Below is the price chart of Dome Mines (DM) from 1918 to 1968. Continue reading
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Author Archives: nlo-admin
Coppock Curve: March 2020
From January 2020 to March 2020, we just experienced one of the worst quarters for equity investors, which prompts us to revisit the Coppock Curve. This indicator splits out buy indications with an extremely high success rate.
Below is a chart of the Coppock Curve from 1974 to the present and the statistical breakdown since 1930.
Union Pacific from 1918 to 1968
Below is the price chart of Union Pacific (UNP) from 1918 to 1968.
Note: We will be updating Alaska Juneau Gold Mining (AJ), Homestake Mining (HM), and Dome Mines (DM) from 1918 to 1968.
Shopify Downside Targets
Below are the downside targets for Shopify (SHOP):
- $300.17 (conservative target)
- $240.62 (mid-range target)
- $181.07 (extreme target)
The history of parabolic increases suggests that Shopify’s mid-range target of $240.62 is not unusual and the extreme downside target is possible. We’ll update this chart upon request.
Posted in Edson Gould, SHOP, Speed Resistance Lines, SRL
Review: Mercury General
On November 20, 2015, we posted the Speed Resistance Lines for Mercury General (MCY). The downside targets were:
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$53.96 (conservative target)
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$37.03 (mid-range target)
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$20.10 (extreme target)
The chart below highlights the date the SRL was published and the price action that has transpired since November 20, 2015.
Our lurking worry? That the $20.10 target will be achieved. This leads to a downside range of $18-$20 from the current price of $38.88.
Posted in downside, Edson Gould, MCY, Speed Resistance Lines, SRL
Bear Market Duration
In terms of duration:
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“The majority of bear markets have lasted from ⅓ to ½ as long as the preceding bull market (Russell, Richard. Dow Theory Letters. February 6, 1970. page 3).”
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“…most bear markets last around one-third as long as the preceding bull market (Russell, Richard. Dow Theory Letters. August 22, 1990. page 2)."
A bear market usually lasts ¼ to ⅓ of the preceding bull market. It’s just a rule of thumb but it will be clear why this is needed. Let’s look at the data, based on Charles H. Dow’s requirements, and arrive at potential durations for the current bear market.
The bull market of 2002 to 2007 had a bear market that was 28% (in time) of the trough to peak.
If this bull market began in 2009 and ended on February 2020 and matched the length of the 2002-2007 bear market then the presumed equivalent would bring the end of the bear market out to July 2022 (approximately).
However, let's assume that this bear market is going to last 14% of the 2009-2020 period (half of the 28%), then that would bring us out to April 2021 (approximately).
Being as conservative on the bear market scenario as possible, if this bear market lasts 7% of the 2009-2020 period, then that would bring us out to September 2020 (approximately).
On April 3, 2019, we said that the 2014-2016 period might have been a recession (as outlined in a major publication). If we took 25% of the period from the February 2016 low to the February 23, 2020 peak as a separate bull market then the current bear market would end in December 2020.
This is going to be a long year even under the best case scenario with a bear market that ends approximately September 2020. When we say it ends in September 2020, we mean that the price of major indexes decline below the lowest levels already reached on March 23, 2020.
Posted in bear market, Charles H. Dow, Duration
Review: Hospitality Properties Trust
On June 3, 2015, we said the following of Hospitality Properties Trust (renamed to Service Properties Trust):
“If worse comes to worse, HPT could decline to point A or $13.00. If a repeat of the housing crisis were to take place then HPT could decline as low as point B or $4.67.”
The chart below highlights the date the article was published and the price action that has transpired since June 2015.
The worst case target was achieved by an exceptionally wide margin.
Posted in HPT, Speed Resistance Lines, SVC
DJIA: Downside Targets
On February 3, 2018, we said the following:
“In the past, we would normally apply the more passive Dow Theory downside targets instead of Edson Gould’s Speed Resistance Line. However, with the late stage parabolic move in the Dow Jones Industrial Average, the more aggressive downside targets are necessary in this instance.”
Our decision to utilize the “more aggressive downside targets” has proven to be well founded. However, since the February 3, 2018, a new peak has been achieved which provides different downside targets. This leads to an update of the downside and upside targets.
Below are the updates with extensive review of what to watch for (skip to the bottom for the Summary). Continue reading
…And Then They Collapsed
If you have to prove it then it probably isn’t true.
"As Walter Bagehot, the British financial journalist and historian, wrote in 1873, 'Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.' (Norris, Floyd. Big Fall Evoking Nasty Old Memories Of a Run on a Bank. New York Times.pg. A1)."
In this case, if you have to say it, then it probably isn’t true.
Today, Treasury Secretary Mnuchin was quoted as saying:
“Boeing has said that they have no intention of using a program that may change in the future,’ Mnuchin said. ‘These are things that the companies need to come and ask us for. ... Right now Boeing’s saying they don’t need it.’ (Andrea Shalal and Doina Chiacu; Writing by Lisa Lambert; Editing by Nick Zieminski. U.S. not bailing out airlines, Boeing not using federal money: Treasury Secretary. Reuters. March 27, 2020.).”
Let’s examine the history of some famous quotes, sometimes just days before the company in question collapsed or got bailed out. Continue reading
Posted in Quote of the Day
Interest Rate Monitor: March 2020
For the last 40 years, interest rates have been in decline. So people can be forgiven when they have the view that the trend is down, it should be down, and if it ever goes up and something goes wrong then the solution must be to cut interest rates.
Unfortunately, during a secular rising trend, cutting interest rates aren’t the solution. Worse still, falling rates ARE THE PROBLEM. Adding QE and stimulus to rate cuts compounds an already bad situation.
Review
We have been unanimous in our view that the secular trend in interest rates is up rather than down and that increasing interest rates are good for the market. Our view preceded the Federal Reserve’s policy of rate increases starting December 15, 2015.
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“A single rate increase by the Federal Reserve in no way makes for a trend. However, markets often lead the way and what initially seems “bizarre” is only a natural change in regime, a change that we haven’t seen since the early 1940’s (December 16, 2015.).”
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“We’ve only included the point in the interest rate cycle that corresponds to the phase that we are entering, coming from an all-time low to an eventual all-time high (November 15, 2015.).”
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“Investors anticipating a general rise in interest rates should feel some comfort in knowing that most manager(s) in the utility sector are ready for what is to come. Rising interest rates are not an automatic death sentence for utility stock prices or earnings. In fact, the early stages of rising interest rates may see utility stocks match or exceed the returns of non-interest rate sensitive stocks, on a total return basis. Only when the outlook is cloudy will it become difficult to offer projections that are in line with prior expectations (September 4, 2014.).”
Current Rate Environment
As we have stated well before rates started to increase, in a secular rising trend in interest rates, going up will be good for stocks and the economy. What this also means is that in a secular rising trend in interest rates, going down will be bad for stocks and the economy. We have depicted the change below.
Rates Going Up
Rates Going Down
We have used the Daily 3-Month Treasury for one simple reason, when it goes up or down, the Federal Reserve ALWAYS follows.
Conclusion
The door has been closed on the rate cutting tool that the Federal Reserve has wielded like a force field against any perceived threat to the economy. However, the reality is that we’re in a secular rising trend in interest rates. ANY additional stimulus (fiscal or monetary) should be looked upon as prolonging the problem rather than improving or fixing the problem.
Posted in Interest Rate Monitor, interest rates
Unemployment Rate: March 2020
On August 23, 2009, in our call that the recession was over, we said the following:
“I doubt that the general public will agree that the recession is over since jobs will not be as plentiful as the past.”
From the low in 2009 to 2014, many questioned the rising stock market and economy because job growth was not as strong as hoped. However, it should have been understood that to achieve such accelerated job growth comes at a very expensive price.
On July 2013, we said the following of the unemployment rate:
“It is important to understand that the 10% and 3.8% unemployment rates are undesirable scenarios. The 10% unemployment rate is in the depths of a “recession” and the 3.8% unemployment rate at the height of a overextended economic boom.”
On August 24, 2018, we said the following of the unemployment rate:
“Presently, we anticipate the unemployment rate rising to the 6.30% level as a natural reaction to the current low levels. While the unemployment rate can go lower, there is a tremendous tradeoff to achieving lower levels. It is quite possible we have seen the best of times with a declining unemployment. Anything below the current levels will come at a tremendous cost in the next recession.”
The current environment bears out the concerns that we’ve had about the unemployment rate decreasing below 3.80%. Once we get beyond a certain tipping point the reaction is swift and unnecessarily painful.
The Outlook
According to the Washington Post dated March 23, 2020, the projected unemployment rate is likely to range from 9% to 30% based on the fallout from the coronavirus (COVID-19). Our August 2018 projection of 6.30% remains, as it is the first stopping point to any higher level beyond Goldman Sach’s 9% or St. Louis Federal Reserve President James Bullard’s 30%.
These estimates, in our view, are knee jerk reactions in a vacuum. As we were concerned about going below 3.80% in the unemployment rate back in 2013, we’re going to wait until we reach 6.30% before we can offer up a measure perspective on the situation.
Please keep in mind that none of what has occurred, at least from a data standpoint, is unusual or unexpected. Of course we couldn’t predict that a pandemic was coming. Yet, the data, from a historical standpoint, suggested that the low range was at an extreme and was bound to react to the upside.
Consumer Sentiment: March 2020
On August 4, 2019, we said the following:
“A trend doesn’t define the future prospects. However, we believe that the declining trend has not completely played out. This means that we expect that the economy and stock market will languish, in the best case scenario.”
When you combine Charles H. Dow’s consumer sentiment indicator, the Dow Jones Industrial Average on a year-over-year basis, with Dow Theory we see that all indicators have been in place for the decline that we’ve seen so far.
The only question that remains is how far will the decline extend? We’re working to generate a measured response to this question.
Boeing: Manic Panic
As we register daily percentage increases beyond all historical norms for Boeing, we worry the message in the price is being misinterpreted. So to help put this matter into the proper context, we have outlined the top 5 daily percentage increases in Boeing’s share price below.
Number 5: July 28, 1987
Number 4: October 28, 2008
Number 3: March 24, 2020
Number 2: July 8, 1970
Number 1: March 25, 2020
Our Take
In each of the top 2, top 4, top 5 & top 6 single day percentage gains, Boeing was far from a reversal of the stock price to the upside. The lone exception, that could be argued, was the 1970 increase of +23.71%, which took Boeing to a new low by 1974.
We have intentionally included the prior low before the crash in the stock price. Also, we included the following peak price to put into perspective the amount of time and money that may have been lost before getting back to a “break-even” point (excluding dividends).
The fact that Boeing is having these significant increases in the price in a single day is a warning sign that investors must take heed of. This isn’t a recovery, instead, it is manic panic that will bring lower lows.
See Also: The Most Dreaded Chart of Boeing
NextEra Energy: The NextProblem
There is a reason it is called the Dow Jones Utility Average, it reflects what the average “should” be. However, some members of the average have gone far above what is considered to be reasonable This leads to only one outcome, reversion to the mean (in the best case scenario).
On the way to reverting to the mean, many stocks will overshoot the mean as a normal reaction to the extreme that was attained in the prior up or down period. As we’ve demonstrated with the chart of Boeing (BA) versus the Dow Jones Industrial Average on March 22, 2020, any stocks that has exceeded the average will likely revert to the mean in dramatic fashion. As seen in the chart provided, NextEra Energy (NEE) will be no exception.
Below is a chart of NextEra Energy versus the Dow Jones Industrial Average from the March 9, 2009 low to March 23, 2020.
Our review of NextEra Energy isn’t as wish for the decline in the stock price. Instead, our work is an observation that has stood the test of time.
As markets are currently experiencing an exceptional increase of +5% to +7% (abnormal and unhealthy), we’d like to save investors a lot of money so that they can subscribe to our service which will outline the best times to buy NextEra Energy (we already have that price). At the current price, NextEra Energy (NEE) is in our AVOID range.
Posted in Dow Jones Utility Average, NEE, relative, utilities