Ian Woodward's Investing Blog

Yesterday, I wound up my Blog Note by saying that given the major drop in the Market, it was most unlikely that the Nasdaq could gain 60 points to reverse the bad day and would you believe it, it happened!  Wonders Never Cease!

…And here are the reasons why with courtesy of, and compliments to, MarketWatch in their bulletins this morning:

Here is the updated Chart of the Nasdaq showing the 60 point rise:

With Earnings the hot subject right now, it seems the Canaries are all we have to watch…Now that’s Wishful Thinking:

For those who follow the AAPL Food Chain, here is the list as best as I can tell and their performance today:

Best Regards, Ian.

It seems we had our first shot across the bow with the Market getting a trifle spooked by the stonewalling on the Debt Ceiling Debate.  However, although the Indexes took a -1% hit today, the Volume did not show panic buttons were pushed as yet, so it might just be a pullback.  On the other hand it may be a taste of things to come if the “monkeying around” doesn’t come to an end within the next ten days:

My good friend and associate Ron picked a good time to have a bit of R&R as the Market yin-yangs back and forth between 2700 and 2800 of late:

So let’s turn to our “Go To Clues” for where things stand with the Canaries and the VIX relative to the Nasdaq in the next few charts.  Overall the Canaries have held up reasonably well except for today when both NFLX and AMZN took hits, along with the new-comer LNKD.  AAPL was by far the strongest of the bunch and headed for New High Territory despite the Market sell off:

It is really not surprising that these Leaders are pausing to refresh as we all know a general rule of thumb is that a Stage breakout will usually last for about 22% to 25% Gain in 4 to 6 weeks when it is reasonable to expect a “Pause to Refresh” which is exactly what BIDU and NFLX have done.  Although AMZN has not dropped significantly, both it and NFLX have broken their short term trend-line to the upside, with NFLX dropping an alarming 14%…presumably in reaction to the recent price hikes they have announced which has caused some form of an uproar.  As you would expect these stocks have risen and fallen in concert with the Nasdaq, so there is nothing unusual yet other than profit taking and cooling off from an explosive rise.

So let’s turn our attention to the VIX, and I give you a new view which my good friend Bob Meagher produced for us to track the Kahuna Force and %B change in Real Time using the Think or Swim (TOS) software…good stuff!

Let’s look at the 20-day view of the Cup and handle and breakout of the VIX above the Down-trend-line, otherwise known as the 405 Freeway, with the strategy to watch for where the three Road Scenario is unfolds very easily.  Any push up from here will soon put the Bears in complete control:

…And finally, let’s compare the VIX with the Nasdaq on the same view, where I suggest that the Nasdaq has to get above 2825 to turn the corner.  Sixty points up in a hurry is not very likely unless there is some blockbuster news to the upside:

Net-net:  No alarm bells yet, but waiting for the other shoe to drop in the midst of the Earnings Reports, so its not surprising the movement is more news driven at this stage.  The next ten days will tell us whether we survive another debacle or head down into the mire.  Best to sit tight and wait it out.

Best Regards, Ian.

With all the recent writing I have done getting the Newsletter out, Carpel Tunnel is back in my right hand so I will keep the typing to a minimum:

You know the symptoms…once we hit a peak WITHIN twelve days one should see a correction.  How big nobody knows:

Who says “History Doesn’t Repeat itself?”  Well close enough for Gov’t work:

A shot across the bow, but we still have a decent cushion…a bit of luck for the Bears for such a turn of events, who were biting their finger nails:

Grandma’s Pies are still in the Safe Zone, but one more day like today can turn them pretty soggy:

“A” Accumulation has turned back as expected, but not enough to be alarming at this stage:

This Pie Chart shows more clearly that Accumulation is still strong with only 10% in “D” and “E”:

The strong group of 25 stocks I featured a couple of blog notes ago are still holding up, but has slid down a bucket or two though still above 0.5:

The Ball Game for the overall market hasn’t changed in several months and stays between 2600 and 2900 as I have shown before:

The Bears are now focusing on the VIX and similar instruments…this is good for Type 1 and 2 traders.  I gave you the Game Plan Moons ago:

…And here is where we sit today with a fast forward to June:

…And there you have the picture to help you plan for the week ahead.

Best Regards, Ian

At this stage of events, it seems easier to hypothesize the three Main Road Scenarios.  The Stock Market has played into our hands and here is what may unfold in the next week or so.

You have seen the chart below when I coined it as the Purple Chart, which helps when a Market is either Overbought or Oversold:

Please compare the current stage with that around mid November last year to identify what “MIGHT HAPPEN”:

1.  The Middle Road Scenario: The S&P 1500 will fall to below 0.70 for %B within the next week
a.  We should expect at least a Kahuna to the downside…that implies a one-day skip of two buckets down
b.  It also suggests a Price drop of >1.5% in the S&P 1500 or about $4 in one day
c.  %B for the S&P 1500 will drop BELOW the reading of the % of stocks in the S&P 1500 >0.5 %B
d.  Subsequently in the ensuing week %B MUST not fall below 0.25, and then must rebound
e.  The Price of the S&P 1500 will HOLD above its current low of ~ 294 at or near a triple bottom
f.  The Canaries give up their significant recent gains and again will be testing their lows

2.  The Low Road Scenario: Given the Middle Road Scenario to 0.2, %B falls further below the Bandwidth
a.  Invariably this requires at least a 2% Price Drop and one can expect repeated one day Bucket Skips
b.  At this stage, the Bears will have control and the Floodgates can open on full throttle
c.  The S&P 1500 can suffer several 1-Day Price drops of 2% or more
d.  %B (green line) will drop faster than the % of Stocks above 0.5% (red line)
e.  The Purple Area Chart will once again go negative to around -0.2 or lower

3.  The High Road Scenario: Given the Middle Road Scenario to 0.2
a.  %B RISES and recoups to 0.9 or higher
b.  The S&P 1500 quickly rebounds and attempts a double top, either blowing through or being rebuffed
c.   We review the bidding at that stage, but it will certainly require good news on the Debt Ceiling Fru-frau
d.  There is no further unrest or negative surprises on the PIIGS front
e.  Volume picks up to give conviction that the Bulls are ready to flex their muscles

Always let the Market tell you which Scenario it is on.  At least we now have a cushion from the Strong Bounce Play of last week to give breathing room to the downside.

Best Regards, Ian.

A Happy 4th of July to you all as we ponder where this market goes next week.  Those who have followed my blog these last few weeks got the Game Plan alternatives over a week ago with the last two blog notes.  So now we come to the Fork in the Road at the Crossroads:

This past week was a Blockbuster in terms of Price Gain from an Oversold situation, the likes of which broke all records in its momentum.

The $64 Question is whether this is the start of a decent Summer Rally or just a Flash in the Pan due to a confluence of three forces that came together  simultaneously to cause the explosive move this past week: Window Dressing, the End of the Quarter and Half Year, and a Market that was so Oversold that at least a Bounce Play seemed certain to be on the cards, especially as two previous attempts fizzled before they hardly started.

Just look at the results of the Buckets and especially the 48% of S&P 1500 stocks sitting above the Upper Bollinger Band in Bucket >1.0

That 48% or 724 stocks is the highest on record, so this again was no ordinary move:

…And if that is not enough, here is the result of that Bounce Play which has materialized as I hypothesized last week:

Here is an update to the picture I gave you last week showing two alternative Scenarios for this coming week…The Fakey will be easy to spot:

…And here is how the Canaries performed this past three days since the previous one with the improvements in % Price Gain (shown in white):

So there you have it, and again a Happy July 4th to you and yours.

Best Regards, Ian.