On February 25, 2015, we posted Edson Gould’s Speed Resistance Lines [SRL] for Lumber Liquidator (LL) and Boston Beer Company (SAM). Starting with LL, we said the following:
“Those interested in LL and willing to perform appropriate due diligence could engage in a three phase purchase plan beginning below $39.81, $31.64 and $23.47. Investors, as opposed to speculators, should be willing to accept that there is no compensation for the wait when holding LL and that the decline to the ascending $23.47 level is a real risk.”
Since February 2015, LL has declined to the current level of $15.64. While we might know the exact reasons why LL fell to the current level, we don’t know what to make of the dramatic decline other than the fact that the SRL gave every indication that this was possible. Below is the updated SRL on Lumber Liquidator.
Upon further reflection, we examined the price of Lumber Liquidator and attempted to propose an alternative view on the stock price decline. On March 3, 2015, we proposed the following thesis:
“The coincidence of Lumber Liquidator (LL) declining significantly at the same time as the futures price of lumber (as traded on the Chicago Mercantile Exchange) seems difficult to ignore. Investors should take note of the fact that in three prior periods indicated in blue, LL has lost a minimum of –35% and as much as –53% when the price of lumber declined –33% or more.
“So far, from December 2013 to March 2015, the price of lumber has declined –23% while LL has declined as much as –67.49%. Much of the decline in LL has been exacerbated by concerns related to quality and sourcing of the flooring. However, the current decline is only slightly out of alignment from what has happened in the past.”
The latest price actions between the futures price of lumber and Lumber Liquidator are very much in alignment so far. As the price of lumber has started to rise the price of LL has stopped declining. It may be laughable that there is a parallel drawn between the two, however, we cannot ignore big picture scenarios that have a certain level of consistency.
In the chart above, the shaded blue area traces the price peak in LL to the price trough that coincides with major moves in the overall price of lumber. This is an exceptional pattern that, at this point cannot put out of consideration. New investors should re-examine this stock from a fundamental standpoint to confirm that this company is dead or dying.
Also part of our technical review from February 25, 2015 was a look at Boston Beer Company (SAM). At the time, we said the following of SAM:
“…we’ve outlined the conservative downside target of $180.12 and the extreme downside target of $107.99. Investors should note that a decline to the ascending $180.12 level is an ideal buying target with a follow-up purchase below $141.25.”
Considering that at the time, SAM was trading at $277, we believe we have helped potential investors avoid a “buy the dip” burn. We are simply fascinated that SAM has managed to decline as low as $145.30 since our 2015 call. However, in spite of “saving” investors from large losses, there has been little to cheer about on the upside. Looking at the current technical situation does offer some insight about what to watch for and possibly when to expect it.
Currently, SAM is tracing out a fascinating pattern that merges Gould’s SRL with a pennant formation. The merging of the two suggests that a huge moves is in the works. While we like the idea of the stock catapulting to the upside, reality tends to play cruel and unusual games with the hopeful. Our take is that within the next six months, we will see the ultimate conclusion of this pattern. Regardless of the direction, we think that it will be huge and widely noted in the financial media.