Category Archives: speed resistance line

Oil and Gas Stock Index Downside Targets

In the period from 2002 to 2009, the NYSE Oil and Gas Stock Index (XOI) presents us with a possible template for what to expect in the current decline in the same index.  Below is Gould’s Speed Resistance Lines (SRL) for 2002 to 2009 of the XOI Index.

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The above chart shows the conservative downside target of 1,326.48 and the extreme downside target of 543.36.  The mid-point of the downside targets is 934.92.  In the case of the XOI index, it managed to achieved the conservative and mid range for the index.  However, the extreme downside target was not achieved.  The full extent of the decline is indicated in red at the 761.30 level.

Our guess is that the XOI index will accomplish a similar pattern of “performance” on the downside in the current run as was the case in the 2002 to 2009 period.  We’ve charted the progress of the XOI Index in the period from 2008 to the present with Gould’s SRL.

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The conservative downside target of 1,454.79 has been constructed while the mid-point of 1,015.10 is also indicated.  However, we did not include the extreme downside target of 575.41.  We did indicate in red the 812.08 level which was the extent of the decline in the period from the 2008 high to the 2009 low. 

Suffice to say that we expect the XOI index could easily fall to 1,015.10 and subsequently to the 812.08.  Those interested in the oil sector should start initiating positions at or below the ascending 1,015.10 level.  Two funds that trade in line with the XOI index are PowerShares DB Oil ETF (DBO) and Direxion Daily Energy Bull 3x (ERX).  One ETF that trades the opposite of the XOI index is the Direxion Daily Energy Bear 3x (ERY).

Best Buy’s New Normal

On January 17, 2014, we posted Edson Gould’s Speed Resistance Lines for Best Buy (BBY) in an attempt to determine what the extent of the decline might be.  From that posting we said the following:

“Best Buy has had a history of resting [at] the extreme downside target, currently at $14.78.  However, we have split the difference and placed an intermediate downside support level of $22.34.  Again, this is not a recommendation to buy or sell Best Buy, instead, it is an attempt to observe how closely the stock will adhere to the SRLs indicated in the chart.”

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Nearly one year later, we can see that although the historical trend had been for BBY to decline to the extreme downside target ( at $14.78), the estimate of $22.34 was a fair assessment of downside risk as the stock has managed to vacillate at or above the ascending $22.34 level seen below.

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The quality of Gould’s SRL has been fairly consistent and reasonably accurate.  We look forward to introducing additional SRLs of stocks that have established a declining trend to determine downside targets.  The conservative upside target for BBY is $44.85.

Netflix: Downside Targets

Review

On December 3, 2010, we ran the numbers for Netflix,based on the work of Edson Gould’s Speed Resistance Lines, to determine what the downside risk might be for the stock.  The projected downside targets are illustrated below:

Not long afterwards, Netflix stock price soared from $185.45 to $300.  However, the goal of our site is to determine downside risk and the rise in the stock price of was of little interest.  Our view is that if we missed an investment opportunity then we will consider investing only if the stock declines to any of the anticipated downside targets.

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Naturally, there was considerable opportunity that we missed on the way from $185 to $300.  However, our rule is to seek values and from our experience all quality companies become undervalued at some point. Finally and for numerous reasons, Netflix declined from the peak of $300 to as low as $53.80.  Naturally, we were able to pick up shares of Netflix at $62, a price we felt was reasonable at the time.  Our critical review of the downside targets allows us to accept our purchases for the long-term in case we happen to be wrong about the short-term upside prospects.

October 15, 2014: Netflix Downside Targets

Quick Take: GoPro Downside Targets

We’re fascinated with the news surrounding GoPro (GPRO).  The stock went public on June 26, 2014 at $24 per share and has since increase in price to $89.93 as of October 8, 2014.  As public offerings go, the rise in price is considered a success.  As recently as October 7, 2014, Barclays raised their price target for GPRO from $45 to $60, in spite of the fact that the stock is already trading well above the new target price.  It seems that Barclays doesn’t want to appear over anxious to recommend the stock even though they are not confirming their expectation for the stock to decline.

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Apple meets NLO Upside Target

On August 19, 2014, Apple (AAPL) stock price rose as high as $100.66.  When Apple was trading at $61.61 on March 9, 2013, we said the following with the accompanying chart:

“Apple Inc. (AAPL) is at the top of our watch list as it is within 5% of the one year low.  In our April 14, 2012 test of the quality of Edson Gould’s Speed Resistance lines, Apple fell from $636 [adjusted price of $90.85] to our projected level of $424.15 [adjusted price of $60.59] (found here).  Now that the stock has achieved our downside target, we expected that a reaction to the upside is likely.”

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On July 17, 2013, when Apple was trading at $61.47, we re-affirmed our view of the upside potential for Apple with the following commentary:

“Currently, Apple is demonstrating a basing pattern that if successful, could result in a breakout to the upside.  At the current levels, we wouldn’t be opposed to buying some shares of Apple with the expectation that the stock could decline an additional –25% to –35%.”

The work of Edson Gould has proven to be astounding when considered in its context.  On April 14, 2012, we posted an article titled “Considering the Downside Prospects for Apple”.  At that time, we were revising the previous estimates of downside risk done on February 5, 2012 (third party source available here).

What was mentioned on February 5, 2012 is critical to understanding how Edson Gould’s downside projections work.  At the time, we said:

“The very first thing that we look for, to determine speed resistance lines, is the most recent peak in the price. Because AAPL is continually making new highs, we only need to use the latest price of $455.68 [post split price of $65.09] as our starting point….As the price of Apple increases, so too does the SRL lines based on the work of Edson Gould.”

This means that as long as the price of the stock increases to a new high the speed resistance lines are expected to increase as well.  Only when the stock starts on a declining trend can we expect that the stock price might go to the conservative and extreme downside targets.

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On April 14, 2012, when Apple was trading at $90.89 (pre-split price of $636.23), we said the following:

“…we believe that, based on the current speed resistance lines, no one would expect Apple to decline to our conservative downside target of $424 (post split price of $60.57)...”

The strength of Gould’s downside risk estimates is that we didn’t even have the peak price of $100.71 set on September 18, 2012 but we were still able to see the conservative downside target of $60.57 achieved.  Had we used the peak price, we would have achieved the $67.14 conservative downside target much earlier than the $60.57 level.