Ian Woodward's Investing Blog

How does one play a tricky market like this?  Camp “Light on your Feet” is the answer.
What does that mean?   Type 1 & 2 Traders who are used to the volatility and are very
nimble have no problem as they are adept at taking what the market will give them.
It’s the Type 3’s who are swing trader’s who are prone to suffering and the Type 4’s
who are buy and hold…they are the one’s who get a trifle frustrated, but have now
learnt that they too must be nimble.  You must have tight stops and then you put up
with the frustration or you don’t “play”.

Alright, enough of that standard stuff, but where are the signposts from this week?
We had a Phoenix after four down days so it was ripe for one to occur.  That said the
Bears were now in control.  Two days later we had an Eureka, and it was followed up
by another one the very next day…Friday, so the Bulls are back in control – until next
week!  But take a little additional comfort as there was a Kahuna or two to go along
with either the second Eureka, or the first one as well.  What does that mean?  In
these modern times it is a simple way of showing you signals of:

1.  Which Camp, Bull or Bear is currently in control?
2.  The extent of Irrational Exuberance by the Bulls (Eureka) or the Bears (Phoenix)
3.  The potential Staying Power of their exuberance by Kahunas up or down

Those of you who are interested in far more in depth methods of these simple concepts
would do well to read Value in Time by Pascal Willain, who has delved deeply into
segragating this Exuberance through Effective Volume for Large Players and Small Players.  We all struggle for being ahead of the “News” and his methods provide the trader with the breakthrough valuable tools that develop the Money Flow.  I am very impressed with the work he and his colleagues have done and I will uncover more of this at the seminar in seven week’s time.

The HGS Investor must focus on two sets of tools that the HGSI Software provides that become  part of the daily routine:

1.  The Gorilla Stocks Index established nearly three months ago on 6/15/2009
2.  The landscape of the Proprietary Indicators as exemplified by the “wc” chart
3.  The feel for where the Accumulation/Distribution stands using Ron Brown’s “Ic” key

So let’s take a look at each of these pictures in turn:

We know from past experience these take a long time to roll over and die, and just when
we felt they were giving up the ghost, lo and behold, they have popped their heads up
again.  I have featured this chart several times before, including providing you with the list of stocks; you have only yourself to blame if you don’t follow this Index regularly.
What’s more, if you have patience they usually provide you with substantial gains over a
short period of time…just see for yourselves; there are no tricks up my sleeve.  I have said it before and I will say it again, STEC is one of the potentially BIG Stocks of the future.  Of course, you have to buy it right and you should know how to do that by now.

There is a plethora of Bull and Bear footprints, which become second nature to those who want to take the time to read them.  It’s not difficult.  Here is this week’s lesson:

1.  A Phoenix signal after four down days, where the Bears picked up courage to short
2.  Indecision by them, which gave the Bulls encouragement to come roaring back
3.  This was evident by two Eureka signals which trumped the Bears’ control
4.  Sure volume for the Indexes were light last week, but it’s the last holiday weekend
5.  In addition cast your beady eyes on the ribbons at the top…mostly green.

However, despite the two Eurekas that trumped the Phoenix, we had a CONFIRMED high for the NYSE on 8/27/2009 of 6737.60 with a Close of 6722.31.  This conflicting situation will only be resolved this coming week if that high is taken out or the NYSE goes down once again to test the 50-dma which is at 6293.  We are currently at 6637, so we need a 100 point move and a lot more to the upside before the Bulls can really breathe a sigh of relief.  It all sounds a trifle “iffy”, but I would rather be iffy than mislead you.  It’s all too close to call so the call is “Stay Light on Your Feet”.

I showed you a glimpse of the detailed Acc/Dist numbers for ABCDE last week, and I am sure you got the feel that we were steadily distributing all of last week.  Also, note that the Di up to Di down for the Industry Groups are even-steven at 49%:51%.  We must see a rapid improvement this week, or the Bulls will still be vulnerable showing no follow through on their part.  Net-net, stalemate and sideways until we get more news; make no bones about it, this market is totally event driven and moving up on fumes.

For the Type 3 and 4 Investors, the single most useful item to watch at this juncture is the VIX.  I gave you an excellent chart last week and give you the updated one below:

As we can see, the VIX is acting like “The Grand Old Duke of York”…he marched them up to the Top of the Hill and marched them down again.  Until it breaks one way or the other as shown we will probably meander in a trading range.

And now you know all I know for next week.

Best Regards, Ian.

Question: What chart in HGSI will show the Phoenix and the Eureka?  What index/user
group?  Larry 

Answer:  You need Major Market Indexes; then select NYSE Composite Index (though
any would do, such as the Nasdaq, Dow etc) and then in the View you should select
“wc Price & Volume Force Bongo w Hindenburg and Bingo”…all you have to remember
is “wc” for “Water Closet” and you will never forget where to go.  Then cast your beady
eyes down to the bottom two windows, the 2nd last has the Eureka and Phoenix and
the bottom window has the Kahunas.  We have a Phoenix and a Little Kahuna red today
…bad news.  I show the Nasdaq below with all the trimmings:

Question:  Thanks for the answers, it is truly amazing how much info can be derived
from HGSI.  So are there any indicators to look for to see confirmation of the downtrend
or is it time to move to the sidelines for a while?  Larry

Answer:  Larry:  I don’t usually do this but let me try to give you some guidance:

1.  I always start my presentations at the seminar that there are 50 stomachs in the room
and they are all different.  It depends on the amount of Fear you are prepared to tolerate. 
We are all guilty of erring on the side of Greed, but when the Fear sets in most are saying
“If only I coulda, shoulda, woulda got out earlier”!

2.  I will get into a litany of all the things to look for lower down which you should already
know from the blog I posted last night.   However, let me cut to the chase and give you just
one Golden Rule that all HGS Investors know by heart and that is there is a 77% probability
that all S&P 500 Corrections will be <8% high to low.  The ones that cause the major damage 
are anything larger than 8%, and you will feel the pain.
 
3.  We have come down from a high of 1039.47 to a low of 996.28 or 4.2%…half way.

4.  The 50-dma is at 956.46, which is exactly 8% down from the high!  That’s your yardstick. 
If it doesn’t bounce from there, watch out below.

5.  I’m feeling generous, so let me focus you on several pointers that I already gave you in
the blog I put up last night.  Maybe 9/10th of all the mumbo jumbo (good stuff) went over
your head, but there were several ponies in there which we call winky-winkies!

a.  The best Bear Market Rally we have had since 2000 was 51%, and we have already
surpassed that with 54%, so we were on borrowed time.

b.  We had the first major shot across the bow today with a 2% down day on all the Major
Market Indexes.  I advised my older Son to take half off by then, which he did as his
objective is to protect the 401-K he has worked so hard for.

c. I said in the blog, we must expect an Eureka immediately to cause this market to bounce
back from a rotten day.  Now that we have a Phoenix, the control has turned to the Bears. 
If you don’t believe me just look at the very chart I just put up for you where the two
preceding Phoenix signals on 6/3/2009 and 7/2/2009 took us down 9% from the highs, there
were no Eurekas to support the Bulls, and the Index BROKE the 50-dma.  So the expectation
is that if the tide has turned we at least will see the Index go down to testing the support at
the 50-dma. 

d.  If that happens, it is a given that the %B of the Bollinger Bands will be below the
Bandwidth – the green line below the red line in the 4th window down from the top on that
“wc” chart.

e.  By then you will also find that the ABCDE mumbo jumbo (good stuff) would have turned to
pink if not red, the third ribbon from the top.  Likewise, the (A+B)/(D+E) picture I gave you last night on the blog has dropped from 7x to 5x to 3x in the last two days. Losing Strength.

f.  If that is not enough for you, then the Bongo Weekly which has been green for the past five
months will probably turn to red, and Bongo Daily will be red throughout that time, which is
where it is already.

g.  If we have another 2% down day, wouldn’t it seem reasonable that you will see another
Phoenix?

h.  I said in the blog that the Bears would win when the VIX was above 28.  It already finished
close to its high of 29.23.  I also showed you that they win “Big Time” if it gets above 30. 
Watch that tomorrow.

i.  The Gorilla Leaders Index will be decimated and the market will be leaderless until a new
set of groups come to the front…probably defensive such as Healthcare, Foods and the other
similar stuff that is favored at such times.  It is already a hairs-breadth away from testing its
50-dma.

j.  If all of that is not enough for you to take action then wait for the cacophony that follows
on the airwaves that it was inevitable.  The psychology will change from ignoring any bad
news to accepting any good news as passé and will be another reason that we are going
down a lot further.  By then, all will say it was painfully obvious.  The Gloom and Doom Camp
will be out in full force, but watch China which is now well tied to us at the hip.  The Hang
Seng is already down 1.63% as I write this and all of Asia and Far East is blood red.

If all of that has scared the pants off you, the only thing to watch for the upside is an Eureka,
which can only come if the market decides it is too oversold and the Bulls come rushing in. 
Of course the perennial-bears will be rubbing their hands to catch the bulls in a trap, as they
have too often had to swallow crow by shorting this market too soon.  So one Eureka is not
enough, but you need two in quick succession…why do I say that? Just look at that same chart
and you will find two on 7/13/2009 and 7/15/2009 together with a small Kahuna up to give you assurance that all was well, and the bulls were in control again.  You need that same assurance.

The lesson learned is that the Proprietary Indicators in the HGSI Software give you the
Signposts to stay on the right side of the market if only you trust them and use common sense
with the rules of thumb we know so well from experience over the years.

Good Luck.  Ian.

We are back in the mode of a sideways market with both the Bulls and the Bears looking
for any chink in the armor.  Today’s action of 0.81% down on the S&P 500 may be a mild
first shot across the bow for the Bears to pluck up courage and short the market again.

We are yet again at the crossroads of either making one more leg up for a >60% Cyclical
Bull Market Rally during a Consolidation Phase or making a Correction.  We are just 54% up from the Base Low of 667, and since there have been nine previous occasions where the rally has been >=63%, we must stay alert for a next leg up…against all odds as it would seem.

We have come a long way since the hectic volatility we suffered back six months ago.  The VIX, which is the best symbol for the Fear Index, has been dormant but has made alternate spikes during the past two weeks where both the Bulls and the Bears have dodged a bullet:

What then are the realistic expectations for the upside scenario?  The bigger question that finds the pundits in two camps, Sunshine or Gloom & Doom, is “Are we in a Bear Market Rally, or is this the start of a New Bull Market, in which we have already bounced 54%?”

I used the following chart 2&1/2 Years ago to suggest we were long in the tooth at that time, since it was then over four years since we had a Big Correction, and subsequently with the help of the Hindenburg Omen Indicator we were able to pinpoint the top:

72% is the best we have done this Century when we came out of the 3 year Bear Market from the Technology Bubble.  So take your pick between 63%, 67%, or 71%, but before we even comtemplate that we need to get past 1035, and I would be very leary this time if we trot up to 1050 – 1070 (57% to 60%) in a hurry.  That would strengthen the Bear argument that:

1.  September is traditionally a bad month in the stock market
2.  This Market is moving on fumes which cannot be supported by the Fundamentals
3.  China is already showing signs of weakness, which in turn is reflecting on the US 4.  The market is very event driven; it only takes a negative surprise to bring it down

This time, I would prefer to leave you focused on three recent topics which relate to the
internals of the market to guide us as to the current health of the market.  Then let the
market show us which path it is on by either confirming or denying the results we use for the Signposts, Stakes in the Ground and Measuring Rods.

Net-net: Weakness:  The comments on the chart give you the key items to watch.

Net-net:  Holding but Weakening.  Watch Ron’s “Ic” key which shows that the “All 50%
Institutional Ownership” Index is holding.

Now I turn to two charts to feature the Phoenix Indicator which is the signal for Irrational Exuberance by the Bears as they left their footprints in the sand in 2002-2003, and how it looks now.

Net-net:  The short answer is we do not want to see a Phoenix, or if we do, it must
immediately be trumped by an Eureka signal soon thereafter.  I am glad to see that customers are beginning to understand the value of these two indicators, and how to use them.

The Bottom line is to be in the Light on Your Feet Camp and act accordingly.  Thanks to those who have recently signed up for the seminar – we have seven weeks to go and if you are coming we would appreciate you signing up as quickly as possible.  It does help us with the planning at this end.

Best Regards, Ian.

This Stock Market is Long in the Tooth.  Be thankful for small mercies…It could have been
a lot worse if the Gloom and Doom Camp had their way last week.  After Monday’s big
down day they were cock-a-hoop and then the Market turned around and here we are in
New High Territory again, with the Rally intact for now.

As I reminded you in a couple of blogs ago, Don’t forget there are always Three Camps:

        a.  Camp Sunshine
        b.  Camp Gloom and Doom
        c.  Camp Stay Light On Your Feet

There is a time to be in each one…right now “Light Feet”.  Nimble is our trump card.  Always remember that although most are wondering that there is only a narrow set of stocks of High ERG quality that are showing Leadership in a Market such as this, there is another approach to High Growth Stock Investing and that is to spy recent EARNINGS Momentum.  That coupled with the wind at your back, i.e., Wolf Packs that are moving, can provide ample opportunity for short to intermediate term gains.

I must say that I am very surprised that there is NOT ONE mention on the bb that we have had two Eurekas and umpteen Kahunas last week to understand there is still strength in this Rally.  Now of course there can be a Bull Trap as the pundits will point to a double top if the break out does not materialize and fizzles this coming week (say).  Likewise, there isn’t one of us who doesn’t realize that from a FUNDAMENTAL standpoint this market is running on fumes.  Also, the Junk off the bottom theme has taken hold in the minds of the thoroughbred Growth officiandos that has left them gun-shy and mainly sitting out. 

Like my good friend Aloha Mike Scott, I endorse that he said  the “HGSI software is great for  cutting to the chase quickly”.  So let me cut to the chase and show you that of all things, Paper Products is the Hot Industry Group of the moment, and it seems there has been ample evidence as to why.  I will admit Paper Products is not the most glamorous of Industry Groups, but we all do understand that if you want to make money in the short to intermediate term while using our core principles, the following process helps to stiffen our backbones.  Some of the Stocks are extended, but watch the Wolf Pack for Opportunities :

1.  Is the Wind at our back…Market, Market, Market (MMM)?
2.  Which Industry Group stands out with the Rel Strength Momentum: Wolf Pack?
3.  Which stocks in the Group Have EARNINGS Strength and/or Earnings MOMENTUM?

Well that is the process.  Whether this particular Group stays strong from here is to be seen and is in the lap of the gods.  At least you now know the value of “Box 7 Stocks” for finding Wolf Packs when the Growth Stocks are pausing to refresh.  It is a proprietary feature of the HGSI software.

For those who are curious as to where to find that last chart, I cut and pasted the Earnings rows for each of the stocks listed with data from the Charting Module.  This made it easy to make my point of the huge Earnings Growth in the last two quarters.  That is key.

Best Regards, Ian.

Ian,

Thank you for the blog. Would it be possible to post a list of the symbols … am having a difficult time getting some of the symbols right due to shadows? Also, would be handy to have a link to the blog included in your update notice.

Thank you.  Earl

Hi Earl:  You have been a faithful follower of the HGSI bb and teachings for ages.  I know you won’t mind a leg-pull if I say you are behind on this one, as you should know better than that I would leave you guessing.  It is one of the “Articles of Faith”  all HGS Investors know of what to do at peaks.  All you had to do was scroll down to the blog preceding this one and you would have found a more legible list of the identical stocks.  Here is that snapshot:

But you should know that I would have been posting this list earlier and right before your
beady eyes if you dared to go back a couple of months, I posted the good stuff again and
this time with the list of symbols listed at the bottom, because someone sitting out in
Israel couldn’t read the original list:

Now to answer the other questions:
 
1.  You will note that in this last list ONLY one stock, ADY, has been dropped.  Realize this
list was displayed two months ago on the June 16th blog, and for some rhyme or reason
ADY got hit hard and never recovered, so it was an “oddball”.

2.  I did not remove it until we were assured that the MARKET was on a new leg up.  It
would defeat the purpose of the Leaders List.  Do NOT change the list as you would have
removed the “Stake in the Ground” and your “Measuring Rod” would be useless.

3. We usually change the list and produce the RonIandex as it is now called at the Seminars. 
A couple of years back it was the JIRM list of >$35 and <$35, which served us for a while.  It
is one on the exercises the attendees look forward to participating in, as then they have
skin in it.

4.  The list can be used in two ways:
     a. Its primary purpose is to give an early warning sign of a Rally top and correction.
     b. Its secondary purpose is to buy the very stocks on the list as they are the leaders.

5.  It all depends on your stomach as to whether you do item 4b.  I have two such instances
where it paid off handsomely.  The most recent one is when one of the attendees said he
bought a few stocks on the Monday morning of the seminar and had made enough to return
to five more seminars.  The other occasion was at the last Telescan Seminar I gave in Houston in October 1998, where a Doctor out in Hawaii had friends who attended that seminar and the list was already in his hands before I got back to L.A.  They again made out like bandits.

6.  The more important point is that these hand-picked stocks are in several Industry Groups
and are the best of the best from March 13, 2009.  You can tell this by using the new percent
change feature in HGSI, which will be another feature we will cover at the Seminar.

Best Regards, Ian.