Coppock Application to Individual Shares

As our readers may be aware, we're big fans of a market indicator known as the Coppock Indicator or the Coppock Curve. Though the indicator was meant to be applied to the Dow Jones Industrial Average, we believe there is utility in applying this indicator to select individual companies.  Our hope is that we can leverage the knowledge we garner from this tool and apply it to other stocks and indexes.

The Coppock Curve is intended to aid long-term investors when investment risk is considered to be lowest. What we've done is apply the same concept to individual companies when we believe they are most likely to be undervalued.  This approach is the merging of fundamental values with a robust technical indicator. One key distinction that we've added is that we've set a 12-month target after the Coppock signal to determine performance and investment opportunities.

Below we have run the Coppock Curve of five companies, that are found on our recent watch lists, with the percentage change after the Coppock "buy" signal has be indicated. The results are shown below and the risk-reward for these 5 companies appear outstanding for the next 12 months.

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U.S. Dividend Watch List: April 7, 2017

Previous Year Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from April 8, 2016 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Symbol Name 2015 Price 2016 Price % change
STBA S&T BanCorp. 24.29 33.68 38.7%
THFF First Financial Corp. 32.08 46.75 45.7%
WASH Washington Trust BanCorp. 35.83 49.10 37.0%
OKSB Southwest BanCorp. 14.55 25.60 75.9%
NPBC National Penn Bancshares 10.72 13.00 21.3%
      Average 43.7%
         
DJI Dow Jones Industrial 17,576.96 20,656.10 17.5%
SPX S&P 500 2,047.60 2,355.54 15.0%

The top five companies did exceptionally well with average gains of +43.70%. During the same period, the Dow Jones Industrial Average and S&P 500 returned +17.50% and +15%, respectively. At the time, it was clear to us that the financial sector was the weakest of all industry groups judging by the number of companies belonging to the watch list. The following excerpt was taken from our post last year.

There are too many banks on the list to focus on so anyone interested in taking a early stake in the sector should consider ETFs such as XLF or VFH as the low may not be in yet.  The Wall Street Journal published a good piece on the sector titled, Miserable Year for Banks: Stocks Suffer as Rates Stay Low.

Those ETFs mentioned above (XLF and VFH) returned +32% in one year.

In addition to the financials, we pointed out two companies in the agriculture sector to watch out for, they were Monsanto (MON) and Lindsay (LNN) which returned +34% and +27%, respectively. We said the following about these two companies:

Two companies in the agricultural sectors are trading near their yearly low and worth a look.  Monsanto (MON) and Lindsay (LNN) may have not reached their respective "bottoms" but one should start research at these levels to identify their respective intrinsic values. Our valuation models suggest a possible downside risk of -30% for both companies. How likely are they to reach that level is to be seen. However, one can never pick the exact bottom of the stock price and multiple purchases is a great strategy to deploy. Because Lindsay (LNN) was on our list last year and remain in the same position, we interpret this as a potential bottoming process in the company.

U.S Dividend Watch List: April 7, 2017

The market continues to trade in a tight range between 2,300 and 2,350. We'll have to see if it can hold the 2,300 level and possibly retest 2,400. Despite being near an all-time high, we continue to seek long-term investments at a reasonable price and below are 28 companies you should consider. Continue reading

Craft Brew Alliance Meets Our Target

On September 1, 2016, we said the following of Craft Brew Alliance (BREW):

“Although there is no assurance that the stock needs to decline to the referenced downside targets, any parabolic move must be watch closely as entropy will kick in at some point.  In this case, we believe that the ascending conservative target [$12.57] is a lock.  With established history as an indication, the mid-range target [$10.02] looks to be a safe “bet” as well.  We’ll check back in on this as more time has passed.”

We don’t necessarily believe it but here we are, with BREW at a price of $13.15 and well within the range of the conservative downside target set at $12.57 as established in our piece dated September 1, 2016.

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The September 1, 2016 article lays the groundwork for what a person interested in BREW should look for and expect.

Market Speaking Volumes

Volume Review

In a Dow Theory Q&A piece dated April 8, 2013, we said the following of stock market trading volume:

“The lack of trading volume in the stock market since 2009 reflects little or no participation on the part of the public.  If this is true, then any meaningful rise in trading volume (on the buying side) due to added participation from the public could result in tremendous gains.  This thought sits in the back of our mind as we strategize the best way to take advantage while not being over exposed.”

The story on trading volume is somewhat murky, sometimes it matters and sometimes it doesn’t.  Learning to discern the two can be frustrating.  However, it is hoped that our work on the topic will help provide proper perspective.

Taking a step back, our prior work in trading volume should be reviewed critically.  Below are key articles that touch on the topic with the March 13, 2013 piece being, in our view, the most important real-time article on the subject:

Taking the Plunge

What is the best way to describe how trading volume has changed in the last eight years?  We would equate trading volume to the preparatory stages of what would be considered a successful competitive dive into a swimming pool.  There are three stages to a successful dive: 1) touchdown 2) maximum depression 3) takeoff.

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In the stock market, the “touchdown” in trading volume occurred in late September 2009 as the Dow Jones Industrial Average was in the recovery stage of largest stock market decline since the 1973 fall of –45%.  The “maximum depression” stage of trading volume lasted from the period of late September 2009 to mid-September 2014.  In terms of “liftoff” in trading volume, nothing has rivaled the amount of change that has occurred from mid-September 2014 to the present.

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On One Hand…

From all appearances, the stage is set for takeoff from a volume standpoint.  And yet, the stock market, as represented by the Dow Jones Industrial Average, since the 2009 low is already ranked seventh on the list of recoveries from prior crashes since 1835.  Can the market achieve the vaunted heights of 10 times the prior low as was the case in 1942 to 1966 or 1982 to 1997?  Considering that the period of the interest rate cycle corresponds to the 1942 period, we think there is a distinct possibility that “takeoff” is a possibility.

…On the Other Hand

As this has been the most hated bull market in history, which has seen it rise from 6,547 to as high as 21,115, or +223%, there are some elements that are cause for concern.  First, fulfilling the above three stages to takeoff are ultimately for successful dives.  Is the stock market setting up for a dramatic and steep dive?  Why would the stock market rise increase for 8 years on declining volume and suddenly spike on volume 3 times the 90-day average (No, it is not because of the Fed) in the last 4 months?

(Not So) Final Analysis

What would eliminate our questions about the nature of the current “liftoff” stage of volume? Well, we would have preferred a continuation of the stealth increase in volume that began in August 2014.  A stealth volume increases is far better because it would have continued the level of suspicion of the market increase.  Instead, parabolic increases fall into the category of pending and inexorable declines of large magnitude, after years of market gains.

How does an investor cope with the mixed signals of the market?  We believe that a concentration of assets is in order.  Pare down the non-staple holdings, focus on income and accept downside risk (we’re thinking semis, insurance and dollar stores).

Transaction Alert

On April 5, 2017, we executed the following transaction(s):