Ian Woodward's Investing Blog

My good friend David Galardi says in his comment on the last blog that short-term Type 1 and 2 traders are suffering from too many anti-acids and bland foods these days, but the Types 3 and 4 are relaxing on the ski slopes and sitting in their fox-holes. The three Scenarios in play are: 

1. Back down to test 2203 on the Nasdaq to form a double bottom and then maybe another attempt at a rally. 
2. The Bears win the fight at the OK Corral #3 and we head down below 2203 to my next target at -30% on the Nasdaq of 2010. 
3. An immediate turn-up today or early this week based on more rumors and/or real news that suggests yet again that all is well.  It wasn’t too encouraging today, but they brought the market back at the end so they may be able to rally it for a few days. This beast is like a lump of jelly these days and I need say no more. 

Different Stomachs enjoy different times: 

• a. Very short-term players equally adept as you on playing the market both ways.  They know their trump card is “Nimble” as you know too well, have the stomach to play the reward/risk throw of the dice, and are making good money on both sides of the market.  They are the Type 1 & 2 traders who are now becoming even more adept in trading in moments, not hours or intra-day.   
• b. Those who have already preserved their Capital and are sitting on the sidelines waiting patiently until we see better signs that the market has truly bottomed.  They accept the tongue in cheek scenario of using the Thick Blue Pencil Technique I use on a few previous notes to cut through to what the market is telling us now.  They are the Type 3 & 4 Investors who usually cannot or do not wish to get their hands burnt one more time on a hot stove, as one of our supporters tells me, and prefer to ski and sharpen their thinking for when the coast is clear. 
• c. Those who are refining their T/A techniques and are finding new avenues to challenge them and use the Yahoo HGSI bb as a great sounding board to determine whether their Gann, EW, Reif, etc can be sharpened further on what has to be a challenging Volatile situation that most will admit have not seen before now and has become the norm.  It’s a friendly place to try out their skills, but heaven help them if their forecasts are not within acceptable tolerance levels, despite the last two moves by the herd, one up and one down based on nothing other than rumor. Amazing that these days a hard earned week’s profits are killed in an hour based on faulty rumor.  But that’s the nature of the beast and the times we live in. 

Only less than one month to the Seminar on March 29 to 31, so hurry up and sign up for the last few seats still available.   Best Regards, Ian. 

1. Who’s He?  He’s the CNBC commentator that specializes in the brokers, banks, and financial industry.  He’s the one that announced ABK “might” get a capital infusion to save their AAA last Friday 30 minutes before the bell which caused the big 10 minute complete reversal that gave everyone a sigh of relief.  He also went on this morning to announce the deal has hit a snag.  What lets him and CNBC off the hook is the words “might” and “snag”.   So much for gurus and it again goes to show that this market is so jittery that it has now become a “Catching a Pop or Short on a positive or negative news story” type of Market.  The constant reporting of rumors that subsequently prove to be incorrect by CNBC requires indignation and scorn for that kind of sensational journalism, yet they are the only game in town. 
2. Unfortunately, it also causes havoc with the Technical Analysis to say nothing of your pocketbook, as certain targets are made or broken based not on solid Market Data; but micro-managing price and volume and time periods made by the herd based on phony news is what it has come down to.   
3. In my blog of a week ago, I said “The good stuff on Symmetrical Triangles is still intact for yet another T/A element to watch for next week.  Unless there is again some follow through tangible information that breaks early next week on this subject to continue to drive the Bears to cover their shorts and possibly force the pattern to the upside, the odds still favor a move to the downside with Lower Highs and Lower Lows.”  Just as well I gave you the reasons to be cautious and also the Late Breaking News viewpoint that my good friend Mike Scott cautioned me on the whims and fancies of symmetrical triangles.  At the expense of being repetitive, Types 1 & 2 Traders can enjoy the Volatility to their hearts content; Types 3 & 4 should be patient, prudent and pounce when things look better.  If you haven’t read the blog on Tea Leaf Reading, that’s where you will find all the good words of wisdom which hopefully will save you money. 
4. Here’s a repeat of the symmetrical triangle picture, and it still says my bias is to the downside.  We are currently at 2271. I have updated it to show that the challenge to retest the Base Low of 2203 is a lot easier than to head back up to 2435 and then 2540 by comparing the green and thin pink arrows.  Please also note that once at -23% at the Base Low, the odds are equal going to 2010 as it is to 2435, the 50-yard line of where I suggest the ball-game is being played, until I see a positive turn around from the current fight at the OK Corral, round #3.

Best regards, Ian.

It couldn’t be timelier for us with the theme of this blog for today, but we had another Eureka signal today which at least gives the Bulls the upper hand for the moment.  U.S. stocks rallied into Monday’s close, spurred by news that Standard & Poor’s reaffirmed the credit ratings of two key bond insurers whose financial outlook has been at the center of investor anxiety in recent months.  This exuberance by the bulls, or maybe it was just short covering by the bears spurred a major move back up to safer territory smack in the middle of the symmetrical triangle I featured in my last blog.  Don’t be surprised if the violent volatility in this market continues with swings of 150 points in the DOW as part of the current climate, which is totally EVENT driven.  However, the thrust of where to fish was correct in the blog of Feb 19 as the fishing pond is in the commodities with the usual suspects delivering wolf pack baskets of 4%/day and more as I showed in that blog.  Stocks with high ERG of >240 are favored. I am sure many of you have heard me say “There are no silver bullets when it comes to Stock Market Indicators…but two lead ones are better than none.”  The HGSI Team is pleased to announce that we now have a complete set. Some of you have seen the notice regarding the High Growth Stock Investor Seminar, but for those who do not get the regular bulletins or may have missed it, here is a repeat of what we sent out this past weekend:       

NEW HGSI CAPABILITY ANNOUNCEMENT:  At the last workshop in October 2007, the attendees enjoyed the introduction of the Hindenburg Omen indicator for identifying imminent tops in the market and saw the first glimpse of the Bingo indicator to signify the possibility of a bottom.  In addition, I explained the dove-tailing with the Eureka signal which we have had available for seven years in the product.

What’s New! There is so much volatility in these markets we know it is difficult to find stocks where you can make some reasonable money and wanted to do something about it for our customers. So we set a goal to produce a complete trading and investing strategy by linking the market indicators to stock indicators that would also signal when stocks may be near a top or bottom. If we could achieve this goal we could teach a complete trading/investing methodology to our HGSI customers. To reach the goal a new stock indicator would need to be designed and it would take some innovative thinking.   What better way to design this indicator than to ask customers who are active in using HGSI every day in creative ways for their trading/investing. So a team of HGSI customer was asked if they would accept the challenge of designing an indicator for stocks that would work with the market indicators.  After several months of detailed work on their part, I am glad to report that they were successful!  What the team came up with has come to be known as Bongo and will be introduced for the first time at the March 2008 workshop as a part of a complete HGSI market-stock trading system. Those who attended the October Seminar will immediately understand that Bongo is the “side-kick” to Bingo!  Maybe I will bring out my Bongo Drums once again to show my appreciation and salute the team for their fine effort.

The team is comprised of Robert Minkowski as the Team Leader, assisted by Jeffrey Scott, Dave Steckler, Lou Powers and David Galardi.  If you read the HGSI Stock Market Forum these customers will not be strangers to you.  All of them will be at the March 29, 30, 31 workshop where attendees can meet and interact with them to find out first hand exactly what they did.  You don’t want to miss the introduction of Bongo!  We still have 10 seats available on a first-come, first-served basis.  Hurry-hurry-hurry!    www.highgrowthstock.com/order 

In Summary, the HGSI product now offers a complete suite of Indicators that compliment Market Phases and Industry and Stock Rotation:

1. Hindenburg Omen with Bongo on the Market and Stocks at Tops  

2. Bingo(s) that indicate one is treading at a Bottom.  Whether it is “a” or “the” bottom is dependent on the severity of the Market decline as it fades from an Intermediate Correction into a Bear Market   

3. Eureka(s) that indicate the Bulls are stirring again with irrational exuberance for a Rally 

4. Bongos that usually follow Eureka for both the Market and Stocks

5. There are always Rotational Opportunities and these are best observed with “Wolf Packs”, Industry Group Rotating up and down, and Bongo gives a heads-up as to when and where to look for potential candidates 

Those of you who have faithfully followed this blog know that the Hindenburg Omen, Bingo and Eureka combination has helped us understand the pulse of the market as I have explained when addressing the various phases in real-time in the various notes.  The subsequent drop in the Market to a Bear Market Correction is also shown evolving ever since my first and subsequent notes on the blog since October.   We now look forward to Eureka and Bongo to give us further insight in this Volatile Market. Best Regards, Ian.

The market opened with a bang to the upside buoyed by the overnight markets in both Asia and Europe being up, and the DOW shot up to the High of the Day at the Open at 14498.8, tried a valiant attempt to hold it by mid afternoon and then slithered to finish 11 points for a swing of roughly 160 points.  The Nasdaq didn’t fair any better but it dumped its high of 2350 down to 2306 at the close for a loss of 16 points.  Yet the opportunities within the day were plentiful if you know just where to look.  Most of the Smart Groups and StockPicker Groups featured under Woodward and Brown in the HGSI software gave you excellent fishing holes, and were right up the alley I left you with at the weekend. 

On Sunday I showed you where to do your homework and fishing for worthwhile candidates.  Just to remind you here is the Family Tree I offered you of where the best opportunities lay with Bottom Fishing being the primary theme:

Shown below are some snapshots of our favorite Smart Groups and StockPicker groups to show you where the emphasis was and also the very reasonable results for a day’s fishing, especially when the market closed down today.  As we well know, tomorrow can be different, but that is up to how good you are at fishing even when the wind is in your face.  What I am implying is that the High Growth Stock Investing Process can help you find you opportunities in good times and in bad, and we have simplified the process for you to select the best from the top 10 stocks in various favored approaches.  The bottom line is that there is nothing better than a High ERG stock in times like these.

 Obviously many of the same stocks appear in these different Smart Groups, but with the Group Inclusion Report function in HGSI you can quickly establish the best of the bunch!  Best Regards, Ian.

To those who are avid Technical Analysts, this blog note is written with tongue in cheek, so don’t feel that I have taken leave of my senses.  However, there comes a point when there is a fine line between Art and Science.  The proponents of the great Masters of Fibonacci, Gann and Elliott Wave will measure everything from upside down to sideways and back, and of course they are laying down the scenarios for “if this, then that, and maybe something else” in the chess game of what the market is telling us.  However, sometimes trying to look five moves ahead can be detrimental to your psyche, and I always try to KISS it at times like this.  Remember what I have taught you: My world works in threes:  It is green, yellow or red; or it is up, down or sideways….or, you get the point.  Fundamentalists pooh-pooh this stuff as a bunch of rear view mirror mumbo jumbo, and some will even never admit a mistake but leave it to their heirs to find out.  Those who use both F/A and T/A are usually rewarded for their expertise at times like these.

So what’s my point?  It all depends on three things: one’s time horizon, your stomach for risk and reward, and your willingness to act quickly. Alternatively, to be prudent, patient and pounce when the all clear has been signaled.  Types 1 and 2 are short term players who are accustomed to high risk, look for quick turn-around and are nimble.  Types 3 and 4 would rather wait it out before they act, as discussed below:

1. The Day and Moment Trader – If your time horizon is very short term ala a day to a week – you are comfortable on all three points so it is extremely important to try all the tricks of the trade and to measure this up and down and in your lady’s chamber stuff with a fine tooth comb and with precision.  These are the true GANN, Fib and Elliott Wave types.  They wallow in it and more power to them.

2. The Swing Trader – If your time horizon is a few weeks as a swing trader, you are itching to hit the quick moves up but don’t have the stomach to bottom fish in real time or find every nuance of what’s happening today to the “enth” degree then you look for the likes of Bingos followed by Eurekas. You also watch the friendly investment newspaper to tell you whether they grudgingly give you a qualified follow through day or a strong go signal.  Well, we got a grudging follow through day message the other day and so we are still in turbulent waters, and all of us would agree.  What’s more by now, you surely have been bitten as you stuck your toe in the water, because you don’t care to or know how to bottom fish in a moment to moment trade environment.

3. The Intermediate Term Trader – They have little stomach for being faked out.  They are prepared to wait for the usual decent move up from a bounce play before you will consider looking for long side opportunities.  In my terms that means you want assurance that the ball is currently at the 50 yard line which by now you well know is the half way blue line between the Market Top and the Current Base Low, which you have now seen drawn on the three blogs featuring the Fight between Bulls and Bears at the OK Corral.

4. The Long Term Buy and Hold Type – They are not prepared to take any risk, but want to be re-assured that having got out, they can come in and stay in for the long haul of several months to over a year; especially since this blog and others all around you tell you we are on the verge of a bear market or in one and worse yet tippy-toeing into a Recession. 

It is for the benefit of the last two types that I purposely introduced you to the thick blue pencil process, which you have recently seen on my blog notes and today in the Newsletter.  The Keep It Simple Stupid (KISS) approach really works well if you will just look for higher highs and higher lows for you decide when it is safe to come in.  All the rest is “if, and or but, coulda, shoulda, woulda stuff” that is best left to the pros at the short term game. The first lesson in the Thick Blue Line Keep it Simple process is shown below. 

   So if you are a category 3 or 4 type these are the process steps to remember:

1. Over the five year period from 3/12/2003, we had a long rally with higher highs and higher lows

2. The corrections on the S&P 500 have essentially been < 8% since from past history we know the probability is 77% that they will not be more than that, and it behaved according to form. 

3. Once you see a -11.91% correction as we did in August, that’s the time to begin to consider lightening up on your long term positions fat with profits, especially if they are laboring at the top.

4. The moment you see a Lower High followed by a Lower Low, the party is over.

5. Get your thick blue pencil out and draw the two arrow lines to remind you the direction has changed, and then for good measure draw the McDonald’s Archway, especially when it does it twice in a row to confirm that we are definitely headed down until further notice.

6. If there is a major break to the downside, expect exhaustion and a Bounce Play.  That is when you draw the 50 yard blue line between the high and the low and wait to see if it can get back on the Bounce Play to that point. 

7. Invariably you will be able to also define other points of resistance such as the 50-dma and 200-dma lines as shown which for sure keep you on your toes but hibernating in your fox hole.

8. It is not difficult to set Targets that would seem obvious to anyone who can at least show sufficient interest to read a chart at the HGS 101 level.

9. Then see if the Market can achieve those basic targets or not.  When the Bounce Play peters out, draw another blue arrow downwards to remind you to sit tight and wait for more evidence, not withstanding Bingos and Eurekas and all that good stuff  that help the short term players analyze which way the wind is blowing. 

10. I don’t have to belabor the point, but the bottom chart shows where we are at right now and at this stage we are essentially on the 25-yard line and half way to either making it back up to the first Target I set of 2540 on the Nasdaq or half-way down to retesting the Base Low and/or going down further into the doldrums.

Those who are Category 1 and 2 types and have studied the relationship of Bingo to Eureka will immediately understand that although the two signals in that sequence signify the start of a Bull Rally, it all depends on whether one is in a long Bull Rally or in the throes of a Bear Market.  A Bingo signal signifies exhaustion and/or capitulation to the downside.  A Eureka signal signifies irrational exuberance by Bargain Hunters to the upside.  Having just had a Bingo signal on January 22, 2008 followed by a Eureka signal 4 trading days later on January 28, we did in fact have a rally which was short lived, but we are currently in a retrace similar to other such rallies in a Bear Market:

1. Of the six previous Bear Market rallies, three were long and three were short lived.     

• The three long averaged 13% gain over an average of 70 trading days   
• The three poor rallies averaged 5% gain for an average of 15 trading days. 

   2. On the other hand there have been nine different occasions since 1996 in Bull Markets where such signals bode well for an average move of over 20% up in the NYSE over an average trading period of 139 days, which is significant.   

…So, here we sit on a long weekend in limbo and the Market pointing down but can go either way, though the odds favor the downside.  What is surprising is that Friday was Options Expiration as well as preceding a three day weekend for the Stock Market, yet the Market rallied into the close.  Likewise, the number of New Highs AND New Lows are both exceedingly quiet at less than 50 each per day for the past 15 of 17 days.  On Friday we had 73 new lows.  We can examine the tea leaves to our hearts content, but I say yet again to the point of beating it to death until it is drummed into our heads: we cannot expect a significant rally until we see New Highs on the NYSE exceed 100 and preferably 150 for several days in a row. We are in the thick of Earnings Reports season, so rule #1 is do not buy any stocks who’s Earnings Reports are not out yet.  Even great earnings reports get met with “buy the rumor and sell the news”.  If you don’t believe me look at what happened to DRYS the other day…up over 6% in after hours having reported great earnings and then down about 8% the following day.  But tuck that piece of news away and of course the Transportation – Shipping Industry group is hot.  Nimble is your trump card…so here are the places of opportunity: 

1. Value and Bottom Fishing or should I say “Dredging” on beaten down Industry Groups
2. Growth Bottom Fishing on beaten down past stalwart Leaders
3. Old and Emerging Wolf Packs

…and because it is a nice long weekend for you to do your homework, here is the Family tree of where to hunt:

   Good luck to you all, and thanks to our new follower from Kuwait City, Kuwait who has just signed up for the newsletter!   Best regards, Ian.