Ian Woodward's Investing Blog

Sure enough…”Buy the rumor, sell the news” wins once again.  It seems that Wall Street has a new Whipping Boy, so Helicopter Ben gets a respite and we have a new Sheriff in town.  By the way, my blog shows that I have the most hits from this picture below which I posted many moons ago, so naturally there is a major concern as there has been new fear instilled into the rhetoric from the White House, the New Treasury Secretary and the Congress as they tell us in no uncertain terms that we are in dire straits not seen since the great depression.  This is the refreshing new transparency and to be forewarned is to be forearmed.  We can only hope that these three musketeers will turn the tide for the nation:

There is little point in my adding fuel to the fire…all I can tell you is what my eyes see in the reaction by the Market.  It took instant heed and plummetted us into another Phoenix signal yesterday which decapitated the two Eurekas previously.  So now we go on Red Alert until we see the Bulls Recoup when they were beginning to flex their muscles again, only to be driven into their cubby holes once more.

The bottom line message is that in these times it is better to be on the side of the Bears, and those who anticipated the “Buy the Rumor, Sell the News” axiom made a lot of hay yesterday.

 So now who do you believe:

1.  The Optomistic View:  Warren Buffett and Zeall who feel the bottom is already in

2.  The Pessimistic View: Maudlin and Tuttle Asset Mgmt who believe we are half way through a Secular Consolidation Phase and have another 7 to 9 years to go

3.  The Realistic View: Woodward and Brown who suggest to let the market tell you as we do in Ron’s Weekly Movies, the Newsletter and this blog.  Why not try our Seminar in March 21 to 23 and you will learn how to protect and make money in these troubled times?

The brief messages as we hope to resurrect ourselves from the Phoenix ashes are:

1.  Use the Game Plan and Check list I have given you in several of my blog messages recently and…
2.  Type 1 and 2 Traders enjoy to your heart’s content in moment and day trading…Type 3 use the check list, and Type 4 long term Buy and Hold, just be patient and wait. 

Don’t waste your money trying to bottom fish.  However, it is possible to make money off the bottom if you are nimble to give yourself a cushion but run for cover at the slightest sign of a mistake at the onset.  I suggest you look at %Cl/52 Wk Lo, as most stocks are 50% or higher from the Base Low…you can do it if you are nimble, but make sure the Earnings are out.   Understand that the difference between you and Uncle Warren is that he has deep pockets!

Best Regards, Ian.

As my regular viewers have come to recognize, I place a very strong emphasis on what the White House, the Fed and the Congress do at critical points in time.  The direction the Stock Market takes at such times have helped me understand its Moods of Fear, Hope and Greed.  As such, the HGSI Team has developed a series of Stalwart Indicators that have kept our clientele on the right side of the Market.

It is now over 15 months ago I flexed our muscles and gave you the importance of the Hindenburg Omen to warn you that the Big Shoe was about to drop, and drop it did.  Incidentally, that particular Blog proved to be a long term winner as not only did it get a substantial amount of “hits”, it continues to do since it is referenced in Wikepedia and also shows up on Google Images for “The Big Shoe”!  A little bit of trivia never hurts along the way.  We got you out at the right time, and we hope we can get you back in again when the coast is clear.

So here it is again resurrected as a Caption to remind us that a momentus decision is about to be made and let’s hope for all our sakes that we will be singing Cumbia this time or else we are surely headed for a Depression in the weeks and months to come.

Lest we forget the last time that I defined a momentus decision was upon us was with the first stimulus package known as the Bailout Bill which flopped before the ink had dried.  I recorded that event in the October 3 Blog, since when the Market and the 401-K’s have suffered serious damage.  That was TARP I.  It seems the House has done it again where the Nation now waits with baited breath to see if the Senate will right the ship with a meaningful and sensible package.  Time will tell if TARP II is any better.

It goes without saying that the Market is at a Critical Juncture once again.  The Santa Claus Rally fizzled out along with the January Effect to end up with the worst drop in history for the month of January with a -8.57% decline.  I have shown you the instability and oscillation of the market as Bulls and Bears fight to gain the upper hand.  Once again the HGSI Proprietary set of Indicators have shown us clearly the warning signs of this Unstable Market, and a picture is worth a thousand words so here you go with the latest Indicator the Phoenix prominently showing the fight between it and Eureka.  Please understand that despite all the fru-frau, the last indicator standing is an Eureka signal posted on January 21, 2009.  It goes without saying that it is tenuous at best, but Markets will always surprise you when you least expect it and we will just have to wait and see if the Psycholgical Mood turns from Fear to Hope to Greed!

I have shown you both the short and intermediate term criteria for a Bear Market rally, so keep your powder dry and use this Game Plan to decide whether Type 3 and 4 investors should participate at this juncture.  Type 1 and 2 short term traders know what to do and they enjoy this volatility.  Don’t forget that the Employment Report is due this Friday and one can assume there will be bad news on that score based on the several recent layoffs announced.  The only good news is that many think this is already baked in!

Last but not least, there are three schools of thought regarding the bias of the market direction:

The Pessimist:  We are in a confirmed 17 year Consolidation Phase and are only about half way there.  In any event, the As Reported P-E for the S&P 500 will need to be less than 10 before we can be assured of a New Bull Rally in their view, based on past history.  We are currently around 15!

The Optimist:  We have seen the bottom, and we are due for a new strong rally similar to what transpired 100 years ago in 1907!

The Middle of the Road…Realist:  We are currently in a Trading Range, the bias is obviously down, and unless we see a marked improvement in the Economy and particularly the Housing Credit Crunch, we will probably retest the recent low of 741 on the S&P 500.  We could break it to the downside before we can find a true bottom and clear out the rest of the Fear. 

I leave you to decide which Road you think we are on.

Best Regards, Ian.

After an historic Inauguration which had “Hope” and “Openness” as the main themes going forward, the country shared a time of unity as we watched the pomp and circumstance of the traditional ceremony which we have come to expect and enjoy.

Today we come back down to earth as we listen to Tim Geithner testifying at Congress, and we realize the enormity of the task ahead when he said “When Trust and Confidence is lost, it is difficult to get it back”.  Dead Banks walking is another catchy phrase in vogue at this time and yesterday’s 300+ drop on the Dow and over 5% drops in most of the Indexes show the major concerns in the Stock Market, exemplified by the XLF falling to its lowest level at around $8.10.

But that is all water over the dam and we can only Hope the new Government will find efficient ways to get out of this Financial Crisis, to renew the nation’s trust and confidence, and eliminate the Fear and Greed.  To come down to our level, the Hope of a decent Bear Market Rally is over and now we are back down to the Fear of testing and then undercutting the recent Low of 741 on the S&P 500.  Heaven help us if we do!  As you can see from the Chart below all the criteria that looked promising have now been destroyed and we must pick ourselves up, dust ourselves off and start all over again:

Those of you who follow Ron’s and my work closely have seen the Research I have done to introduce us to a new Indicator called “Phoenix”, which in conjunction with Eureka will hopefully show when we transition from coming out of the ashes to a new beginning.  We began to see that promise as we dropped to a New Base Low of 741 on the S&P 500 and the meager Bear Market Rally we eked out into the first week of January.  Sad to say that we have witnessed two Phoenix signals on the 14th January and again yesterday, the 20th of Jan…indicating that the Fear is back and the least line of resistance is down.  The VIX hit a peak of 57 yesterday so we have a long ways to go to see it drop below 40 which is where it was at just two weeks ago.  So the Bears are in control once again, and until the VIX drops below 40 there is little hope of a new full blown Bear Market Rally.  It was good to see it close weak at 46.42 to give some signs that the Fear was abating, and that the shorts were presumably covering their positions.  The chart below was recorded an hour earlier, so there was a dramatic drop since then when it was at 49+.

At least the market is up strong today but I don’t have to tell you that it will take more than 280 points up on the Dow to get us out of the hole we are in from this past two weeks.  Still, beggars can’t be choosers, and it is a good start.  Tomorrow, the S&P 500 will need to break 840 to the upside with authority and follow through quickly above 870 before there will be any new signs of HOPE for a Fresh Start!  That would set the “Re-test” Low so far at 805, which is much healthier than trotting all the way back to 741.
Best Regards, Ian.

It has taken three months of trading in essentially a tight trading range to finally
produce a classic conundrum for the Bulls and Bears.  We have now reached the
point where it becomes a toss of the coin as to which way the Market goes.

As I often say, “Beauty is in the eyes of the beholder”.  If you are a Bull, the T/A types
will favor an Inverse Head and Shoulders; if you are a Bear it’s an Inverse High
Tight Flag.  Since we are in a Bear Market Rally the long term trend is still down:

When the direction is not that obvious, don’t second guess the trend…let the
Market tell you which way it is headed.  Be prepared to go either way for the
Type 1 and 2 Traders who are nimble.  For Type 3 sit and wait is the best call at
this stage if you have not participated in the tepid Bear Market Rally so far,
despite the fact that we are up over 20% from the Base Low.

If you are in the Market, then the Lines in the Sand at 840 and 940 tell you what
to do either to the down side or for the next leg up out of this mess.

In the short term, what are the two big factors for the week?  My guess is:

1.  The Bulls feel there is euphoria in the cards with the coming Inaugaration

2.  The Bears point to the expected poor Earnings Reports to come

Take your pick.  Best regards, Ian.

I had virtually written off the Santa Claus Rally when it sputtered for three weeks before the Holiday, but it came to life with a Late Delivery going into the New Year with the so-called January Effect.

In my last blog of 2008 I showed a Check List of a sequence of events that I felt had to occur for us to see any form of a decent Bear Market Rally going into the New Year.  As you will see from the list below many of these items have occurred in the last week or so, and those that have not are either knocking on the door or were included to expect a confirmation that the Rally was indeed on:

To our surprise we found that things began to stir the day after Christmas and finished this past week very strong with a decent move of around 3% on the Major Market Indexes.  Above all, we finally broke through the target of 915 and are half-way to the next target of 950:

We can see from the summary notes on the chart we are now over 25% up from the Base Low and this is where we normally expect some form of correction sooner than later.  Since we have two weeks to go to the first big blush of Earnings Reports which then peak by the first week in February, we might be able to eke out a move to 950 or so before we see a pull back.  It is what transpires after the current rally peaks as to whether we continue with the Bear Market Rally or once again fall back into the doldrums to retest previous lows at 915 and 860 where we should see support.  Anything below that and I am afraid it was all for naught, and only short term players would have benefitted by being nimble both on the way up and down. 

It has been a while since I gave a full review of the VIX “My Way”, so here are four charts that lay out chapter and verse of what has transpired with the so-called Fear Factor which has abated considerably, but as we shall see we are now nearing the point where the Bears are lurking and ready to pounce while the Bulls have been dancing:

This next chart shows how low the VIX has retraced on the Fibonacci scale as it has retreated
almost 75% from its high, is close to it’s lower Bollinger Band, and is at the Connor’s >5% rule
below its 10-dma where the “VIX Bears” watch for any signs of a recovery to pounce in on the
short side of the market.

However, there still seems to be some room for the Bulls to dance  as we look at the longer term picture using both an 89 and 40 period Weekly Chart of the Bollinger Bands.  If we are to look at this with rosey tinted glasses, there is still room for the VIX to descend to get down to at least 35 or even as  low as 27 before we see a jolt back by the Bears.

As my Christmas present to you, I showed you how I used the High Jump with the Moving Average crossovers to pinpoint that the momentum of the market was in driving for a Lower VIX with the 17-dma crossing down through the 50-dma, and I am glad I called that right.  Since all short-term Moving Averages are still pointing down it suggests we still have some time for this market to continue its rally…maybe for a couple of weeks more with luck, before we see a pull-back.

Last but not least, to bring us back to our senses so that we don’t get too carried away with euphoria I show you a chart which my good friend and partner, Ron Brown, showed in his Weekend Summary Movie where he reminded us that the Market in general is short-term overbought.  Note how the readings of the stocks above their various moving averages are all at the upper end of the spectrum where one should at least be alerted to a pull-back.

I wish you a Very Happy New Year and may all your stocks be winners!

Best Regards, Ian.