Category Archives: Edson Gould

GMCR: Downside Targets

On October 25, 2011 when Green Mountain Coffee Roasters (GMCR) was trading at $63.85, we projected conservative and extreme downside targets of $59.93 and $37.21, respectively.  Subsequent price action for the stock brought the price as low as $17.11.  After achieving the downside target the stock rose as high as $158.87 by November 2014.  The potential gains of acquiring GMCR below either downside target was +165% and +326%.

The problem with this modeling of the past is having the fortitude of buying the stock and watching it fall –66% before the subsequent rise.  Can you handle a decline of –50% or more in your investments?  If you can’t sleep at night with losses of –50% or more then don’t bother reading any further as what follows is speculation of what would happen if history were to repeat (NOTE: history does not repeat).

Alternate reading on portfolio losses of –50% or more by Charlie Munger.

LinkedIn Corp. Downside Targets

On April 30, 2015, in after-hours trading, LinkedIn (LNKD) declined –20.95% from the closing price of $252.13 to $199.30.  with such a decline, it is worth considering what the downside risk would be according to Edson Gould’s Speed Resistance Lines (SRL).

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The above chart shows the current SRL downside targets based on the peak price of $276.16:

  • $187.68 (conservative target)
  • $139.87 (midpoint target)
  • $92.06 (extreme target)

What is most relevant in this SRL is the downside targets from the previous peak at $256.14.  At that time, LNKD had the following downside targets:

  • $181.00 (conservative target)
  • $133.19 (midpoint target)
  • $85.38 (extreme target)

In the prior decline, LNKD fell to slightly below the midpoint target at $133.19.  This suggests that the current slump should go below the conservative downside target of $187.68.  Going below the $187.68 level should get the stock price to the ascending midpoint target of $139.87.  Those interested in LNKD should consider the stock in stages at or below the ascending $139 level with an acceptance of a decline to the ascending $92.06 level.

Worth noting is that anyone who had a standing stop loss order with their broker, say below $250 or $240, will be forced out of their position once the stock market opens on May 1, 2015 at whatever the opening price is as long as it is below either of the sample levels.  At $199, investors with stop loss orders will take a severe beating even though they may not have been involved in the after hour activity.

A Different Perspective on Lumber Liquidator

On February 25, 2015, when Lumber Liquidator was trading at $57.23, 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.”

In fact, Lumber Liquidator blasted below the $39.81 support level and has rested at the $31.64 support level and started to move higher as seen in the chart below.

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We’ve intentionally left out the move up from $38.83 to highlight the extent of the decline and the high level of coincidence with the supports levels that we had outlined in the previous month.  All that remains is the decline to the $23.47 level.

While famous short-sellers have the ear of influential media to talk their book and ensure their profits, we only have price action to work from.  For this reason, it is well worth noting another coincidence that relates to Lumber Liquidator and futures price on lumber as seen in the chart below.

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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. 

We say slightly because we’re excluding the peak in lumber at 395.50 when LL was trading at $62.19.  While lumber was trading lower and not to exceed the $395.50 (considered a bear market), LL gained another +92.05%.  If Lumber Liquidator’s decline was measured from the February 15, 2013 peak in lumber at $395.50, the decline in the stock price would equal –37.56%.

Assuming we aren’t on the cusp a new bear market, the decline in LL has been overdone and an individual willing to accept the downside risk to $23.47 should consider implementing a three phase purchase plan.  An investor must keep in mind that the conservative upside target is $80.53 which is the new “limit” for the stock instead of the previous $119.44.  In addition, the downside targets now act as upside resistance level as was the case when LL could not sustain the $53.68 level prior to the recent collapse.

Technical Take: LL & SAM

Below are the downside targets using Speed Resistance Lines [SRL] for Lumber Liquidator Holdings (LL) and Boston Beer Company (SAM) based on the work of Edson Gould.

Lumber Liquidator (LL) has declined from the peak of $119.44.  Gould’s SRLs suggest that from the peak price, LL has a conservative downside target of $53.68 and an extreme downside target of $39.81.

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On February 25, 2015, LL was unable to sustain a price above the ascending $53.68 level with a decline of over –17%.  Our best guess is that LL will decline to the ascending $39.81 level, which currently approximates $49.50 price.  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.

Boston Beer Company (SAM) is the brewer of Samuel Adams beer and a multitude of other “craft” beers.  Today SAM declined –10% on an earnings miss.  Below is the SRL for SAM.

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Our expectations for SAM are not very high as the last time that the stock was able to achieve the conservative downside target of $70.13 was in 2011.  Since that time, SAM has faltered but not fallen.  In spite of this fact, 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.  As with Lumber Liquidators, SAM is bet on growth in the stock price and not much else. 

The relative strength of each company (long-term viability) is what makes these stocks compelling and worth considering at the appropriate predetermined price.

TripAdvisor Running Away From Buyers

On February 12, 2015, news of Expedia (EXPE) buying Orbitz (OWW) combined with the earnings release by TripAdvisor (TRIP) has resulted in OWW increasing +21.83% while TRIP has increased by +23.76%.  This cannot be good news for Priceline (PCLN) shareholders as the likelihood of the company overpaying for TRIP grows.

Our February 6, 2015 Nasdaq 100 Watch List had the following review of TripAdvisor and Priceline:

A couple of stocks that have caught our eye are Priceline (PCLN) and TripAdvisor (TRIP).  Both stocks are low in price relative to their March 2014 peaks. 

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There has been some recent talk about PCLN absorbing TRIP in a buyout.  Below is the relative price difference between PCLN and TRIP.  In the last year, mid-November 2014 was the best time for PCLN to leverage the stock price to buy TRIP while July 2014 was the worst time to use stock to buy TRIP.

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While PCLN has changed on a relatively small basis over the last year, Ctrip.com (a company that we correctly analyzed on December 2011) has had a tremendous amount of relative price change over TRIP in the last year.

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While TripAdvisor (TRIP) may not be the best investment over Priceline (PCLN) on a fundamental basis, the potential for a buyout of TRIP may make good investment sense due to the need to eliminate a competitor or to take advantage of existing clients, assets or infrastructure.  Things could get worse for the market overall, pushing all of the stocks in the sector down. Barring a general market correction, investors probably have until the middle of December 2015 for a deal to be hammered out if the stock price doesn’t recover from the current levels.

We remain confident that TripAdvisor is the best relative value in the competition elimination game for the sector.  In reality, Ctrip.com acquiring TRIP is very unlikely.  However, we believe that with the recent jump in the price of TRIP, Priceline will feel the burn and get into a rampant bidding war for TRIP.  This could result in TRIP being acquired for well above the most recent 52-week high of $110. 

Below are the downside targets along with the conservative/extreme upside targets for TRIP based on Gould’s Speed Resistance Lines.  Non-members of our site wishing to view the upside/downside targets can send an email to nlo@newlowobserver.com.