Category Archives: Edson Gould

Precious Metals Follow-Up

Posted on April 12, 2013

Silver

On February 11, 2012, we wrote a piece on Silver and SLV titled “Correction of Errors on iShares Silver Trust (SLV) Interpretation” (found here).  In that article, we said the following:

“The current indications suggest that SLV will fall as [low as] the $22.14 support level. Because silver easily fell to the third support level in the period from 2001 to 2008 (within the context of a precious metal bull market), we expect that the $21.02 is a realistic worst case scenario to watch for. We will consider buying silver and related derivatives at $22.25 and below.

“We view the most recent rise from the December 2011 low as running out of steam.Therefore, the rising resistance level established at $28.70 appears to be firmly in place…for now.”

As seen in the chart below, Silver has declined to the rising support level of $21.02 in many instances but broke through to the downside on February 18, 2013.

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From a technical standpoint, the next downside target for silver may be to the $20 level if the current levels don’t hold.  However, under typical circumstances, any point below the $21.02 level is considered undervalued.  While it is possible that Silver could fall further we don’t play the short side since we’re in the position to accumulate good values.  Values at this point trump the guesswork of when to enter and exit the short.  We believe that anyone interested in the upside potential to silver should thoughtfully accept the potential loss of –50% or more and purchase in two stages, once at a predetermine price at or below the current level and a second time at or below the first purchase.

Agnico-Eagle Mines (AEM)

On April 6, 2012, we recommended the consideration of Agnico-Eagle Mines (AEM) (found here).  On September 25, 2012, we recommended selling of AEM (found here).  While we got a lot of heat from readers of the SELL recommendation, from the less than brilliant to the reasonably rational, our work has proven that precious metal bull markets are vicious and should not be taken lightly.

After our recommendation of AEM on April 6, 2012, the stock rose nearly +40%.  When we gave the sell recommendation of AEM on September 25, 2012, the stock increased an additional +11%.  However, as of April 12, 2013, AEM is down –27% from our sell recommendation and down –37% from the November 2012 high at $57.33.

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Never under-estimate the power of a gold bull market.  We hope that our work on this topic has been instructive.

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Posted in AEM, Edson Gould, Silver, SLV, SRL

Technical Review: Carbo Ceramics (CRR)

Posted on January 14, 2013

Carbo Ceramics (CRR) was one of the companies that appeared at the top of our dividend watch list for many weeks beginning in February 2012. The watch list served as a beginning point for our research and we took a position in August (found here) at $65.02 (green arrow on chart below). Within three months, we saw shares of CRR rally to $74, a +13.8% gain. As such, we ‘hedged’ our position by selling the principal (found here) and let the profit run (red arrow on chart below).

Recent activity in Carbo Ceramics price suggests that, on a technical basis, the decline is over. Though a rally to its intraday peak of $180 is not expected, we believed there is a good opportunity for those interested in a short to medium-term speculative position in the stock.

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In our view, the biggest bull case, on a technical basis, is that the 50-day moving average has crossed above the 150-day moving average creating what some call a “golden cross.” We rely on the 150-day versus the more popular 200-day moving average for the fact that it is the road less traveled and provides an indication ahead of the crowd.

Currently, shares of Carbo Ceramics are trading just above the 50-day moving average, making this an ideal short-term transaction. For those who wish to trade this generally significant technical pattern, we’d consider selling if shares close below the 150-day moving average or if the stock gains +10% or more.

From a fundamental standpoint, Carbo Ceramics (CRR) provides long-term holders of the stock with the following attributes:

  • According to Value Line Investment Survey, the fair value for CRR is 14 times 2012 cash flow of $6.50, or a stock price of $91, a gain of +14% above the current price of $79.64. As an alternative, if the estimates by Value Line are correct, the 2013 fair value figure is $100.10, a potential gain of +25.69%.
  • Value Line indicates that Carbo Ceramics has increased the dividend for 12 consecutive years in a row.
  • Carbo Ceramics book value has had an annualized growth rate of +14.73%.
  • Carbo Ceramics has no debt

What Is the Downside Risk If I Want to Hold CRR for the Long-Term?

Dow Theory has the following downside targets for Carbo Ceramics:

  • $61.34
  • $44.39
  • $27.43

Based on the work of Edson Gould, Carbo Ceramics has the following Altimeter:

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Carbo Ceramics would have to fall to $70.20 in order to be considered a buy using the Altimeter above.  However, as has been the case in the past, seldom does the Altimeter decline to the buy level and then immediately reverse to the upside.  therefore we’d expect a push below the $70.20 level for good measure.

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Edson Gould’s Speed Resistance Lines have $65 as the downside support level.

The most conservative of the three downside targets mentioned above is the Dow Theory level of $61.  This seems be the most appropriate level to consider a first, or second, purchase if the desire is to hold Carbo Ceramics for the long-term.

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Posted in Altimeter, CRR, Dow Theory, downside, Edson Gould, SRL

What is Next for Herbalife (HLF)?

Posted on December 22, 2012

On May 2, 2012, Herbalife’s (HLF) stock price closed at $51.71.  At that time, we ran Edson Gould’s Speed Resistance Lines [SRL] to determine what the potential downside price would be (found here).  We determined that the conservative downside target was $45.45 and the extreme downside target was $24.33. 

On December 21, 2012, Herbalife (HLF) has managed to exceed our expectations by falling through the conservative downside target of $45.45 and within 11% of the extreme downside target of $24.33 by closing at $27.27.  The total decline since May 2, 2012 has been –47.26%.

Now we’re ready to re-examine what the prospects are for HLF based on the updated market activity.

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At the current price of $27.27, HLF has fallen below the ascending extreme downside target of $24.33.   This suggests that a $24.33 handle on this stock is almost guaranteed on an intra-day basis, at minimum. 

After reaching the inevitable low in the current decline, we expect HLF to increase at least +30%.  If $24.33 were the low, then rising to $31.63 would not be out of the question.  This would be similar to the rise of the stock price from the May 2012 low to the late July 2012 high.  However, rising above the ascending $34.89 line (now at $41; ± $3-$4) could be a point where the stock price could stall and then decline dramatically.  In order for us to feel that the rise in HLF is sustainable, we’d like to see the stock rise, at minimum, above the $50.14 level based on Dow’s Theory.

Aside from declining to the $24.33 price, we’re concerned that if the $21.12 price is broken to the downside then HLF might retest the 2009 low of $6-$7 range.  Because the single digit numbers are so extreme, we’d opt to split the difference and say that the potential downside target below $21.12 is $14.06.

Note: Any money committed to HLF, either long or short, should be considered a speculation. This piece is a continuation of the examination of Edson Gould’s speed resistance lines as explained in prior articles (found here). This is not an endorsement to sell short at the current levels nor buy these stocks once falling below the extreme downside targets.

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Posted in Edson Gould, HLF, SRL

Downside Targets for Herbalife (HLF)

Posted on May 2, 2012

After the news of Herbalife (HLF) getting slammed, we were curious about what the downside targets for the stock might be using Edson Gould’s Speed Resistance Lines.  Below is a chart representing the conservative downside target of $45.45 and the extreme downside target of $24.33.

So far, HLF appears to have support for the stock price at $45.45.  However, if HLF falls below the $45.45 level, it would suggests that HLF will decline to, at minimum, $34.89 before finding stabilization in the stock price.  A decline $24.33 would mean that HLF could revisit the 2009 lows.

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We believe that it is worth examining whether or not these downside targets are accomplished.  In our view, the downside targets are reasonable estimates of where the stocks could go before initiating new research on whether these companies have viable business models.

Disclaimer: This piece is a continuation of the examination of Edson Gould’s speed resistance lines as explained in prior articles. This is not an endorsement to sell short at the current levels nor buy these stocks once falling below the extreme downside targets.

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Posted in Edson Gould, HLF, SRL

Considering the Downside Prospects for Apple

Posted on April 14, 2012

For the New Low Observer team, it has been an uneventful period in our watch of Apple Inc. (AAPL) stock since February 5, 2012 even though the price has risen nearly 40%.  What in the world would we consider eventful in regards to Apple stock? Well, we’d  like to see Apple hit one of Edson Gould’s speed resistance line downside targets.  The chart below is an update of the one that we submitted earlier this year (found here).

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The new downside targets are as follows:

  • $424.15
  • $297.43
  • $212.08

Based on the current run in Apple Inc. stock, the Dow Theory fair value is $275.44. (636.23-85.35)/2=275.44

As we said on February 5, 2012, “the rampant enthusiasm for AAPL suggests that the stock isn’t likely to decline to the indicated levels any time soon.” This has definitely been the case with the impressive run up since the beginning of the year.

In order to diffuse the legitimate claims that we’re grasping at straws simply to make a bearish case against Apple Inc., we’ve provided the price performance of the stock over a similar 7-year period from December 19, 2000 to December 31, 2007 applying Edson Gould’s speed resistance lines, in the chart below.

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What stands out the most in the period from 2000-2007 is the percentage increase in Apple’s stock price compared to the current run-up as indicated below:

  • 12/19/2000-12/31/2007: +2,300.67%
  • 9/7/2005-4/13/2012: +1,079.56%

If we were to ask the question of what was the likelihood of Apple falling to $133.22 on December 31, 2007, we believe the chorus of Apple investors would say, “not likely, if ever.”  Similarly, we believe that, based on the current speed resistance lines, no one would expect Apple to decline to our conservative downside target of $424 let alone falling to the  $212.08 worst case price.

We’re not advocating that we’ve seen the peak in Apple’s stock price especially when we compare the fundamental data on AAPL between the 2007 peak and the current price:

Apple (AAPL) 2007 2012 % change
Sales per share 27.52 170.2 +518.45
‘‘Cash Flow’’ per share 4.37 46.5 +964.07
Earnings per share 3.93 43.8 +1,014.50
Div’ds Decl’d per share 0 2.65 N/A
Cap’l Spending per share 0.84 5.65 +572.62
Book Value per share 16.66 138.85 +733.43
Common Shs Outst’g 872.33 940 +7.76
P/E Ratio @ high price 43.53 17.23 -60.42
Source: Value Line Investment Survey Oct. 12, 2007 April 6, 2012

However, in 2007, it was justified for a non-dividend paying technology company to have a P/E ratio in the 40’s while a company that could easily become a dividend aristocrat would be considered fairly priced with a P/E ratio of 17.

Since we believe that markets are supremely inefficient, the perceived extremes to the upside are likely to be counteracted to the downside.  Edson Gould’s speed resistance lines provide a progressive downside target as Apple’s price increases.  If the price decline achieves any of the downside targets, we’ll be ready to re-examine the company fundamentals for long and short-term investment opportunities.

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Posted in AAPL, Edson Gould, speed resistance line