Ian Woodward's Investing Blog

It is only fitting that I start this blog with a thought to remember our heroes on this special day for them…Memorial Day.  We all have our own memories from our personal experiences, but one thing is constant and that is our admiration for the men and women in the forces that keep us safe and free.

I felt it would be worthwhile to have a reprise of the last 9 months to take stock of what we have seen happen and how we stand now in the hope of pulling out of the abyss we felt last October and November.

I am sure you recall the Black Swan Chart which put us at the crossroads of either heading down for an Inverse Head and Shoulders scenario or breaking out to get above 940.  Note how 840 and 940 were in our sites then after the Black Swan drop had only gone down to 840.  As it turned out the Bears won that round and we fell into Capitulation, Despondency and Depression to bottom out at 667 in late November.

We then started the long journey back with an impressive 40% rally which focused our attention on the Saw Tooth Plan.  Over the ensuing months we have grinded out higher highs and higher lows, which are essential to achieve a true Bear Market Rally with the hope to then blossom into a full Bull Rally in time, given the strong foundation. 

 Don’t ever forget that for it to happen the corrections, or I should say “Pullbacks”, must be no more than 8% in order for this to happen.  Now we have a cushion as shown and the key number to watch for is no lower than 855 on the S&P 500.  As we have discussed earlier the final line in the sand is at 800, which if broken would change the psychology of the market from Hope back to Despair.  I trust you have learned a lesson that this time anything below 800 is your last chance before we again fall into Despondency.

The $64 question is what next and where do we go from here?  To answer that I have resorted to a chart I used back in the October 13 Blog and several times before in our seminars.  This chart shows a 40 Period Bollinger Band for the S&P 500, together with the %B and Bandwidth in the upper window. 

For the S&P 500 to turn the corner, the Index must get above the middle band in
Orange and then stay above it as it did in the 2003 to 2007 timeframe.  To visualize
what must happen I have taken the circled piece from 2003 and placed it on today.
Of course this is “Wishful Thinking”, but until this happens and the Index stops short of heading down for a double bottom, the Inverse Head and Shoulders pattern will then be achieved and we can hope to move on up once again as we did back in 2003.

Where do we stand with regard to the items I gave you to focus on?  Right below:

As you can quickly see, the charts are still intact but still in the balance.  This week
should give us a better feel as to whether we trundle sideways, trot up or head down.

Enjoy your Memorial Day Holiday and do your homework for next week.

Best Regards, Ian.

The question last week was “A Pause to Refresh or a Correction?”  I guess we came
out of the fog with a strong move up today.  I am sure most would have bet that we
were headed down today, but what a turn up this was for the books?  I tell you it
is like trying to drive in a “pea-souper” in London many moons ago trying to second
guess the market, as it will prove us wrong time and time again:

Fortunately I gave you both sides of the coin and two items to watch to see which
way the wind was blowing; both the XLF ETF and the Best of the Rally Stocks performed very well today:

I feel I hit the nail on the head as to what to watch and would suggest you see if these
stocks and the XLF continue strong or that it was a one day wonder and fizzles.  Two of the stocks…RNOW and TAFT were tiddlers, but even they did well today.  If you feel this works for you, the lesson learned is to take a deep breath and next time put together a User Group which you can track that were leaders and had a week or so Pause to Refresh.

Best Regards, Ian.

Before I settle down to watch the golf in my friend Maynard’s back yard in San Antonio
where Zach Johnson fired a blistering 60 in round three, I felt you would like a quick
feel for my thoughts on this tricky market.

The Newsletter is out, the Saturday Movie from Ron which is free is a must see for all and especially those who profess to be confused and should have no excuse now, and the
Saturday Meeting we had yesterday produced some interesting ideas for tonight’s Webinar.  With all of that in mind, I felt it might help if I collect my thoughts at this critical juncture as each week that goes by seems to be that way.

We are at a point where two roads diverge in a wood and we need to carefully pick the one less traveled by…with apologies to Robert Frost.  We have now had close to a 40% rally from the Base Low, and this past week has so far produced an ~5% pause to refresh.  The picture above shows my sentiments that at this point the Bulls have a tenuous foothold.  As many will attest over the years in past Bear Markets, the Sectors that usually lead one out of the abyss are the Financials and Technology, and if you cut through all the mumbo jumbo that has been the same to a large extent this time.  Of course there have also been major moves in the Retails, and the list goes on.  However, for the purpose of this Blog Note, I believe we need to focus on just two items to see if we suffer a light pause to refresh or have to tolerate another deep correction leading to a double bottom.

1.  Financial Sector – The quickest way to cut to the chase is the picture below as explained so well by my good friend and associate, Ron Brown, in his movie.  The XLF is front and center and should tell us volumes if it breaks or holds the lines in the sand as shown below:

2.  Technology Sector – The Best of the Rally with a couple of tiddlers thrown in is shown below.  We all have our own favorite lists, but if one looks at the underpinning of most of these stocks they are mostly “Above the Line Stocks” (above the 200-dma), with many fitting in the HGS Boxes list:

If we look at the Pie Chart, it favors Technology and these stocks were all picked because they have so far exhibited a slight pause to refresh mainly at support levels.  They are ripe with profits, have had some buffeting and are vulnerable to lose heavy ground if the market goes down; or moving up to become strong Silverback Gorillas if the market goes for a second leg from here.

Do your homework, stay on your toes, and let the market tell you which way to go, but be ready to go either way.  We came close to getting a Phoenix on the NYSE on Friday and one can’t ignore the early warning signs I gave you in the last few blog notes.  It’s always “Your Call”.

Best Regards, Ian.

Three blogs ago I gave you the Early Warning Signs of what to look for when this Rally was giving up the ghost.  They happened today in one fell swoop, and I thought you would like to see the Update.  I am busy getting the Newsletter together where I will cover the Game Plan, so enjoy this picture.  It shows the power of the “Impulse” Indicators used in the HGSI Software to anticipate what must happen for success:

Sometimes History does repeat itself! 

Best Regards, Ian.

How often have you been stopped out of what seemed a very safe “stop” at the
open or during the day only to find that the security you were in came right back
and went higher?  I call it Spidery Legs Syndrome.  I am always careful to look at
chart patterns that display this symptom as it gives a clue to beware of being
stopped out at an unreasonably low level, and if it is a prevalent problem I tend
to skip buying the stock.  Sad to say it happened to both the Nasdaq and the NDX
today, and that can be translated to include the QID, but it goes with the territory.

Just two nights ago, I suggested that an Early Warning Sign that could trigger a
cascade into a correction of the Bear Market Rally would be a sharp 50 point
drop in the Nasdaq.  It opened today 30 points down but recovered as did the
NDX which fell 25 points, shown below.  Both finished essentially flat, so be on
the lookout for another attempt at these shenanigans again!

This may be a shot across the bow, especially as the other Major Indexes of the
DOW,  S&P 500 and NYSE all had sizable drops of  ~ 2.0% to 2.5%.  we have had a
nine week 40% rally which has recovered some of the drastic freefall; On the
other hand, an occasional back and fill is very healthy if this Bear Market Rally is
to continue.

However, there is no question in my mind that the Bears are stirring and may be
getting the upper hand.  I have featured the two charts below several times before,
so they need no explanation, other than to point to the “Stirring of the Bears”!

If these two charts do provide the underlying details that give us clues to rallies 
and corrections, we may have a leg up on most in the future.  Stay tuned and be on your toes.  To be forewarned is to be forearmed and can help you both on the upside and downside.

Best Regards, Ian.