Ian Woodward's Investing Blog

It has been a while since I posted a Blog Note, but I am sure you understand that I was busy with the HGS Investor Seminar last weekend.  Fortunately the Market has stayed up and dwardled around since my last note and we are now at the stage of either a well deserved “Pause to Refresh” or a Market Top with hopefully no more than a small correction.

As we look at the next chart we quickly see that although the general trend is up the Market Indexes have been see-sawing for the past ten days compared to the previous ten, and this breather may be just what the doctor ordered before the Rally continues.  It is now all of four months in a tight upward move, which has at long last brought some respite for the 401-K Nest Eggs you all have:

The $64 question is whether the Market will continue to Pause to Refresh with a slight correction or continue up further.  As long as the Nasdaq stays above the 17-dma (green line) the Market is intact.  If the 9-dma (pink line) crosses down through the 17-dma, that is an early warning sign that we are headed down and is your “Get out of Jail Free” card.  By then the Nasdaq Index itself should be down to around the 23.6% Fibonacci Line at 2990 and must hold there.  Last Call would be at the 38.2% line or around 2900 which is also 7% to 8% down from the high and as Seminar attendees learnt is where 70% of all pullbacks hold for the Nasdaq.  These are Rules of Thumb that have served us well over the past twenty years, so the Game Plan is very simple given that the Volatility Index VIX has been so quiet!

As we learned at the Seminar, Earnings Report season does not really get underway until the last two weeks of April and the first week of May.  Those who are Bullish will recall a favorite Yorkshire saying “Ne’er Cast a Clout Till May Be Out”, which means don’t get rid of your woolens, or in this case your stocks until May is finished.  That goes in concert with the Long Tails Mustache Scenario I mentioned some time ago, where an extended Market to the upside can get more extended ala March 2003 and 2009, respectively.  If there are no Global surprises, that is the High Road Scenario.  However, the go to indicator will be %B x BW, and a reading that shoots up through 0.4 coupled with a strong push upwards in the VIX which has been unusually dormant will be our first clue that all is not well and we are headed for a correction, small or large:

Using the Three Road Scenario, you know full well that we are in Stalemate…the Middle Road Scenario waiting for a signal one way or another:

So, stay light on your feet, find the ponies, and let the Market tell you which way it is headed while watching the clues for which way the wind is blowing as I taught you to watch to stay on the right side of the Market.  The first clue is Grandma’s Pies which is at 65:35…getting a trifle soggy.  Note also that the % of Stocks in Bucket 0.6 to 0.7 is the highest of the bunch and sitting at 18% with the market having reached a high 13 days ago.  I also taught you that 12 Drummers Drumming and Sweet Sixteen (>16%) or more in that bucket is a warning sign that the BIAS is downwards as I show on the next chart:

This next Chart shows that we have had a four month rally and except for a shot across the bow with the Greece kerfuffle, it has been mighty strong running into a top on 3/13/2012, when we start the count for twelve drummers drumming.  It has now been 13 trading days since then and we have gradually trotted down, where it must hold at the 0.5% middle Bollinger Band line if this rally is to continue as shown on the chart:

…And another look at the % of stocks in each of the twelve Buckets confirms the to and fro of the Market to show you how it is not difficult to know which way the wind is blowing as you use the Rules of Thumb from past experience:

So there you have it.  Ron and I wish to thank you for your support at another successful seminar where these Blog Notes should be duck soup to you who attended and made it such a wonderful experience for us all.  Those who are regular viewers of Ron’s Weekly Report will do well to insert the Leaders Index into the HGSI software we established at the Seminar with Dr. Jeffrey Scott leading the way, as that list will give you a quick clue if and when the Market Breaks.

Best Regards, Ian.

Those who follow my musings in these Blog Notes have realized that I have recently written more than my usual number of notes, and this is the third one in as many days!  It’s my attempt to keep you on the right side of the Market.  As you also know, I have various Tools and Rules that give me the agility to anticipate Fear and Greed and I have plucked several recent examples that show you how I do it.

Let’s cut to the chase with this first view that I have given you time and time again:

Three weeks ago I gave you the High Jump Targets as the Market was getting very overbought and it demonstrates how this is a very useful tool which we have in the HighGrowthStock Investor Software:

I have always emphasized the Canary in the Coal Mine Scenario which for months is “AAPL”.  Five days ago I gave you what the probable outcomes might be for Up and Down scenarios:

…And here is what happened today:

In recent weeks my focus has been on the VIX and TVIX and with the problems in Greece it came to a head today.  I show you what transpired today when the VIX woke up and the Woody Indicator (%B x BW) jumped.  I go on to show you what to look for tomorrow if there is a further big move to the downside to drive %B x BW to 0.40 as shown.  It pays to ask “What If” so that one can anticipate should the Market head down on this particular occasion.  The number is 23.20…let’s see what happens, but at least we are prepared:

The TVIX on the other hand is still “Quiet”, so the Bears are not fully committed as yet, and it will take a lot more to get it moving with gusto:

Last but not least, here is an Indicator that Ron Brown and I developed to identify Market Turns both up and down, and there is no mistaking this down move as it has signaled two days in a row!  We call it Kahuna Force and again is only available in the HGSI Software:

Well there you have it.  I hope this helps you to fully understand the Tools and Rules I use to be agile enough to stay ahead of the Market but not to second guess it or fall in love with a particular scenario which is fatal.

Best Regards,

Ian

Friday we were on Pins and Needles.  Today we had a shot across the bow, and the net result was Stalemate.  What we Gained on the Swings we Lost on the Roundabouts:

Looking for a Needle in a Haystack, here are the bottom line pictures.  Below we have Grandma’s Pies on the the S&P 1500 for the various Market Cap Sizes at the Close last Friday on 03/02/2012:

…And here is what it looked like at the end of Today.  Large Caps lost Ground, Small and Mid Caps came back…net-net No Change in the overall %B breakdown for the % of Stocks Above and below 0.5:

However, Grandma’s Pies have turned more than a trifle soggy with 37% Above and 63% Below 0.5, so the odds favor a correction, though the Bulls are grudgingly giving up ground.  AAPL got hit today but again it recovered towards the close.  The VIX and TVIX remained very QUIET, which says that the Bears once again must be patient.

Best Regards, Ian.

I need hardly tell you that this Rally is long in the tooth, but it is now really apparent that it is now on Pins and Needles!  The evidence that some form of correction has been building is what I will show you, but when momentum is this strong despite the sluggish volume of late, it takes a while for it to cave in.  I have collected a potpourri of evidence of old and new faithful slides for you to judge for yourself:

I offer you my Three Road Scenarios with one caution…every one is waiting for a dip so that they can get in since many have missed this last run, so don’t be surprised if the correction is small.  But as usual, we can’t predict the future on a whim.  Here is an old faithful that shows this rally has stayed up and is now long in the tooth:

Now here is a new twist.  My recent good friend Fred from down the road who is coming to the seminar,  has been studying feverishly the Woody Indicator (%B x BW), and brought my attention to the Utilities ETF (XLU), which led me to investigate the XL_ series in general and the XLU in particular.  As the next diagram shows all these ETFs are at a Bollinger Band Squeeze Play, where they are tighter than a drum.  So much so that there is no where for them to go but up in Bandwidth!  You judge for yourself and cast your Beady Eyes on the shaded portion for the XLU which is now down to an unheard of reading of 0.013!  Furthermore if you look at the “Countif” table I have produced for you, you will see this has NEVER happened before in the two years of history I looked at:

Let’s take this a step further and concentrate on the last two year’s worth of %B, BW, %B x BW and the Price of the XLU, and it was certainly a surprise to me that the Bandwidth and therefore the %B x BW were so low that one could get very little information out of them, UNLIKE the VIX and TVIX which I have shown you in the last few blog notes.  On reflection, it should be obvious that Utilities are slow boats and usually have little volatility.  However, the %B had plenty to tell us…unless I am reading too much into the tea leaves.

If we study the chart below we see that invariably BEFORE a big fall, %B for XLU FIRST rises above the Upper Bollinger Band, i.e., >1.0 and then collapses rapidly through the Bandwidth to below the Lower BB.  Those who have been with me all these years will recall my BullsEye Indicator and that is precisely the “Go To” indicator in this case at this point in time.  Note that in the two most recent big drops in the market, i.e., the Flash Crash and Debt Crisis, we get “First, and Then This” as I have depicted on the chart.  It will be interesting to see what happens this time as we are currently sitting in Limbo at 0.62:

This next view is a bird’s nest as I took out the XLU itself and therefore expanded the BW and %B x BW.  However, you can see that %B leads both, and the concept is therefore to watch %B on the XLU for any quirky moves!

Now for some other old favorites which I haven’t shown in a while and you will at once see that the tom-toms are beating:

…And that is confirmed by this view which not only shows that we now have 18% in the hole <0, but also the tell tale sign that %B-%0.5 in the last column is ominously high…42% and then 39%.  This and the next slide says it all:

…And here is the chart which is worth a thousand words:

The Seminar in three weeks time will be interesting to see how all of this panned out.  There is still time to sign up.  We have several distinguished guests who will be speaking including:

Gil Morales will be speaking at our upcoming March seminar along with Fred Richards and Chris White. Lou Powers, our energy expert will be in the audience, and since energy is such a hot topic, he will probably have some insights for
us. Hopefully, his book will be published soon.

Let’s not forget that Dr. Jeffrey Scott who is a “permanent fixture” will also be talking and we will have a lot of banter back and forth with all of you and have a fun time.

What could be better than basking in the sun with 80 degree weather which we are usually blessed with?

Hurry, hurry, hurry…time is running out.

Best Regards,

Ian

The saying goes, Beware the Ides of March which is all of 15 Days away.  It looks as if the shot across the bow today suggests that the Leap Year may have beaten it to the caution:

Anyone watching today’s action in the Stock Market couldn’t help but see that the Small Cap Russell 2000 Market Index had a bad day with regard to our terminology…Close to a -5 Bucket Down Day!  The other Indexes have turned “Yellow” and could follow with another bad day in succession:

You don’t need to know the numbers…those three red blobs which I have ringed says it all.  The RUT had 4.8 Buckets DOWN today, and as you can see from the sea of green we have had since late December, we have had a first MAJOR shot across the bow. Read carefully my last Blog Note to understand the significance of 5 Buckets down.

AAPL shot up first thing but towards the close was under pressure giving most of the gains back…however, it held fast and came roaring back in the last half hour after a small shake out.  Uncle Ben was not  encouraging today and the Market was not too pleased with his outlook, hence the fall in the Small Caps which have yin-yanged now for all of 18 days.

I felt I should give you that quick review to be on your toes for tomorrow to see if the other Market Indexes follow suit or that it was just a flash in the pan letting off some steam.  Of course it is no news to you that the Market is long in the tooth so a little bit of a pullback would be healthy.  By the way the TVIX and VIX remained very calm, so that is still a good sign for the Bulls, and until you see the kind of jump I explained in my last Blog, just watch those two to stay alert for which way the wind is blowing.

For those planning on coming to the seminar in three weeks time, you have until March 9th to sign up for the discount rate we have secured for you at the Courtyard Marriott…don’t dilly-dally on the way.  You snooze, you lose.

Best Regards, Ian.