Ian Woodward's Investing Blog

Tonight as I write this note after two big down days in the Market, the Rally is on the hairy edge.  The Diva is Rehearsing, but not Singing yet!

The following three charts are self explanatory to explain why this Market must respond strongly to the upside Tomorrow to keep the spark alive:

Now let’s turn our attention to where the DJIA, S&P 500, Nasdaq and NYSE sit relative to their Critical Support Levels:

Let’s look at them one at a time to understand the degree of “Cushion” each has before the floodgates open to the downside.  Here is the DJIA:

The S&P 500 also has a Cushion, as we watch critical support and the distance from the high of -8% for the point at which the Index must turn up:

The Nasdaq is at the Critical Level…any lower and it will be the Canary in the Coal Mine that has rolled over first of the four Indexes featured:

…And lastly we have the NYSE which like the DJIA and S&P 500 have Cushion.  So we have three still safe and one in jeopardy:

So there you have it, with Canaries in the Coal Mine, %B at a Critical Level, and needing a Strong Bounce starting tomorrow or this Rally is finished for now.

Best Regards, Ian.

Since we have learned in this last year that the Stock Market is mainly News Driven more so than in previous years, any sustained Rally coming out of an explosive move we have experienced these past 3&1/2 weeks is highly unlikely to last as long as the Days of Wine and Roses ala March 2009.  If you do not pay attention to what is due up by way of news to say nothing of the surprises we get every other day, then most Type 3 & 4 Intermediate and Long Term Investors will get killed.  The next big day to mark on your Calendar is November 23rd., the day before Thanksgiving, when the Super Committee MUST deliver the goods on the Debt Crisis Issue.

With that as an introduction, Paul has a follow up question to my note of yesterday:

Paul R Says:

October 29th, 2011 at 7:10 pm

Wow Ian great blog and answer to my question.

Here is another question for you, looking at the .97 %B average and the band of drummers warming up, for a decent sustained rally what %b range would you like to see each evening?

Paul R

Hi Paul:  Now you want “Jam on it?”, as my Mother used to say when I was a little boy as she gave me Tea and Crumpets.  I’m no Soothsayer, but I can give you a feel for what to look for.  Using the Benchmark of the Strongest Rally in the last three years when the Market exploded upwards on March 10, 2009, we see:

1.  Once the Composite Average for ten Market Indexes reaches a peak, it stays above 0.80 for four days before it descends to 0.60 to 0.80
2.  If the Rally is very strong, Composite %B can stay above 0.60 for a Month, dip briefly with a Phoenix and three to four buckets down in one day (Major Down Kahuna), and then survive for another month, as shown below:

Likewise, all of this can be followed by all Users of the HGSI software as shown in the chart below:

3.  The more normal rise and fall is that a Rally will stay up above 0.80 for four days and then gradually fade to BELOW 0.50 within 12 Days from the peak…hence Twelve Drummers Drumming.
4.  The earliest clue that the Market is Correcting again is when %B for the S&P 1500 registers >16% in Bucket 0.6 to 0.7, hence my statement of 12 Drummers Drumming and Sweet Sixteen!  (Seminar Attendees need to review the omnibus set of slides for March 2011, where you will find chapter and verse on this towards the end on Pages 369 to 388.  The Section is called “Defining Market Tops with %B and Bucketology using the S&P 1500”).  For those who read this blog, you can find references to this concept in Blog Notes dated November 5th. and 6th, 2010.

…And here is a sample of what to look for, and please note the red circle in the middle of the chart around Bucket 0.6 to 0.7 for the “sweet sixteen” which is the earliest clue that the Market may start to deteriorate:

No one can predict what the Market will do, and I can only give you clues of what to look for as the Market tells you which path it is on, day by day, week by week until we get to Thanksgiving Turkey.  Then comes the Santa Claus Rally to look forward to, so there is hope if the Super Committee can come up with good news.

Let me turn the tables on you and anyone else who cares to chirp up…please give me the heads up of what you see as things unfold in the next three weeks as to which way the Wind is blowing ahead of a Catastrophic Failure or a Pleasant Surprise and you will be a better man than I Gunga Din!

Best Regards, Ian.

As most of you know, I have been a strong follower of John Bollinger and have built on his Bollinger Bands techniques.

Here is a response to a good friend of mine, Paul Reiche, whom I have known for over 15 years, who was a Seminar Attendee this past week and asked an astute question as follows:

Ian,

When the bandwidth starts to widen in a rally, above 0.11 as we see now, is that to be regarded with the same caution as on a down stroke?

Paul R

Hi Paul:  The quick answer is “No”.  You crafty fellow with those beady eyes that spotted what I saw as well.  I had to go back to the Stake in the Ground on October 2008 and the Measuring Rods using that Benchmark to understand the dynamics of what you and I saw!

However, the short answers are:
1.  You must pay attention to where %B is relative to Bandwidth
2.  The famous Bandwidth Squeeze which can take you either way
3.  After a disastrous quick drop, any recovery will show a widening of the Bandwidth AFTER the Market starts to come up out of the Mire.
4.  Watch for a Hockey Stick on the Lower Bollinger Band to see a Recovery forming

So What:  Rest easy on what you see UNTIL the Market Heads down sharply again. As long as %B sits up above 0.7 in the Champagne Buckets, have no fear!

Now for the long answers that come together clearer with pictures, which are worth a thousand words:

The first chart shows the dilemma with the “red” creeping back into the Bandwidth as shown below.  There is no concern as long as %B stays up in the “Champagne Buckets” of %B >0.7.  Note the strength of the market in the middle of the chart with the Average Composite %B for all Indexes at 0.97 on Thursday.

It goes without saying that all Type 3 and 4 Investors are itching to get in and those who are in, be they any Type, are wondering when this Market will break down again after the huge surge from the euphoric news from Europe that they have a solution for the Debt Crisis in their domain.  My notes in the body of the above chart say it all, since the key clue to being overbought is the 0.97% for the Composite Average of all Market Indexes.  In my previous Blog Note of Thursday, I mentioned that a reading of 45% of all S&P 1500 stocks >1.0 (above the Upper Bollinger Band) was very high…only one other reading has beaten that in 12 years!  That was on 7/1/2011 with 48%, and you have only to go back and look at my previous blog notes of August 1 to 4 to see the handwriting was on the wall then, which followed a month later.

Now please understand that the 48% on July 1 was at the end of a long Bull Rally from September 1, 2010; it was the culmination of a week of %B running up outside the Upper Bollinger Band on light volume, tantamount to a Climax Run as we discussed at the Seminar.  However, this 45% is at the start of a New Bull Run which is still trying to dig itself out of the MIRE.  Expect a Correction, but what happens after that is the Key clue.  Does it hold at above %B 0.5, the Middle Bollinger Band or fall down again to make the Rally short lived?  Understand that this Market lives day to day and is totally News Driven.

Also, take heed of the note in red that says “Start Counting 12 Drummers Drumming for a Correction” which I have covered several times on this blog.  It suggests that when all markets are this overbought with %B registering 0.97 for the Composite Average, one should expect some form of a correction within twelve days as a rule of thumb.  If that occurs, then the Market Indexes must hold above 0.5 for %B for the Rally to continue without another round of gloom and doom.  If Kahunas and Phoenix don’t appear in quick succession, then the likelihood is that the Rally will hold and continue upwards.

This next chart is all you need to know about Bucket Skipping, but be rest assured if you don’t understand the importance of Large Bucket Skipping then you may never stay on the right side of the Market.  Those at the Seminar now understand that this is their lifeblood, so digest it:

I showed you in my last Blog Note that yet again, a couple of Eurekas sprinkled with simultaneous Kahunas and a 3-bucket skip to the upside was the ticket that a new Rally was on and all of this preceded the official Follow Through Day (FTD) by a couple of days.  Go back and digest it.

Now let’s move forward to understand how you can use the HGSI software to analyze the key characteristics in anticipating good and bad moves in the market using the weapons that John Bollinger describes in his book “Bollinger on Bollinger Bands”.  If your eyes are rolling in the back of your head move on, but if you are interested the key to coming out of the current MIRE is a Hockey Stick!  In my youth I used to be a decent field hockey player, being captain of my college team at Faraday House and later with the Treble One aerobatic squadron of the Black Arrows at RAF North Weald.  Happy Days!

I know there is a lot to take in, but since you were one of the lucky ones who attended the Seminar for which Ron and I thank you for your support, this should be a snap for you!  It all comes down to Hockey Sticks!  Let’s fast forward to now and you will soon see what I mean on the following chart:

A good supporter of ours, Gary Lalone, wrote to me much earlier and suggested that the Institutions (Large Players) closed out their long positions back on 6/1/2011 with that five bucket skip down on that day, and then waited for an opportune time to short.  And that’s my Story for Today!

Best Regards, Ian

It is exactly a Year to the date that I last used this picture and said “I can tell from the ‘hits’ I get on the blog that there is a faithful following that enjoy my blog, and I hope the picture below assures you that I had not forgotten you, but I was extremely busy doing the October Seminar”.  We had a most exhilarating Seminar thanks to all our faithful supporters, guest presenters and “newbies” who learned a lot and we all had fun:

The next slide is the sobering thought I used at the Seminar to explain the current situation with regard to the Problem We Face as a Nation:

Given that dark cloud that hangs over the Nation and the Globe, the Market is on a strong Breakout as shown below…it is what it is:

At long last the VIX has broken down below 30, and today we had the real signs of a Market Recovery, but as you will see we are now overbought:

As I explained in my last blog ten days ago we were in the middle of a strong rally with the Bulls now in full control, but we shall see if it will last:

…And here is a Summary of the key points in the last month which shows that the process we have used since March 2009 works well for a Fresh Rally:

The pendulum has swung from Despondency to Euphoria  where we now have 45% of the S&P 1500 stocks above the Upper Bollinger Band, i.e.>1.0:

…And the following chart shows the extent of the powerful move the Rally has produced as the Bears have been forced to cover, for NOW:

Now that many Market Indexes have broken up through the 200-dma resistance, the next moves will either hold at that support line and then head up again, or we fall back below to find support at around 2655 or lower.  These are explosive times in the Market both ways so play with caution.  Good luck to you all.

Best Regards, Ian.

I see that some of you like this picture which I conjure up from time to time, as this is turning out to be the crucial week for the Stock Market given what is in store for us by way of Late Breaking News which I will get to in a minute:

But first let me pay a tribute to the man who best exemplified “Think Outside the Box”…Steve Jobs:

Last week’s performance was very encouraging after the three Fakey’s we have endured so far.  I’ve shown you this slide before, so it should need no explanation, other than to point out that the market behavior this past week is very similar to that of the March 2009 Template I show at the bottom of the chart and is what we must achieve to assure the start of a decent rally.

As we can readily see, the see-saw, Marjorie Daw roller coaster action we have witnessed these past two months, and particularly this past twenty days, has provided us with an easy scenario to read the Next Bull Elephant Stompings…either up or down:

Now here is the Upside Scenario, which as you would expect is Europe News Driven, and couldn’t come at a better time if we are to see a continuation of the good rally attempt last week, based on the %B chart I showed you up above.  We will have to see if there is a positive reaction tomorrow in the Asian and European Markets before we can tell whether the news by the German and French Leadership has any positive effect to at least stem the tide from downwards for the start of the week.  You will note that I show that Alcoa, Google and J.P. Morgan Chase kick off the new earnings season next Thursday; also, tomorrow is Columbus Day so some markets may be closed, so we will just have to wait and see:

We will just have to wait and see if this is more rhetoric to kick the can down the road or that the European Governments will produce the muscle to clear up their mess.  If there is any further bad news out of that quarter or if we pussy-foot around here at home then we are staring at the next obvious Low Road Scenario which I depict below.  Most of the Market Indexes are already knocking on the door of a bear market drop of -20%, and some like the Russell 2000 (RUT) are already there:

Well, have fun this week as Ron and I continue to work feverishly for the Upcoming Seminar which is now down to two weeks away.  There are still seats available and those of you who indicated that you were coming need to sign up to help us help you.

Best Regards, Ian.