Ian Woodward’s Investing Blog

As angry as Main Street are they will be a lot angrier if Congress does not act.  It didn’t take long before the finger pointing started after the Bill failed to pass.  The sadness is there will now be spillover to every American, rich or poor, which has already suffered from the experience of the crash of 1987 or the dot.com bubble bursting from 2000 to 2002.  Their hard earned 401K’s have shrunk overnight and it will be years before they recoup that portion of their nest egg which took hard work over years of faithful due diligence to their companies and their families.  Some may be unfortunate to find they have to postpone their intended retirement or go back to work as a result of this debacle.

It is little consolation to say “Been there, done that” when I think back to that fateful day in 1987.  By the looks of things this could be worse, as tomorrow is the last day of the month and of the quarter, and Congress cannot do anything until Thursday.

I have no words of wisdom that I haven’t covered, especially these last few weeks.  In times like these “Cash is King”, but make sure that your money is FDIC Insured in the Bank and that if you have >$100K in the account that it is registered with the Bank as a Trust and that you and your dependents add up to the multiple of $100K that is in the account.  For example, suppose you have $320K in the bank just to pick a number, and you and your wife have named two dependents in the trust; that provides $400K worth of coverage for you, so you are covered.  You should talk to your Bank Manager to make sure your money is safe.

Best regards, Ian.

  3 Responses to “Wall Street Reacts to a Day in the Life of Congress!”

• 1. Hal P. Says:
  September 26th, 2008 at 9:01 am

LOL That was very interesting. It’s amazing to me really that the market is so emotional. But it is what it is.

• 2. Stock Research Says:
  September 27th, 2008 at 8:14 am

Ian, I don’t disagree with your assessment that things will get worse before they get better, but I think that, all things considered, it is good that the market has not over-reacted to the ongoing bad news and uncertainty. I think most of us agree that a measure of debate is good, rather than writing a $700B check with no questions asked.

• 3. ian Says:
  September 27th, 2008 at 10:06 am

Hi Steve: I couldn’t agree with you more. I suppose what triggered your comment is my last sentence on “pussy-footing” as my concern at the time was for an over-reaction by the markets ala 1929 and 1987, which fortunately for us all has not occurred so far. I certainly didn’t mean to imply that they write a blank check, and I am glad to see the subsequent urgency on all fronts to bring closure to a joint solution. I also agree a measure of debate is healthy, and as things have since unfolded there has been sufficient due diligence to buoy the market up from precipitous consequences. If “floodgate” action is avoided we will all be happy until the next time. My emphasis was on the “degree of a sense of urgency”, nothing else.

I have made it a principle of mine not to bring politics into the discussion on this blog, but as I have always maintained, one important aspect of Investing is to understand the reaction of the Stock Market to the action or inaction that the FOMC takes. If you take the time to look at past blog notes of mine, you will see that is the emphasis I apply. That is why I take the time on occasions like this to share five hours of my efforts just catching that reaction, leave alone the additional time to write the blog.

My question of you and the audience is “Was this particular blog note of value to understanding the reaction of the market to important FOMC, Administration and Congressional discussions in helping you be a better student of Investing?”

Best regards, Ian.

Today’s discussion by the Three Musketeers, Secy. Paulson, Fed Chairman Bernanke and SEC Secy. Cox at Capitol Hill was a battle between Wall Street vs Main Street.  It goes without saying that the senators questioning and of course posturing was to make sure that the Tax-Payers’ concerns were being heard, since we will ultimately be footing the bill.  However it was abundantly clear to me that what was originally expected to be a quick passage of the $700 Billion Bill was not likely and as you will see so did Wall Street by the end of the day.  The DOW and Nasdaq closed down another whopping 162 and 26 points, respectively, and so we drift along teetering on the brink of disaster.  Net-net, while Rome burns, Congressmen Fiddle!

I captured the highlights of the action on a timeline relating to the ebb and flow of the DOW during the course of the hearings, and here are the various snippets from the Administration, Congress and the CNBC commentators in the first two hours in the morning:

…And here are the next 2&1/2 hours:

Here is a picture of the internals of the market which showed how these indicators reacted during the five hours I kept an eye on this. 

The only saving grace is that volume was low which signaled a wait and see attitude by Wall Street.

I submit that another day or two of this pussy-footing will see us on the road to the floodgates all opening to the downside as I forecasted yesterday.  Hang on to your hats for a bumpy ride.

Best Regards, Ian.

Editor’s Note!  Please read important discussion in the Comments section of this note to understand the context in which it was written.

I have updated this Blog Caption since I wrote the March 9^th blog over six months ago and that time I did full treatment to using the Limbo Bar (the reverse of the High Jump) to take stock of where we stood relative to 2001.  I’m sorry to express gloom and doom, but if today’s discussions between the Administration and the pussy-footing Congress are anything to go by, that is precisely where we are headed.

As I showed in the March 9^th Blog which asks “Where are we Headed #2?” , I gave full treatment to how I use the High Jump and Limbo Bar to take stock of where we are and where we might be headed.  It’s sad to say that History does repeat itself and what I said might happen has come to pass six months later when I felt we could be headed for a Recession.  Today’s action by the Stock Market is a warning sign that if the talking heads in Congress don’t stop yapping and do something quickly, we will all be up the creek without a paddle, including them.

Forget Bounce Plays and Follow Through Days (FTD’s) for a moment until we see some action from Congress.  What is important now is for me to remind you in four simple pictures of the Value I place on the High Jump and Limbo Bar at times like these to anticipate where we could be headed. 

1. It starts with a slide I used in the October 2007 Seminar where I first posed the thought that we could be headed down to 1150 on the S&P 500. I have shown that several times before in other discussions and in my most recent blog of a few days ago.
2. We then fast forward six months to the March 9 Blog and the March 2008 Seminar to see the status then and the potential place we could end up in two slides from that blog.
3. Now we can take note of the critical Line in the Sand we are at with the Limbo Bar having crossed the “Lower” Target of -15% down from the S&P 500 Index, and where we could end up at -25% down if the flood gates should open due to dilly-dallying by the powers that be.

Of course, if they save the day, we only breathe for a while longer before the next debacle in the Financial System unfolds.  We will be reviewing these charts at the Seminar in October:

The above chart was in the March 9^th, 2008 Blog…Sad to say we are at 1208 right now.

I’m not suggesting that we head down to 800 on the S&P 500 any time soon, but the odds of 1150 is now almost a certainty and again, if we see any signs of bickering in Congress we are headed for 1000 and possibly lower.

Best Regards, Ian.

This is a “You Will Recall” blog that summarizes one year of History:

It finally happened and it isn’t over yet…Capitulation big time!

I’m sure you recall the Thick Blue Pencil Line Chart…it was posted exactly seven months ago as a possible worst case scenario at that time.

That didn’t come out of thin air – there was a Plan set a year ago:

Read the September 20^th Blog – Ignore the Fog and Follow the Signposts

I said at the time “Here is a one page plan that slices and dices the market six different ways, four of which are Technical, one Fundamental and one Folklore, all of which are self evident to the reader.  It is in essence a ready-reckoner that gives you insight to the different Road Scenarios, and shows where the recent Gun Fight between the Bulls and the Bears took place.  Your job is to know which side is winning and act accordingly.  Enjoy!”

 Now the only thing to do is stay in your Foxhole:

…And that is the heart of HGS Investing in four quick snapshots.

 In Good times and in Bad, “Try it you’ll like it; otherwise take two Alka Selsa”   

Best Regards, Ian.

I had a nasty feeling when I wrote my last blog of making a silk purse out of a sow’s ear that we were headed for more gloom and doom, and it hardly took a week before it happened.

1. I am sure that after the hubbub has subsided with today’s downdraft on the stock market, there will be ample opportunity for Dredging, Bottom Fishing and Bounce Plays galore for those who haven’t thrown in the towel and given up in utter disgust at the undercurrents that pull one under.
2. This on top of the dreadful damage that Hurricane IKE has caused in the gulf leaves most of the country with a sense of forlorn that will take some time to weather, but then out of misery and disaster comes hope.
3. Sad to say it starts with hope and then turns to greed and ultimately to fear and we have come full circle.
4. The gurus of VIX are dancing since they would not be satisfied until the VIX hit above 30 to make it a six-pack of super-fear, and they got their wish today with a spike to 31 and a pullback to 28.32 as I write this blog.

You will pardon me for allowing my personal feelings to creep into this sad state of affairs with regard to the utter debacle that has unfolded and the serious consequences to decent folks who make an honest living and try to leave their children on a higher rung than they and their ancestors left them in turn.  There is a saying used in England to describe the mentality of those who could care less about anyone but themselves.  That feeling seems to have permeated throughout the world, where decency and honesty have given way to selfishness and greed with “Blow you Jack, I’m all right!”

Now the vultures will make hay and ultimately this too will pass but not before the turmoil around the world finds most of it suffering from a deep recession and many in sheer misery.

For those who still wish to dabble in this market, I feel that Ron and I have given you all the tools both in this month’s High Growth Stock Newsletter which was out yesterday and in the Seminar to come.  Here is a way of how to find the opportunities both on the long and short side using a Decision Tree:

Best Regards, Ian.

It’s funny how History repeats itself; we all know that historically September is the worst month for the stock market and here we are only three trading days into September and all have been down and certainly distribution days.

The Bounce Play since mid-July is curtains for now, and once again we might soon be staring at the lows of this Bear Market, with the distinct possibility if the lows are broken the market trots on down to the next level of 1150 on the S&P 500.

For the record, it is a sinister sign that we had no Eureka signal, despite the Follow Through Days (FTD) we experienced on July 29, Aug 5 and Aug 8 were healthy moves of 2.4%, 2.8% and 2.5% in quick succession, we soon fell back into the doldrums.  At the time I discussed at length that we could excuse the lack of Eureka signals which to those who know show some signs of irrational exuberance by the Bulls.  The reasoning was that the market was so heavily oversold that it was unlikely at that time.  However, that was a month ago, and it was easy to see that the entire rally had stalled and at best was going sideways and at worst setting up for a fall.  The evidence is in the chart below:

I showed you a similar picture just eight trading days ago, two blog notes earlier, so I hope that if you did nothing else you kept an eye on the # of stock market Industry Groups that had “A” Accumulation.  It takes less than one minute on High Growth Stock Investor:  Select IM Industry Groups in the Warehouse and then select the Filter Named Accumulation “A”.  Read the # of Groups in the Warehouse.  You’re done.

After a -3.2% distribution day today on top of the three previous days totting up to a further -3.3%, the Bears are dancing and we cannot make a silk purse out of a Sow’s ear.  Now one waits for fresh signs of the “same mumbo jumbo” (good stuff) for a rally.  Qid’s win over Qld’s at the moment in the ETF department, so short till the picture reverses.

In my opinion, it confirms that the FTD concept alone is lacking and not to be trusted without additional evidence that a fresh rally is underway.  Meanwhile the mountain of fresh new lows is starting to increase as we have 160 today.  Also the number of Declines to Advances on the NYSE was over 5:1 and so were the Dec to Adv Volume, so it was a terrible day all around.  All Major Market Indexes are on a Daily Bongo No and all but two are also on Weekly Bongo No, so the Bears have the bit between their teeth.

The lesson learned is to wait for the Irrational Exuberance exemplified by a Eureka signal as this time there is no excuse for the bulls not to step up to the plate in that the market is not as oversold as before and we have the evidence to prove it since at this stage there are no Bingo signals. I hope you see how the logic and the stock market tools we have given you are working hand-in-glove and keeping you on the right side of the market.   Should it break down below the current recent lows, then that is a different matter and we will need to review the bidding at that time.

Best regards, Ian.