Category Archives: speed resistance line

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.


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.


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.

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. 


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.


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


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, 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

Clean Harbors Update

On February 9, 2012, we posted Edson Gould’s Speed Resistance Lines (SRL) for Clean Harbors (CLH) with the downside risk for the stock.  At the time, the downside targets were:

  • $43.53 (conservative downside target)
  • $31.00 (mid range)
  • $22.53 (extreme downside target)

Since that time, we’ve revised the downside targets to reflect the following minor changes.

  • $43.97 (conservative downside target)
  • $33.70 (mid range)
  • $23.43 (extreme downside target)

A visual of the downside targets reveals the value of Gould’s SRL.


So far, CLH has adhered to the SRL that was initially outlined in 2012.  If we consider the period of 2007 to 2009, when the stock fell as low as $20.54 and extend that same decline to the current period, then CLH could decline as low as $41.40.  This assumption is predicated on the stock market not experiencing a precipitous decline from the current level.  A broad market decline would easily bring CLH to the ascending $23.43 level in the SRL. 

While the fundamentals are not glowing for CLH as it goes through the process of spinning off its oil and gas services unit, which could “…take more than a year for the spinoff to be completed…”, there are expectations that the current actions will refocus the company.

Speculators, those willing to accept the downside risk of –36%, could purchase CLH with 25% of intended funds at $45.10 and $41.40.  The final purchase would be at $31.00 or below.  Investors, those willing to hold for 5 years or more, would want to re-assess CLH at $34 and below.

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.


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.


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.”


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.


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.