount of data as we have plunged from the Peak of the Market in 2007 to the recent Capitulation back in November 2008 to the retest and breaking of the lows yesterday.  The latest reading as of yesterday was 2.5:1.

The two good rules of thumb are:

1)  The Bears drive for Capitulation once again with a QID:QLD ratio of >3.3:1

2)  The Bulls Fight back to start a Fresh Bear Market Rally with the QID:QLD Ratio subsiding to <1.5:1:

You don’t have to go to all that trouble, but keep an eye on the ratio to see if we are heading for deep yougurt or starting a fresh Bear Market Rally. 

Today’s numbers are: 

QID = $67.62 x 26,818,002 = 18,134,000
QLD = $20.84 x 38,671,390 =  8,059,000

QID:QLD Ratio = 2.25:1, i.e., about half way in between the targets, so in ho-hum territory in keeping with today’s reaction, and the Bears with the upper hand.

So there you have it – a new measure of the fight between the Bulls and Bears at the OK Corral, Round #5.

Best regards, Ian.