Ian Woodward's Investing Blog

Goldilocks is still dancing and prancing with Rumplestilskin around the Bonfire.  All the recent song and dance about sub-prime rates going to pot seems to have run its course for the moment and has temporarily run out of steam.  Wonders never cease when the Retail Stores report indicated that the losses were not as high as first expected and triggered a 328 point rally on the DOW.  The next day the Retail Stores were reported to be at their worst in two years, but the market still went up since the other euphoria was the Earnings reports were expected to be better than expected. 

I emphasize again that the work I have done on the QID/QLD total dollar ratio has recently reached new high levels indicating to me that the pessimism is so high that the old adage of “the stock market climbs a wall of fear” is still in play.  We have not yet seen the super optimism which is indicative of a Blow Off Top.  Having blown through resistance after a triple top we must now see if it was a quick short term covering phenomenon and fall back into the base or a continuation up for that final blow off.

There is still fire in the belly of this tired market with a 187 point gain in the Dow and a 32.5 point gain in the NASDAQ. All the recent song and dance is about the bond yields spiking up and the Dollar regaining some of its weakness, so it is not difficult to quickly bind the limits of the problem. It goes without saying that the volatility in this yo-yo market abounds on a daily basis now. It has virtually come down to day-trading or very nifty swing trading. In a market like this it is almost better to step aside when one is this confused as to the solid direction of the market. We even had a Eureka signal (my special indicator) which at this late stage of a bull market run usually implies we are headed for a correction.

Then there is the daily volume for the QID doubling that of a month ago delivering 20 Million shares routinely and as high as 31 Million…it has become a serious hedging tool from what I can see. Likewise there are many disappointed souls who feel they got in at the bottom of the QID only to find they were too early on their timing.

….And the beat goes on! The Bullish Action is very strong. On the other hand, the Bullish Sentiment is not yet out of control, which will come when the price continues up on weak volume. The bullish action is so strong that it is overshadowing the potential distribution days. In other words, the herd is still buying on the dips. The bullish reversal on Friday coupled with Options Expiration this coming week suggests the week should be mildly bullish. This could set the QID ETF up for another chance at a sequence run this coming week.  Remember that at this point the QID %B is still positive and must turn negative again to trigger the start of the run. We shall see.

I have turned my attention to the QID and to a lesser extent the QLD, the two power ETF’s that give you double your pleasure and double your fun as you chew Doublemint gum….I couldn’t resist that. I hope you enjoy this piece of research which is in its infancy but looks promising. I struck on the idea of finding the earliest potential turn in the Market using the QID, and I am sure you will be surprised and amazed at the extent of the daily money flow into this Index which bets twice the odds of the NASDAQ going down. It is drawing over 10 Million shares a day with regularity and has become a daytrader’s dream. But so far it has proven slim pickings!

I repeat “What a difference a month makes!” A month ago I said “Who would have imagined a 400 point drop in the Dow in one day?  Sadly, the ‘ripples of consternation’ expressed by the former Fed Chairman, Uncle Alan, coupled with the Asian Markets taking a couple of days dive, added to the most recent problems of sub-prime lenders getting walloped by the market was just too much for the struggling Bulls to stomach.” Now a month later the Ides of March are behind us, all the major indices have regained their composure and we are knocking on the doors of a return to the old highs. Those in the bear camp are patiently waiting to sing the chorus of “Be patient as we are headed for a double top”. They have been biting their fingernails as they have loaded up with QID’s (the double -leveraged NDX 100 ETF’s on the short side) long before now, but are waiting for bad news to make their dreams come true.