Ian Woodward's Investing Blog

It’s again that time of the month when everything stops for a visit from Helicopter Ben.

I bet you have all long since forgotten the blog I put up on January 10th and 11^th when he made that speech that the Fed was ready to take “Substantive Additional Action” relating to the Credit Crunch, and the Market yawned and in effect said “Where’s the Beef?”  I warned you then and it is time to resurrect the slide I gave you that the Line in the Sand at Nasdaq 2440 would be critical when we got back to it.  The reason is that there was a sea change in the psyche of the Stock Market that did not get changed for the better until we had slid into a Bear Market Correction.  Here’s the picture I put together later in February when the Stock Market dipped into that correction:

I have Late Breaking News for you that on the eve of the FOMC making their latest statement that we have gradually climbed back out of the mire and would you believe it…we are sitting a hair’s breadth away from that fateful Line in the Sand. Fortunately the later actions the Fed took to stave off a deep Bear Market and a certain recession at that time, if we are not already in it, have given us a Bear Market Rally to bring us back to the Line in the Sand.  Here is the Updated Picture:

1. In my opinion, it is not a coincidence that today was a jittery day for the leading stocks fat with profits that got hammered from head to toe.  We shall see what tomorrow brings, but be rest assured that although the Fed’s action may at most produce another 25 basis points reduction in the Fed rate (and many feel they might not do anything), it will be the words that will speak louder than the actions this time.  At long last Inflation, the Price of Oil and Food and the slide of the Dollar are of more concern, in my opinion. 
2. Meanwhile, back at the ranch, the VIX has laid dormant for all of 20 trading days and for the first time poked its %B head above the Bandwidth today…a sign that could lead to the Bear’s dancing once again. What will it take for the VIX Bear followers to do cartwheels that their patience has been rewarded?  My crystal ball says an immediate bounce of the VIX from 20.24 to 21.56 will do the trick and that too will depend on what the Fed has to say tomorrow.  Otherwise anything below a reading of 20.00 will suggest more ambling sideways with a dormant VIX, and there may be hope for the Bulls to continue upwards. 
3. In summary, we have a confluence of forces at this point in time between the Line in the Sand at 2440 on the Nasdaq, the Rotation vs Correction discussion, the VIX laying quiet, the Earnings Reports, all waiting for a nudge as to which way for the Market Indexes to go.  That nudge will likely come from Helicopter Ben popping in on us tomorrow. 

Best Regards, Ian. 

Based on Friday’s performance, it seems that the old Wolf Packs were merely giving way to Profit taking earlier in the week, and they were buying back feverishly into the old Wolf Packs on Friday.  There is no question that many other Industry Groups are also rising rapidly and I have shown you the Groups that had the best advance during last week as well as the past three and five weeks.  In essence these are the best movers since the March 17th low.  The following spreadsheet is self explanatory, so enjoy:

Best Regards, Ian.

1. I had a few days R&R visiting my Son and his family in Oregon, and with the cobwebs cleared I am back to give you the pulse of the market as I see it.  In reading my backlog of e-mail, I saw headings such as the above, and many are shaking their heads when the market was up and their portfolios are down!  One thing is for sure…we cannot be asleep at the switch and as you will soon see I have figured out what the cross-currents are using the Group Performance Analysis Tool in the HGSI Software.   
2. The beauty of the software is that we can smoke out where the money is flowing in and out NOW, but more importantly to have a set of User Groups of past leading Wolf Packs and emerging Wolf Packs.  This is particularly powerful at Earnings Report Time or as I say “We must keep a Beady Eye on Qeps Date, i.e. whether the Earnings are out or not.” 
3. Let me give you a few pointers before I give the results of my work, which has taken a bit of delving, and I hope will be the basis for us deciding whether there is serious rotation in effect or not, or whether we have profit taking coupled with new Emerging Wolf Packs. 
4. It is no news to you that in the last couple of days, two of the three favorite Wolf Packs that have given us good money have been hit hard the last two days, i.e. Chemical – Specialty and Energy Alternatives including Solar and Coal.  The Transportation – Shipping got hit hard earlier but they are dribbling back, so you need to watch those.  In passing you can add the Materials – Steels to the former, aka STLD and AKS as examples, which have also just announced stellar earnings but are also under recent pressure.   
5. It goes without saying that if you were in Potash (POT), MOS, TNH, and CF you would surely have seen that most of these were hitting NEW HIGH JUMP records, particularly POT which got most people’s attention as it was decidedly moving into a climax run.  That is not to say that it won’t go higher after the correction is completed.  What people always forget is that great stocks like POT will move in anticipation of the earnings report for a final burst of Price Gain, and of course Greed and Fear play their part at such times. Enough said on that score.  But we should also balance that with the fact that the Earnings Report is stellar and with all the story lines on this Industry Group, there will be rotation of players and the stock will come roaring back given time.  Just look at the five favorite horsemen to see that they are starting on their way to recovery…AAPL, BIDU, GOOG, GRMN, and RIMM. Eventually the story gets stale and the buying dries up and they fade away, but for now keep an eye on whether these groups are just giving up profits or their turn in the sun is behind them. 
6. The bottom line is that the Jury is out at this point in time whether we are just experiencing Profit Taking in these leading Industry Groups or whether this is the start of Rotation on these groups that have carried the market for ages and we as HGS Investors have enjoyed to our heart’s content.  Don’t be asleep at the switch and I have provided you with the stock lists to watch below, so there is no excuse for being caught with no swim suit on as the tide runs out. 
7. In my last few blogs I have concentrated in giving you the yardsticks for establishing if this Bear Market Rally is coming to a top or it was just pausing to refresh before it moves again.  Of course, the Technical Analysts are drawing lines of resistance to suggest we are due for a correction, but the counterpoint is that the earnings reports so far in the Companies that matter most have been stellar and as such this market has shown a good deal of resilience to trotting down at this stage.  I note that Microsoft reported today with “soft” earnings performance (pardon the pun which I couldn’t resist), so tomorrow may be another story. 
8. Now to the point of new Emerging Industry Groups; this would seem to be essential if this rally is to continue to get us into a “safe zone” which implies getting the Indexes up at least 15% from their lows.  I won’t belabor the point, but I have ferreted out two Groups right under our noses that are on the trot…or maybe I should say are starting to gallop.  Of course Technology is one and the other is of all things Fin – Equity Reits, many of which pay good dividends and are appearing out of the ashes.  Just look at the results for just four days trhis week compared to the S&P 500.
9. I hope with all the snapshots I give you below that I do not have to do more than tell you that the stocks selected all had both Bongo Daily and Bongo Weekly signals “Yes” and that Earnings are already out for starters.  You figure how to go from there, but I think the evidence is pretty convincing as to why it seems we have a Schizophrenic Market, A Strange Day, and Rotation, all rolled into one!  As a winky-winky, you know you have to start with a Stake in the Ground and although I am giving you four different pictures to chew on, I STRONGLY suggest you put these same Stocks into User Groups and then start your Group Performance Analysis (GPA) on my Wife’s Birthday, i.e. March 17, 2008!  You will be amazed at the results. 
10. On second thoughts, for the benefit of the doubting Thomas’s I will do just one snapshot at the end that shows how we have made good money in our Portfolios following Hot Wolf Packs, using March 17^th as the Stake in the Ground, which is just five weeks ago…up  31.45%.

Just look at the whopping Gains in this Portfolio of Hot Wolf Packs in just five weeks, and that is after they have been drubbed for two days!  These stocks have been there on this blog for all to see going back over six months or more.  That is the Power of the HGS Investing Principles and of the Software.  Good Luck.

Best Regards, Ian

1. I am grateful to my Finnish friends from kestustela.kauppalehti that have pounced on an earlier blog of my musings on the “Long Road Back for the S&P500 written on March 23^rd under Happy Easter Wishes.  Unfortunately there is no English translation on their site, so I am not sure what excited them to take a peak at my blog, but many thanks to all of them. 
2. Here is a mailbag question from one of our Newbies at the March High Growth Stock Seminar, “It appears that the VIX has rebounded and not broken down thru the resistance. What do you think that means for market direction? Has it rebounded enough to continue the decline? the Newbie-Pete 
3. Well done, you are learning fast and have now cast off your “Newbie” handle and fresh from the March Seminar, I dub thee “Oldie Pistol Pete”…you are one sharp dude, as my sons would say! 
4. Everyone on this earth should be asking the same question, but you have come to the right place to find the answer.  Friday was a major set back for the Bulls, but the game is not over for them yet.  The GE earnings disappointment really took its toll, and any more of that scenario this week will certainly cause the rally to fizzle when it was looking so promising.   
5. Now then, to answer you directly, it is close to rebounding enough to continue the market decline, but it is too close to call.  The VIX is currently still below the Bandwidth and it needs to break above.  Where do you find that you will surely ask?  It is all in the High Growth Stock Investor Software as the only place to find the answer, and we have made it easy for you if only you can remember to go to the right place.  Go to my trusty Chart View which is the standard I always use along with 9/10^th of the people out there and that is the “4 Ready, Set, Go New, Ian’s BullsEye” Chart.  It used to be the 4b chart, but is now the first one in the series of 4 charts.  You will need to bring up “Major Market Indexes” in the Chart View along with selecting the Market Volatility Index and there before your beady eyes you will see that in the Ian’s Bullseye Window the second one down, the green line is BELOW the Red.  If you bring up your Data Window you will see that BB %B is 0.3444 and BB Bandwidth is 0.4576, so still below, as shown in the chart below:

 …

• And now the $64 question is “Ian, I want to be ready to go short or go long on Monday morning and I am in the process of getting my candidate list together right now…can you Help me? 
• I won’t let you down but nobody knows for sure.  However, I will give you the conditions for the VIX for tomorrow and the week ahead that will guide you as to whether the direction is sideways, up or down and then all you have to do is sit back and enjoy! 

Conditions for the VIX for tomorrow and this week: 

1. The minimum requirement for the VIX is a reading of 24.10 from its current reading of 23.46 for the %B to just be equal to the Bandwidth, i.e., green line touching the red line.  That will spell hope for the Bears and further concern for the Bulls. 
2. The ideal requirement for the VIX from the Bears standpoint is a “Little Kahuna” of +0.25 up on the %B which would require the VIX to jump to 25.95, which would be tantamount to a major down market tomorrow and would be pretty obvious.   
3. The ideal requirement for the VIX from the Bulls standpoint would be a “Little Kahuna” of -0.25 down on %B which would require the VIX to fall to less than 20.20, or essentially very close to the lower Bollinger Band to continue to give major hope for the rally to continue. 
4. So the answer is that anything up big between 23.46 and 25.95 for the VIX, the Bears win.  On the other hand, if the VIX goes down big between 23.46 and 20.20, the Bulls smile with the bull rally continuing.  Anything minor in between, we go sideways.

Stay tuned Pete, as I must now feverishly turn my attention to the newsletter where I will focus on the value of the Kahuna in these difficult times.  But the most important priority for this afternoon is the Masters Golf Tournament at Augusta 🙂  Best regards, Ian

 Late Breaking News!  I have had a few comments from viewers and I refer you to the response I made to Dave in the Comments Section below to see my latest thoughts since posting this blog.  Net-net, the VIX %B has not even broken through the Bandwidth which was the first target I set, so we sit and wait!  Meanwhile enjoy the Hot Wolf Packs.  Best regards, Ian.