Ian Woodward's Investing Blog

I felt that it would be good to give you a quick bonus follow up for the Short-term Game Plan to the blog I wrote yesterday, especially as the FOMC acted today as anticipated with a 1/2 point rate reduction.  As you know I pay great attention to the Stock Market action at times like these and it will be interesting to see what tomorrow brings.  One seldom gets the type of symmetry we have right now at this critical juncture and I need say no more than present the picture to keep it simple:

The HGSI Team thank you all for your compliments on the great seminar we had. 

Best Regards, Ian.

I’m back in the saddle after an exhilarating three day Seminar where the participants had a fun time even though the general Stock Market outlook was gloom and doom especially when it tried desperately to break the previous lows on all Market Indexes yesterday.   Hence we come to the Desperate and Decisive Gun Fight at the OK Corral #4, since if it goes any lower we are due for records to be broken to the downside on all fronts:

As the saying goes, “To move the market, one must surprise the Market”, and it seems that Helicopter Ben’s winky-winky of last week may have done the trick by suggesting that the Fed was not averse to cutting rates yet again.

The Bears were at it again first thing this morning as Maynard’s Warriors from San Antonio, Texas who attended the Seminar will attest, but fortunately on two scores the Bears fumbled the ball at the goal line and the Bulls threw a “Hail Mary” Pass to get us breathing again at least with about a 10% cushion from the Base Low:

1.  Rumor has it that there will be further cuts in Interest Rates on a Global front with the Bank of Japan leading the way by leaning towards cutting its benchmark interest rate by 0.25% and so the Dollar rose against the yen, and

2.  The Fed’s interest-rate setting committee begins deliberations Tuesday afternoon at the start of its two-day meeting, with expectations for a half-point cut to bring the federal funds rate to 1% — which would be its lowest level since June 2004.

So it seems the tradition which my good friend Manu reminds me at the HGSI Seminars is that the Market always goes up after we hold one, and although it looked miserable yesterday maybe we will keep the tradition alive.

All of this gives the Bulls a couple of days to catch their breath and hope the promising Bounce Play today can continue.  Naturally, with a 10.88% move of 889.35 in the DOW which is the 2nd best point move ever, there is hope that the rally will push past the strong line in the sand at 9250 where the Bulls failed to break through on three occasions the previous couple of weeks since the watershed decline on 10/10/2008. Below is the picture of the Stakes in the Ground, the lines in the sand and the measuring rods where the short-term game is being played between the Bulls and the Bears.  I call it a Desperation fight as any lower and this market will be in deep yogurt.

Please don’t be misled by the arrow pointing up at 1780 and the remark that says “The Bulls Win”.  As attendees to the seminar will attest, this trick of mine of using this picture has great value for a very short-term feel for where the ball game is being played right now.  Clearly we have a lot further to go to get up far enough to even consider this as a Bear Market Rally.  My advice is to always make a note of where the Market stood when an important event occurred, and that to our way of thinking is when the Market swooned AFTER the Bail Out Bill was passed.   Please make a note of these Lines in the Sand for that occasion and what has transpired since:

 From the above table we can see that the best snap-back today from the Base Low is the DOW, followed by the S&P500 and then the Nasdaq.  We can also see that, given the current volatility, we are only a couple of days worth of snap back from the Base Low.  The best we can call today’s action is an Excellent Reversal Day with a reasonable snap back.  We must now wait for a Follow through Day (FTD) with some signs of Eureka’s firing up before we can get excited that we are in a decent Bear Market Rally.

Best Regards, Ian.

Ian, Now I know what a Swan Dive is. Black, White, Pink and Blue, they all went. Another big day, but no bottom. Is that the good news?  Can’t wait for the workshop.  Maynard

Hi Maynard, the Newsletter which anticipated your question says it all, and also shows a beautiful chart of the last nine big corrections.  The bottom lines are:

1.  The “mode’ has now changed to 500-700 points a day on the Dow, 50 to 100 on the S&P 500, and >80 on the Nasdaq as a normal event.  As you recall, we used to marvel at 150 point swings on the Dow just six months ago at the March Seminar.  There’s a measure of volatility for you!

2. The expected rise from the precipitous drop was >20% from bottom to top, and as we see it finished up at around 22% to 24% for each of the three indexes.  The expected re-test is likely to take us down to -17%, between friends, which suggests that should that occur we will not take out the current lows.  However, as I say in the newsletter, that is in the lap of the gods and all it takes is another Global financial negative surprise, hardening of the arteries on the credit scene and rotten EPS reports due out during these next three weeks to take us down below that level.  I am sure there are fifty-four other reasons, but you get the point.  In which case we will forget a double bottom formation of the usual nature and look to a head and shoulders (complex bottom) ala 2002 to 2003 timeframe.

3.  I am sad to say that the Limbo Bar (inverse high jump) has indeed reached the piths as I suggested might happen at the last Seminar and on the March 9 blog, and that is no surprise to us.

4.  Manu will be pleased with me as I have used his Rainbow Charts to show you the rope-a-dope trick which I hope you will enjoy to estimate the Golden Cross of the 50-dma up through the 200-dma, which I can tell you will not happen any time soon.

5. Those who are Type 4 Investors can bury themselves in their foxholes for several months as it is a trifle difficult to high jump Niagara Falls at this stage of the game.

6. Those who are Type 3 Investors need only draw 405-Freeway trend-lines to see that it is a long way to Tipperary.

7. Those who are Type 2 Day Traders must of necessity become Type 1’s

8. Type 1’s who are Moment Traders are having the most fun since they enjoy volatility, but even with tight stops it must be a trifle harrowing.

The Newsletter is up, and Ron and I are looking forward to seeing all of you and raring to go in ten days time. There will be a quiz on its contents so I hope the gang of five coming up from San Antonio will have it down pat from your tutelage by the time they get here.

Would you believe I had over 22,000 hits on the 401-Keg Blog in one week, so that is a measure of the light-hearted relief in frustration in these bad times!

Best Regards, Ian.

The black swan theory refers to a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations.  If that’s the case then we have also seen a similar rare event today…a white swan!

I’m very busy getting ready for the seminar and also developing the Newsletter, but here are the historic events of the past week captured on one chart, below.  The Market action has emulated the 1987 movement so far:

Best Regards, Ian.

Yesterday’s Blog was a winner with over 3000 hits for the Day!  One person who commented said he has started a Beer Collection, and another is asking me for any thoughts on Gold?

Here is a quick appraisal based on looking at the Gold ETF shown below.

1. Gold had a great move a year ago for all of six months starting in September 0f 2007.  It was a controlled and tight move.

2. As one would expect, since the Market cratered it started to show erratic volatility, and unless you are a very short term trader, you can see it has become very risky.

3. Using 3 Standard Deviations on the Bollinger Bands as shown above (Blue Lines), you can see that it could have been a great buy a month ago, but note how it dropped about 10% in a matter of days, so it is very erratic. 

4. Since it just bounced off the middle Bollinger Band (heavier blue line), you should watch it for an entry around that area, but I warn you that you will need to watch it like a hawk.  From the gaps in the chart, it seems to me it is being used as a hedging instrument by those who are into short-term trading to protect their positions.  It would seem this is not the instrument you want if you are a long term buy-and-hold type who would prefer to see the ETF rise in the same fashion back in September 2007. 

I hope that helps.  Best Regards, Ian.