Ian Woodward's Investing Blog

One of my slogans in High Growth Stock Investing is to Buy Rockets and Sell Rocks, and this is an excellent time to show you what I mean.  In the course of a Long Bull Rally, there are always up and coming Giant Companies that are the bedrock of the move during that rally and are the undisputed Leaders of the period.  In the snapshot below, I have shown you just one year in the five-year Bull Rally that has just ended of the five Giants of this particular era. I am sure there are several other fine companies that have done equally as well or even better, as I have shown you from time to time in the RonIandex examples posted on this blog.  Please don’t get hung up on that point, they are the ones I have repeatedly featured as the key stocks to watch. 

Once the Party is over, these stocks are rich with profits and get whacked mercilessly.  So the key principles of HGS Investing is to always have an Index of the top stocks in the top Industry Groups, the Wolf Packs, and pick out the top five to watch as well. I don’t need to belabor the point, the facts speak for themselves in the above picture of the top five and the latest RonIandex which was generated at the end of 2007 shown below.

Once the Vultures have had their fill, then look for survivors in addition to new leaders that are rising out of the ashes.  As I have warned you, the Thick Blue Pencil Line Trick says that we are still heading down in towards a Bear Market Correction, so the current two day rally is a counter-trend rally.  We can expect more to the downside, but until we begin to see a consistent back and forth of higher highs and higher lows, the trend will still be down.  So how do we evaluate what the chart above is telling us: 

1. Day Traders are looking for a quick pop to garner profits for the day to put food on the table.
2. Swing Traders who are bottom fishing on stocks with strong credentials hoping that the worst is over and they can make a better than 10% gain in a week or two or three, but have tight stops. 
3. Long Term Buy and Hold types, who feel they had missed the boat on these great stocks and that in the scheme of things this is an ideal place to take positions in the undisputed winners such as AAPL, GOOG and RIMM to buy and hold hopefully for the next ride. The reasoning is that if the likes of Qualcom (QCOM) can get to over $900 in the last big move prior to 2000, then surely we are only halfway if that with the future still ahead for GOOG! 

So it goes, Hope, Fear and Greed and different Investing Styles will drive the Market.  The underlying principle I espouse is to buy QUALITY and that is defined by strong earnings, “E” with strong Relative Strength “R” in Strong Industry Groups “G”, preferably the leaders in the wolf pack.  When in doubt, always look for high quality. As long as a company continues to report solid earnings, its stock will do well.  The HGSI software makes it easy to spy the High ERG stocks. 

Now if you are prepared to step up to the plate and are nimble traders, you know what you are doing and go for it.  But for the longer term investors the prudent thing to do is to be patient and pounce when we give you the all clear.  To sober you up to the realities of what we face in terms of a skittish market just look at the intra-day swings today in the DOW. It’s called Moment Trading!

The swings are 50 to 75 to 100 to 150 points…you pick the time of the day!  Just the times we live in when we have swindlers causing $7Billion fraud which could also have been instrumental in the Fed easing as much as it did…go figure.  Best Regards, Ian.

Talk about a wild and wooly day!  There was a rumor that there was a possible bail out of the Municipal Bonds – MBI skyrocketed 33% and MBK was up 72%.  Also City Group was up 8%.  Net-net the market produced a 600 point swing between friends.  Talk about trading in nanoseconds, but there is always money to be made if you have to put bread on the table.  Ron’s early spy of the retailers yesterday was an excellent call as that same set of stocks which I showed you yesterday is now up over 14% in two days…if you had the courage to play them.  The Transports, Financials and Home-builders were the places to fish today. 

However, I do not want to give you the impression that we are Jack-in-the-box types on this site, so although this bounce play was expected it was certainly not looking that way at mid-afternoon.  Of course this is a counter-trend rally in a Bear Market and since it was so powerful there may be another day or two for it to play out, before the Bears come roaring back when this peters out. So keep your powder dry and since we have a few Bingo’s under our belt, wait for the possibility of an Eureka with strong indications of at least 150 New Highs for a follow through day after that.  The New Lows hit big numbers of 533 and 952 on the last two days so I need hardly say these are wash out numbers.  Likewise, New Highs are a paltry 5 and 12, respectively, so don’t get too itchy until we see a decent confirmation that there is at least a reasonable rally on the cards.  

It goes without saying that the VIX had all sorts of gyrations today, but I particularly want to draw your attention to two spidery legs which suggests there was some excellent shenanigans going on, which you and I would not decipher. Here is a screen shot I captured to make my point and if my good friend from VixandMore has any insights I am sure he will cover it on his blog.  I am not an authority on the VIX, but certainly follow it in my work as I am sure most of you do too, but I have never noticed these spidery legs before on the VIX. 

Well, tomorrow is another day and we shall see how the wind blows.  At least we have had the kind of fear hit the market to move towards capitulation.  If it was, expect a re-test of the bottom at around 11,640 on the low which is what it tested today and held from yesterday’s low.  So they are trying to hold the flood gates from opening further at this level of 18% down from its high.  If not, the gurus will trumpet that the Bear Market numbers are officially achieved and claim victory.  Whether it holds at this level is unlikely as past bear market statistics are a lot worse, judging from past bear market statistics for the Nasdaq since 1973.

Best regards, Ian.

I’m afraid we are in for rough sledding when the Market opens tomorrow, but I have tried to keep you one step ahead of the dips as best I can.  It seems the warning signs of the Hindenburg Omen I gave you for the first time on October 15, 2007 will finally take us down to a Bear Market.  Given the state of the World Markets today, it goes without saying we should expect the worst tomorrow.  I feel really sorry for Fed Chairman Ben Bernanke as he has to desperately clean up the mess that his predecessor got us into, who has got off scot-free, all in my opinion. 

But that was yesterday.  Now he has to stand on his liver and deliver, or eat his own words of “the Fed standing ready to take substantive additional action.”  Given what has transpired around the world markets today, which can only mean one thing in my book and that is to make a surprise announcement of his action BEFORE the markets open tomorrow and it had better be 50 basis points minimum.  Anything less than 50 basis points and it will produce another yawn.  That too can be a drop in the bucket.  In any event the reverse psychology can also backfire by confirming that the World Economic situation is in fact worse than they have made it out to be and now that the cat is out of the bag there is no place to hide.  

The futures on the DJIA are UGLY, but were uglier earlier, so who knows where it will finish up by the open tomorrow.  It seems it might have been as bad as -560 at one stage and it is currently sitting at -477 as I write this.  I suggest you watch the Asian markets tonight to see if there is any improvement in the mood abroad:

What seems very apparent is that we are due for a wash out in the market and that will happen one way or another tomorrow.  Even if there is a sharp reaction by way of a bounce play, it seems that we are now in for several weeks if not months of working our way back out of this mess.  I note that you have all been refreshing your memory on the New Year RonIandex of leaders just 21 days ago and as you can see from the chart below it has broken the 50-dma and I would not be surprised if it hit the 200-dma Red line tomorrow.  Frankly, it hardly matters now in the bigger scheme of things, but tuck it all away in your memory bank and it may help you in the future as a strong early warning sign.  If you are reading this for the first time, I won’t repeat myself…just go back and read earlier blog notes. 

Best regards, Ian

Heads-up!  We had a Bingo Signal on Thursday, and I cannot be more elated that all my hard work has come to fruition!   I am delighted that we are all keeping a beady eye on “Bingo”, and it might well be my best work yet and comparable to the Hindenburg Omen of others which this blog signaled many moons ago and has proven itself to once again be true.  But before we get too euphoric, I have to give you all a warning.  Those of you who understand our proprietary indicators will recognize this is certainly one small step for HGS Investors in identifying a bottom.  Note that I said “a bottom” and not “the bottom”.  Likewise as we know, the combination of a Bingo followed by a Eureka has been very powerful in identifying the potential for the next move upwards.  But let me bring you down to terra firma, i.e., earth with a quick jolt!  Before you get too excited that at least the first leg of the equation in getting a Bingo signal is behind us, take a deep breath and look at the Indexes back in the 2000 to 2002 timeframe, and then trot all the way back to 1994.  My point is this good stuff is not infallible.  I have always said that there is no Silver Bullet in this business, but two lead ones are better than none.  Likewise, sometimes even Lead Bullets can fire blanks.  The bottom line is don’t be too quick to bet the Farm on this occasion.  Why?  It’s simple: 

1. When a Bull Market is in full swing as we have experienced since early 2003, the odds are that along the way there will be Minor and Intermediate Corrections, and maybe even an occasional Major Correction.  For those who don’t know what my parameters are for these standard definitions I use,  I refer you to the Quick Glance HGSI Barometer of the Market which I introduced you to in the January 5^th Blog “Big Foot is Back and the Others are looming”. 
2. Once a market starts to labor towards the top, and heaven knows I have shown you that happening before your very eyes these past few months and more so in the last month, you just cannot afford to block out the signals of the Winds of Change.  I know that one can get fogged with all the paraphernalia that is trotted out but the simplest approach is to try the Big Blue Line Pencil Trick…it always works. Once the psychology of the market turns from Bullish to Bearish, and all the various signals say down, it takes a lot to turn the herd around, especially when every second word on the airwaves is Bear Market and every third word is Recession.

     3.  The last vestige of a Wolf Pack got hit hard on Thursday in that the Chemicals – Specialty Group was hammered.  Sure there are always pockets of opportunity somewhere including some Health Care and the safer ‘go-to” staples of the Minerals, Utilities, the Foods and the usual litany that is trotted out of PG, JNJ, KO, etc.  Forget it, that is just fiddling while Rome is burning, unless you are in for a moment trade during the day.  Alternatively, play the QIDs and the FXPs to your heart’s content on the short side, depending on how the wind blows on a daily basis…FXP’s got walloped today, so they feel that avenue for shorting is overdone for now. 

    4.  I’m sure you observed what happened yesterday as Chairman Bernanke was speaking to the House Banking Committee as the Market went down tick by tick with his somber discussion on the health of the economy.  The DOW finished down over 300 points for the first time in 2008, after several of these recently in 2007. 

    5. Look at the ho-hum reaction to President Bush’s stimulus package for up to $150 Billion to boost the Economy and he has asked Henry Paulson to lead the Administration’s effort to forge an acceptable plan.  Meanwhile the Muni Bond Market is already cracking at the edges with the extent of short interest that is in place.  Bond Insurers are being battered and if MBIA and Ambac get hurt watch out even further.  At long last the whole of Washington has realized they better stop talking and start doing…we shall see how the Congress and Administration will work this out. Amazing that every second word on the airwaves yesterday was “quickly”…it’s all talk and no do, and the resulting primary thrust for you and I is Capital Preservation, period.    

   6.  The Bingo with Eureka Indicators have served us well in identifying when the next leg up is underway, but not when we are potentially at the borders of a Bear Market.  One more heavy down day and we will clock 20% down on most Indexes, with the Nasdaq leading the way.    

   7.  Of course our favorite longer term view Bollinger Band 40-Week chart shows the S&P 500 Index broke down through the Lower Bollinger Band with a vengeance on Thursday.  We can also go one step further and look at the 3-standard deviation 50-dma Bollinger Bands to see it too is broken, so it is no secret we are vastly oversold and with luck should get a bounce play soon.   

   8.  I wouldn’t bet too heavily on the quality or quantity of that bounce, as Bear Markets don’t turn on a dime.  Then there are always the surprises that come from left field that try to prop things up, so be aware that this Stock Market is very much EVENT driven right now, more so than ever.    

  Summary – The Value of Bingo:    

The short answer is that the first Bingo is a confirmation that we have reached a first stage strong BOTTOM.  I didn’t say “the BOTTOM, I said “A bottom”.  It signals a much oversold condition in the market, and you certainly didn’t need a Bingo to tell you that.  The Bingo is the first of two lead bullets that usually work extremely well in UP Markets.  The second signal we want to see happen is a Eureka which is tantamount to the potential first day of a rally.  Then as usual we want additional confirmation(s) with a follow through day which is invariably measured by additional Eureka’s.  As I say, that has worked extremely well in all of the recent legs up from 2003, where the sequence is a Bingo followed by several Eureka signals shortly thereafter.  But under these circumstances, the result may only lead to a Bounce Play with more to come on the downside after that.        

However, things can get murky in a Bear Market Scenario.  In addition to the above normal scenario which predominates, we can sometimes get additional Bingo’s without any Eureka, we can get Eureka’s without any Bingo, or have the normal Bingo-Eureka combination for a short Bounce Play and then fade again, etc. etc.  Let the market tell you what it is doing, not what you wish it to do.  Enjoy your three day weekend and Best Regards, Ian…Late Breaking News!  We had another Bingo Signal today, Friday.

If you haven’t already heard the news, Intel Corp (INTC) disappointed with their Earnings Report and there are major after hours’ repercussions.  Many of the market leaders are down on top of the bad down day they have had today.   

I am busy writing the newsletter, but I felt my overseas friends would appreciate a Heads-Up before they go to bed.  Thanks also to Trading for the Masses who feature my blog notes and send people my way. 

Best Regards, Ian.