Ian Woodward's Investing Blog

With three Major Shots across the bow in the last month and the last big one only a few days ago on Thursday 07/31/20114, we are probably in for some big fights between the Bulls and the Bears as they get ready to rumble!

The Market Indexes sold off this past week and we are now at the Caution level with the NASDAQ & NDX holding up best of all with only 3% down from their highs.  The RUT and S&P600  are worst at ~-8% down:

With Earnings out for the Canaries, they are looking respectable though they have given up some ground:

But now comes the bad news…the Market Indexes are all below -3% from their highs with the RUT and S&P600 as the laggards.

The VIX has run out of cushion and is now on the borders of going into Oscillation, so watch this carefully:

Internals are rotten with Distribution well underway.  Not far from extreme capitulation so look for a bounce:

This last big red day on Thursday killed the Rally for now and it will take time to repair:

…And here is the -6.4 Buckets down in %B to prove the Market is in deep doo-doo!

4350 was key Support for the NASDAQ and it held, which was a good sign.  However the last call is 4300 otherwise we head down with a vengeance:

…And here is the picture for the S&P 1500.  My guess is it will take a while to right itself:

The latest vogue is “Seasonality” so here is the picture from 2009 forward for the S&P 500, which shows that August is the poorest month for these last six years:

We are due for a double digit correction, since we haven’t had one these past 18 months:

We continue to have good news on the Jobs Report scene with yet another month of >200,000 Jobs posted:

…And here is the long term picture which is very encouraging:

Well, there you have it with a long blog note this time while watching Rory McIlroy take the lead in the golf.  Keep your powder dry and next week should give us a clue if we are in for more trouble or get out of being Oversold.

Best Regards,

Ian

The big guns are playing games with usuns yanking the Market Indexes around.  Most have decided to stay this round out unless they are very adept at very short term plays both upwards and downwards.  Look what just happened a few days ago when the S&P 1500 dropped 6.3 buckets down in one day only to go up 5.5 the very next day…net result is game playing.

The RUT, Midcap, and Small Cap stocks have taken the brunt of the hit and are the laggards, but the DJIA, S&P 500 and NASDAQ are still near new highs, i.e., we continue to have a biforcated market:

However, the tell-tale news is that the Accumulation : Distribution Ratio A+B:D+E has deteriorated to Stalemate:

Our Favorite picture shows the Bubble Hiccup very well and it has been two months since we had a similar fracas:

…And the twin picture to the above also shows the long rally of close to two months before the Knee-Jerk occured:

Now for some “New Good Stuff” relating to the Mid Term Presidential Cycle.  Here is a neat picture of the Largest Corrections from 1930 onwards for the Mid-Term Election Years…the 4 Year Cycle, which my good friend Bob Meagher unearthed for me.  It shows that the Median Correction is -17.12% and no wonder the pundits make a song and dance everytime this rolls around.  There have been nine times when the number has been less and 12 times where it has been greater, with the heaviest damage in 2002 of -34.69% after the bubble:

Now let’s look at the last 24 years for both Largest Ups and Downs of more than 4% in each of those years:

…And here is a plot of that same picture to give you a feel for what the chart looks like:

I’m sure you are scratching your heads and saying “So What, Ian, is there a pony in here?”  Well, you know me in that my first answer is that the result is in the lap of the gods.  But I never shy away from a challenge so my next answer is that we should certainly see a -8% correction for all of the reasons I have given you in the past.  Then what?  Unfortunately, that answer depends on the state of the world in the next 3 months or so…Wars, Mexican Border, Economy and Jobs, Healthcare…the usual stuff on our plate these days.  My short response is that if it is worse than -12% who cares, as for sure most of us would have prudently hunkered down and protected our nest eggs long before then.

Chew on this fodder and if you have any bright ideas let me know what you think.

Best Regards,

Ian.

The Stock Market remains strong and continues to move upwards and onwards.  Yes, we had a pull back today with a pause to refresh, but there does not seem to be any signs of fatigue:

Looking back over the history of the S&P 1500 since March 2003, it became evident for the purpose of our needs that measuring from March to March rather than the usual Calendar Year gives us a handy picture, since both Key Market Lows were in March of 2003 and 2009, and most highs before a correction have also been in March!  Anyway, the numbers are nicely summarized for you:

It doesn’t take two minutes to see that we are very extended, but play along with one eye on the exits and tight stops.  We had a pullback today, but until we see a 2% drop in one day will there be any sign that there is a start to the correction in earnest:

The Acc/Dist Ratio remains strong at 4:1, but is showing signs of peaking and is at Historical highs:

Grandma’s Pies also confirms we are in overbought territory, and it was expected we were on borrowed time for a pullback:

We have had a long run of five weeks where the bulls have led the way, and today we had a pullback as we would expect:

Here’s a new chart for you to digest which demonstrates that the normal cycle for %B up, down or sideways is between 12 and 16 days:

The NASDAQ almost reached its next target of 4500 before the pullback today which held at 4451.53:

This next slide shows the same parameters but this time for the Composite of ALL eight Market Indexes which also shows that %B is above the Upper Bollinger Band at 1.06.  We can also see that this is the area where things peak and we are due to correct:

Now for a change in topic…the Jobs Report which is looking a lot better of late, and maybe a sign of a Better Economy to come:

…And here is the History for the monthly Jobs Report since October 2010, which shows the recent reports are encouraging:

Good luck and Best Regards,

Ian

At times like these, I like to remind my supporters that my aim with this blog is to Provide Insight at Market Extremes of Fear and Greed to Protect and Grow our Nest Eggs.  We are now at an Extreme which can go up further but it is time to take stock of where we are and to show you how I manage such times:

An earlier Blog Note gave you the target for the next step up in the NASDAQ of 4400, and by jove we did it:

For those of you who are not familiar with the term “Bongo Weekly or Daily” here are the definitions:

This next chart is worth its weight in gold, as it shows the percentages for various types of Corrections:

To simplify chart patterns, I work essentially with three basic types as shown below:

Here are four examples showing entry points based on Code Blue as shown below:

The Market Indexes have been a bit jittery these last few days both up and down, and here is a snapshot I took earlier in the day before the market closed:

The Canaries were chirping up strongly yesterday and here is that snapshot…down a bit today.

The VIX is still behaving quiet and we have plenty of Cushion:

The A+B : D+E Ratio peaked at 4.1 and has backtracked these last three days, but still strong:

One of these days the markets will take a whacking, but for now they are still striving and struggling to go higher and as I showed you we are now well into Greed Territory, so play things close to your chest with tight stops.

Best Regards,

Ian.

I just couldn’t resist showing you how the Market behaved as Ms. Janet Yellen was pontificating to the Senate despite all the turbulence around us with concerns of the situation in Iraq uppermost on our minds:

The Market Indexes have all reached double tops, so we either pull back again or burst out upwards next week:

The Canaries have behaved relatively well during this period, but pausing to refresh at the moment with PCLN lagging:

This next chart is worth its weight in gold and summarizes where the Markets stand relative to the New Highs they have just made and when you need to have taken some form of action if they all drop violently towards -8% Corrections:

As we would expect the Accumulation: Distribution ratio of A+B:D+E has now reached a comfortable 4:1. so good cushion:

The Markets have settled down again with %B for the Indexes all in Green Territory, with only a minor correction last week:

Likewise the picture of the behavior of the S&P 1500 looks equally good as we once again rise towards Overbought territory:

Grandma’s Pies Confirm the see-saw action of two months ago and the current strong performance of the last few weeks:

We are a long way from being at the lows of %B with a reading of 0.86, but when the rot sets in, it trots down fast:

…And here is a similar picture for the S&P 1500…the value is in the Consistency of the Tops and Bottoms, so we can act:

Now for the Jobs Report of a week ago, where at least they are encouraging with the past four months above 200,000/mo:

…And here is the comparison to last year.  Since the next two months for last year are low, there is hope!

I trust all of this was worth waiting for?!  Enjoy.

Ian.