Category Archives: book

2022 Book List

Posted on January 2, 2023 by | Leave a comment

Below are the books that we’ve read cover-to-cover from January 2022 to December 2022.  Don’t forget to check out our 2021, 2020, 2018, 2017, 2016 and the Dow Theory Letters book lists.

Title   Author
Revolution That Wasn't, The by Spencer Jakab
Panic! by Michael Lewis
Warren Buffett's Ground Rules by Jeremy C. Miller
Great Quake, The by Henry Fountain
Pacific by Simon Winchester
How to Tell a Story by Aristotle
African Founders by David Hackett Fischer
How the Hippies Saved Physics by David Kaiser
Music Is History by Questlove
Coal by Barbara Freese
Titans of History by Simon Sebag Montefiore
A Brief History of Motion by Tom Standage
Ascent of Money, The by Niall Ferguson
Mark Inside, The by Amy Reading
Plagues Upon the Earth by Kyle Harper
Mutiny on the Rising Sun by Jared Ross Hardesty
A Brief History of Korea by Michael J. Seth
Money by Jacob Goldstein
Story Paradox, The by Jonathan Gottschall
Boom and Bust by William Quinn
Players Ball, The by David Kushner
Unseen Body, The by Jonathan Reisman
Things are Never So Bad That They Can't Get Worse by William Neuman
Body, The by Bill Bryson
Icepick Surgeon, The by Sam Kean
Why You Like The Science & Culture of Musical Taste by Nolan Gasser
Reason for the Darkness of the Night: Edgar Allan Poe and the Forging of American Science, The by John Tresch
A (Very) Short History of Life on Earth by Henry Gee
In the Shadow of Liberty by Kenneth C. Davis
Prisoners of Geography by Tim Marshall
Joy of Sweat, The by Sarah Everts
Forgetting: The Benefits of Not Remembering by Scott A. Small
Spinning Magnet, The by Alanna Mitchell
Midnight in Chernobyl by Adam Higginbothham
Science of James Smithson, The by Steven Turner
Knowledge Machine, The by Michael Strevens
Breathe by James Nestor
Lithium by Walter A. Brown
Genetics in the Madhouse by Theodore M. Porter
An Elegant Defense by Matt Richtel

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2020 Book List

Posted on December 13, 2020 by | Leave a comment

Below are the books that we’ve read cover-to-cover in 2020.  Don’t forget to check out our 2018, 2017, 2016 and Dow Theory Letters book lists.

The top three must read books from the latest list are:

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James Grant was Right About GE

Posted on August 19, 2019 by | Leave a comment

In James Grant’s book Minding Mr. Market, in an article titled “Hot Light On GE” that was originally published September 14, 1990, Grant highlights a curious thought experiment (emphasis ours):

“In the time saved by not visiting GE headquarters in Stamford, Connecticut, Jay Diamond, our associate publisher, compiled a fascinating historical table.  The information describes the parent company’s consolidated finances in a succession of business downturns, starting with 1932, which happens to be the year in which the forerunner to GECC was started.  It ends in what may or may not prove to be a recession year, pending statistical revisions, 1989.  Evolution has meant more leverage, thinner coverages, lower returns on assets, and rising contributions to consolidated income by financial activity.

“Interestingly, GE’s debt rating hasn’t changed in the past fifty-eight years, even though its financial profile has.  At the bottom of the Great Depression, long-term debt was negligible, interest coverage was massively redundant, and the current ratio was better than 2:1.  In 1989, a non-depression year, long-term debt constituted 77 percent of equity, interest coverage was less than 2:1 (surely a remarkably low reading) and the current ration was less than 1:1. (Grant, James. Minding Mr. Market. Times Book, Random House. 1993. page 362).”

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Grant goes on to explore the various rationales given by ratings agencies as to why GE could maintain a AAA rating in spite of their deteriorating financial position.  What was the outcome of this erosion of financial security while holding on to a AAA rating?

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GE was rewarded with a stock increase of +1,111.97% from the September 1990 close to the October 2000 peak.  Somehow, GE couldn’t lose it’s AAA credit rating until after the March 9, 2009 low, after a decline in stock price of –83.96%.  In fact, GE’s change in credit status was effectively a marker for the bottom in the market.

The questions for today is, after the 2009 low and recovery in the stock market while GE sinks to the lowest level in 24 years, do we think that GE has more problems that have not been revealed since September 1990?  Will the recent accusation of GE committing accounting fraud be the marker for the top after the long run-up in the market since 2009?

See also: Andrew Left is Wrong About GE

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Posted in accounting fraud, book, book list, General Electric, James Grant, rating agency

Books on Bear Markets

Posted on December 28, 2018 by | Leave a comment

A bear market is upon us so it's time to dust off these books that can help us navigate through this market.

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Posted in bear market, bear market rally targets, book

2018 Book List

Posted on December 1, 2018 by | Leave a comment

Below are the books that we’ve read cover-to-cover in 2018.  The accompanying links will take you to Amazon.com if you’re interested in buying the books.  Don’t forget to check out our 2017, 2016 and Dow Theory Letters book lists.

The top three must read books from the latest list are:

The above three books are highlighted in bold red.

Title  Author
A First-Class Catastrophe Diana B. Henriques
Antifragile Nassim Nicholas Taleb
Atomic Adventures James Mahaffey
Barons of the Sea Steven Ujifusa
Basic Economics Thomas Sowell
Behave Robert M. Sapolsky
Being Wagner Simon Callow
Blood Moon John Sedgwick
But What If We're Wrong Chuck Klosterman
Casey Stengel Mary Appel
Einstein's Dice and Schrodinger's
Cat		 Paul Halpern
Fifty Inventions That Shaped the Modern
Economy		 Tim Harford
Flash Boys Michael Lewis
Fooled by Randomness Nassim Nicholas Taleb
Isaac Newton James Gleick
King Con Paul Willetts
Leonardo da Vinci Walter Isaacson
Meltdown Chris Clearfield
Mindhunter John E. Douglas
Norse Mythology Neil Gaiman
Patient Zero Richard A. McKay
Playing Dead Elizabeth Greenwood
Scale Geoffrey West
Six Women of Salem Marilynne K. Roach
Skin in the Game Nassim Nicholas Taleb
The Bettencourt Affair Tom Sancton
The Big Short Michael Lewis
The Book That Changed
America		 Randall Fuller
The China Mission Daniel Kurtz-Phelan
The Genius of Judaism Bernard-Henri Levy
The Great Halifax Explosion John U. Bacon
The Happiness Equation Neil Pasricha
The Knowledge Illusion Steven Sloman
The Last Wild Men of Borneo Carl Hoffman
The Laws of Medicine Siddhartha Mukherjee
The Lincoln-Douglas Debates
The Marshall Plan Benn Steil
The Men Who United the
States		 Simon Winchester
The Origin of Species Charles Darwin
The Price of Everything Eduardo Porter
The Quantum Labyrinth Paul Halpern
The Road to Jonestown Jeff Guinn
The Secret Token Andrew Lawler
The Shipwreck Hunters David L. Mearns
The Sixth Extinction Elizabeth Kolbert
The Stowaway Laurie Gwen Shapiro
The Warren Buffett Way Robert Hagstrom
Too Big to Fail Andrew Ross Sorkin
Undaunted Courage Stephen Ambrose
When  Daniel Pink
When Mountezuma Met Cortez Matthew Restall
Without Precedent Joel Richard Paul
Young Washington Peter Stark

 

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Dow Theory Letters Book List

Posted on December 1, 2018 by | Leave a comment

Richard Russell was a legendary Dow Theorist and stock market commentator. Russell wrote the Dow Theory Letters for over 55 years from 1958 to 2015. Using Dow theory, Russell accurately called the top of the market in 1966, the bottom of the market in 1974, and the top of the market in 2007 (Barron's article November 2007.)

With such a record, we find it useful and necessary to list the majority of books that Richard Russell had mentioned in Dow Theory Letters. Some of the books related to the stock market and others are about health, politics or life in general (a small number of books added by us). Continue reading →

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Posted in book, book list, Richard Russell

Crypto Myth and Market Reality

Posted on February 6, 2018 by | Leave a comment

The Myth

The prevailing theory is that the cause of the decline in cryptocurrencies lately is that the “banks” and Wall Street want to undermine the market for decentralized currencies to either steal the technology like the record industry and Apple (AAPL) did with Napster, or to eliminate a viable competitor to the Wall Street and banking industry cabal.

The Reality

The reality is that, like the introduction of every new technology that turned out to be revolutionary and widely dispersed to the point that it became second nature in its use and profound in it’s application, the price/value of such technologies is only relevant to the use.

In the formative stages (right now), blockchain technology is trying to find its footing in the world.  Make no mistake that blockchain is here to stay and it will likely permeate everyone’s lives, like it or not.  However, as with the canal, railroad, airplane, automobile, computer, biotechnology, and internet bubbles before, there will be thousands of contenders but only a dozen survivors (at most).  The risk of loss is significant when there are more than a thousand different cryptos out there and we all know there should be two dozen, at best.

The Market Reality

Everyone loves a great conspiracy theory.  However,  The last week of market volatility is proof that when everyone wants to sell, it doesn’t matter what they are holding.  Take for example the Dow Jones Industrial Average (DJIA) and Bitcoin (BTC).  The chart below shows the hourly percentage change in BTC  (cryptocurrency) versus the DJIA (Wall Street/bankers) from January 30, 2018 to February 5, 2018.

image

In the last week, it should be more difficult for someone to make the claim that Wall Street is pushing down cryptocurrencies while at the same time, Wall Street is falling as well. 

Our take on the matter is actually quite the opposite of the conspiracy theory, if Wall Street can continue to rise, there will be more money and enthusiasm to fund hair-brained ideas within the crypto space.  However, when the money drains out of Wall Street, it will also drain out of all the cool ventures that support and ensure the organic growth of the crypto environment and at a ridiculous rate.

The question might come up as to why BTC is crashing more than the DJIA if everyone is selling in all markets.  In a nutshell, familiarity.  The DJIA has been around for more than 120 years.  BTC has been around for less than 10 years.  Anyone unfamiliar with the risks of a new venture is naturally going to be more skittish when the old line investment (DJIA) is crashing, on a relative basis, and therefore would put into question the more dubious blockchain ventures, this in spite of blockchain technology possibly becoming bigger than the concept of money as we know it.

In Closing

As indicated above, cryptocurrency investors should embrace the idea that a rising stock market allows more money to go into more wasteful, and potentially lucrative, ventures in the blockchain universe than a falling stock market.  Just for the sake of better understanding the point we’re trying to make, get a copy of the book F’d Companies: Spectacular Dot-com Flameouts by Philip J. Kaplan.  You’d be surprised to know that even though there are some ridiculous concepts for dot-com companies, there are still many that would be incredibly lucrative today if the stock market didn’t crash like it did from 2000-2003.

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Posted in Bitcoin, book, Dow Industrials

Giving Away $32K, Was Never So Difficult

Posted on October 2, 2013 by | Comments Off on Giving Away $32K, Was Never So Difficult

In what we hoped would be an annual tradition for our site, we gave away books that we thought were  valuable to the understanding of the stock market and investing.  Little did we know that one book would become an instant “classic” with a price that now seems staggering.

On July 16, 2010 (found here), we announced that we were going to give away a single copy of Dow Theory Unplugged: Charles Dow’s Original Editorials & Their Relevance Today. Because we had 5 copies of the book, we later decided to give away two copies instead.  However, after contacting the first two winners and getting no response, we settled with giving away only one copy of the book as announced on August 29, 2010 (found here). 

Fast forward to the present and we find that the books we were having such a hard time giving away has skyrocketed in price since August 2010 (found here).  It appears that the lowest priced copy of the book is priced at $889.99 while the highest price rings in at $16,026.74.  Our suspicion is that these prices, the minimum and maximum, will nudge much higher in spite of what already seems like an outrageous amount.  Who is going to pay these prices, we can’t imagine.

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Suffice to say, after the 2nd annual giveaway, we decided to give up on purging our book collection.  However, we strongly encourage reviewing and reading the books found on the book list that we’ve compiled based on the references and recommendations of the great Dow Theorist Richard Russell over the last 55 years (found here).

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Posted in book, Book giveaway, book list

There is no such thing as a Sophisticated Investor

Posted on September 2, 2011 by | Leave a comment
We listen to Bob Brinker every weekend and his manner of steam rolling the listeners gets annoying at times.  However, Diana Henriques is one of the few guest authors who (1) gets challenged directly by Bob Brinker and (2) solidly holds her ground with a lucid explanation on how Bernie Madoff and mutual funds have more in common than most people are willing to admit.
The following is a transcript, in part, of a recent interview that Bob Brinker had with Diana Henriques about her book Wizard of Lies: Bernie Madoff and the Death of Trust.  Diana is clear on one thing that all investors should understand, even a well known and well established mutual fund company should be questioned on it's integrity.  The clarity in Diana Henriques' responses while getting grilled by Bob Brinker requires that we recommend reading this book.
Diana Henriques:

 

“ …there on your statement, it looked like you owned a widely diversified portfolio of blue chips, everything from J&J to Wal-Mart, and so you had this sense, ‘well I am kinda diversified,’ there was this illusion of  a diverse portfolio and you move into cash safely and into treasury bonds and back into these blue chips, so not to defend people who were willing to trust every penny they had to Bernie Madoff, they may have been deluded by the notion that they did have a balanced and very highly diverse portfolio almost like a mutual fund, of course it was nothing like a mutual fund, in fact, and the notion that you would give all your money to Bernie Madoff, in hindsight, of course looked dreadful, but how many of your listeners actually invest all of their money with Vanguard or different mutual funds but they will invest it all with a fund family because of the convenience that comes with it."
Bob Brinker:

 

(interrupting Diana) "That’s a good point, that’s a good point, but I’m willing to propose to you that a listener that invests with the Vanguard, a listener that invests with a Fidelity, a listener that invests with a T. Rowe Price, can simply not be compared to somebody giving their money to Bernie Madoff.  He is not Vanguard, he is not Fidelity, he is not T. Rowe Price."
  
Diana Henriques:

 

"Yeah, but neither is he Joe’s Plumbing and Ponzi Scheme operation down on the corner.  He was a very respectable."
Bob Brinker:

 

(interrupting Diana) "No but actually he was that Diana, he had a po-dunk auditing system set up in a storefront in NY, I mean, he was Joe’s Plumbing and Heating."
Diana Henriques:

 

"I’ve got to disagree with you there because I knew Bernie Madoff back when he was in the wild before he was in captivity, and I knew his firm very well.  As a reporter at Barron’s it was one of the first places you’d call if were trying to find out what news, what impact, breaking news would had had on specific stocks or segments of stocks.  For example, the night the first gulf war broke out, it hit us in NY at a very tough time right against our deadline for the next day’s business section.  We took the whole section apart and put it back together again.   Well, what would the out break of war going to mean to the oil stocks?  How do you find out? The NYSE had been closed for hours.  You called Bernie Madoff, because he pioneered after hours trading.  There was a period in time when Madoff’s trading firm handled up to 10% of the daily volume of the NYSE stocks;  in what is called the third market.  We didn’t know him as retail investors, I knew him as a business reporter, but he had no retail customers, so far as we knew.  He was a wholesale trading house but he was very well known on the street as a whole sale trading house one of the biggest, one the fastest, one of the most technologically advanced and a firm that had always set the standard for the speed of processing orders, so I have to disagree with you, people who knew wall street and who did a little 'due diligence' on Bernie Madoff would have learned that he was a very well respected wholesale trader."

 

Bob Brinker:

 

"All of which led them to the false conclusion that he was someone that you could do business with."

 

Diana Brinker:

 

"Yes…and he was someone that they could trust."

 

Bob Brinker:

 

(interrupts Diana while she is talking) (incredulously says...) "TRUST!…are you serious Diana?…you could trust!…what do you mean you could trust?"

 

Diana Henriques:

 

"He was someone certainly that they thought they could trust clearly they would not have given their money to him otherwise.  On the surface, you know Bill, a shifty eyed guy with a cheap suit and scoffed shoes may commit a lot of crimes but a ponzi scheme is never going to be one of them.  Ponzi schemers are by definition done by people who seem trustworthy, if they’re not they can’t even start.  The can’t pull it off.  So, people who think they would instantly recognize a crook like Bernie Madoff, are deluding themselves.  That’s one of the dangerous lies we tell ourselves.  They’re going to look like responsible respectable people."

 

Please consider donating to the New Low Observer. Thank you.

 

 

 

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Dow Theory: Cyclical Bull Market Confirmed

Posted on April 6, 2011 by | Leave a comment
On April 4, 2011, we were provided with a Dow Theory confirmation of the cyclical bull market, within a secular bear market, when the Dow Jones Industrial Average exceeded the prior peak of 12,391.25 set on February 18, 2011.
As has been the case throughout this bull market run, the Transportation Average has taken the lead on the way up. This most recent move by the Industrial Average only confirms what the Dow Jones Transportation Average managed to accomplish on March 31, 2011 by closing at 5,299.89. At least for the next month and a half, the economy is expected to continue to grow. What we see from the Transports on the way up we may also see on the way down.

What do the new short-term highs mean for the market overall? It appears to indicate that the Dow Industrials will continue to stagger towards the old high that was established October 9, 2007 at 14,164. For us, a possible leading indicator for the market (even before the Transports) is the price of gold and silver. If precious metals can continue to rise then the Dow has a more favorable chance of rising. However, if precious metals are falling then, in this stage of the interest rate cycle, the general market will have little chance of going up.

According to Dow Theory, all technical indications in the stock market should translate into the economy. Dow Theory was never intended to predict the stock market. Instead, Dow Theory was intended to determine if the prospects for the economy were favorable or not, using the stock market as a leading indicator. The best example of this is in Robert Rhea’s easy to read book, The Dow Theory Applied to Business and Banking.

 
Please revisit New Low Observer for edits and revisions to this post. Email us.

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Posted in book, Dow Theory, Robert Rhea

Seeking Ten Percent

Posted on September 25, 2010 by | Leave a comment
A reader asks:
“I see that your Watch List performance for the past 12 months is no better than the Dow's. How is that possible when you focus on the Dividend Achievers that are close to their 52-wk lows and do so much in-depth research and analysis?
“Am I missing something? If not, then how do you argue against just investing in something like a Vanguard index fund? Or, better still, there are value-oriented funds like those run by Tweedy Browne, et al, that have substantial outperformance to the market.
“Should your approach be modified to take into account the macro view first and then selecting the right sectors (from among the S&P 500's ten sectors) based on where the economy is in its growth/decline cycle? Thus, should the cycle analysis be used along with your present criteria to achieve outperformance?”
Our response:
These are all great questions. First, we’ll address the question of why bother doing all the work of researching these company if the final result is simply to underperform the Dow Jones Industrial Average. As indicated in the book Investing: The Last Liberal Art there is an element of joy in learning new things. We love the process of understanding the research into cell apoptosis that a drug company is doing. We love finding a book like Taking Chances: The Psychology of Losing and how to Profit from it which helps us to understand more fully the benefits of failing. We love stumbling upon mathematical "quirks" like Benford’s Law whereby it can be proven that the order and frequency of the first digit in a set of numbers can reveal that there is accounting fraud. Simply put, our research of stocks fulfills our desire to understand the world around us while we attempt to pursue the profit motive.
In pursuit of the profit motive, the goal of the New Low Observer is to obtain mediocre gains of 9%-12% in each investment that we make. This means that when a stock rises to the level that we’re comfortable with, within the designated range, we find the next best alternative that is on any one of our new low lists.
As mentioned before, we consider selling a stock when it reaches a gain of 10% within a year. All of the stocks on our September 25, 2009 watch list accomplished our goal of 10% well before the end of the one-year period. The table below is the best demonstration of our approach in action.
Symbol
days to 10%
Annualized gain
WMT
54
67.59%
CAH
44
82.95%
WEYS
208
17.55%
ABT
44
82.95%
NWN
162
22.53%
BCR
182
20.05%
LLY
52
70.19%
BDX
68
53.68%
PNY
84
43.45%
*based on September 25, 2009 Dividend Watch List
As you can see from the stocks above, in some cases, accomplishing 10% occurred much earlier than we would have expected. We like to think of returns of 10% in less than a year as a form of accumulated time. This means that if we gain 10% in 5 months, we have at least 7 months to sit back and study the markets. This is seven months where we can detach ourselves from the noise and chaos that normally distorts rational thinking. Obviously, this is an option that we exercise from time to time when we’re not sure of the market prospects.
The example that we provided in our performance review of Dividend Achievers from September 25, 2009 was actually the worst case scenario if you decided, for some reason or another, to buy and hold all of the stocks that were on the list at the time (not recommended.) As far as we’re concerned, we were out of those stocks long before one year as has been demonstrated with the Sell Recommendation section of this site. Again, we seek mediocrity in our investment strategy knowing that if 10% can be accomplished within a year then we have been exceptionally fortunate. As mentioned in previous articles, we only expect 1/3 of the stocks to achieve 10% in one year during a bull market. However, if a stock that you purchase is on our Dividend Watch List, you can be assured that you can hold the stock for the “long term” if you choose to do so.
Finally, we are constantly trying to keep abreast of the macro view of the markets and the economy. However, our best experience has been with the use of Dow Theory. Although not infallible, Dow Theory is intended to be an all encompassing guide to not only what is going on right now but also what to expect in the future up to three to nine months ahead. We’re cognizant of the fact that Dow Theory is only a tool and not THE answer to what the future holds. Therefore, we only apply Dow Theory as a tool for determining asset allocation. Charles Dow himself has been specific on the point that investors can still have their money at work in a bear market (during a recession or depression). The only change that needs to take place during such hard economic times is the expectation of returns. As we at the New Low Observer seem insistent on getting 10% during the good times, we must be willing to accept 5% during the bad times.

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Posted in Annualized return, book, Dow Theory

Tagged

Dividend Yield is a Matter of Perspective

Posted on February 28, 2010 by | Comments Off on Dividend Yield is a Matter of Perspective
A reader asks:

How is it that you can characterize stocks that yield less than 2% as "dividend" stocks?

Touc's reply:

The purpose of tracking the stocks in our Dividend Achiever Watch List is because the companies have a history of increasing their dividend every year for at least 10 years in a row. The choice of selecting a Dividend Achiever based on the yield becomes up to the investor.

However, as a matter of observation, selecting stocks based solely on the "high" yield has seldom resulted in long-term financial security. In addition, my "research" has shown that stocks with a low dividend yield but a higher average annual compound growth of the dividend tend to outperform stocks with a "high" dividend yield but a low compounded annual growth rate of the dividend. For this reason, I'm willing to look more closely at the compounded annual growth rate of the dividend for lower yielding stocks. Again, this is among the many factors that go into selecting any one of the stocks on our New Low Watch List.

Another factor that we consider when selecting Dividend Achievers is the relative yield of the stock. If a stock has a history of dividend payment increases over an extended period of time then we can determine the relative buy and sell points. Buying and selling stocks based on the relative yield is explained in the books Relative Dividend Yield by Anthony Spare, Dividends Don't Lie by Geraldine Weiss and Dividends Still Don't Lie by Kelley Wright. An excellent February 20, 2010 interview of Kelley Wright's most recent book can be found on the Financial Sense website here.

One example of a low yielding stock is Helmerich & Payne (HP). We recommended the stock on Sept. 2006 because, on a relative basis, the stock was under-priced. Subsequently, we gave a sell recommendation after the stock had gained 141% in August 2008. We later recommend HP when, on a relative basis, it was attractively priced in March 2009. Since March 2009, the stock has increased over 80% to the current price of $40.52. The point is that, on an absolute basis, the yield on HP never reached 1.50% when the stock was at its lowest price (high price = low yield/low price = high yield.) However, on a relative basis, the yield was very high for the stock.

It is far more important to focus on the history of dividend increases rather than the yield. Once you’ve narrowed down the quality stocks based on dividend increases then it is suggested that you compare the current dividend yield to the historical range for the stock in question. At least, this is the way the New Low Observer team likes to look at dividend paying stocks, regardless of the yield.

-Touc

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Posted in Anthony Spare, book, dividends, Geraldine Weiss, Kelley Wright, relative yield

Dow Theory

Posted on September 2, 2009 by | Comments Off on Dow Theory
In reading The Stock Market Barometer by William Peter Hamilton, I find that there is significant contribution to the topic of Dow Theory. It is Hamilton’s book that led to the even better The Dow Theory and Dow’s Theory Applied to Business and Banking by Robert Rhea. One area of contention is my belief that Charles H. Dow was absolutely right about double tops and double bottoms. Hamilton, in reference to double tops and double bottoms, says:

“In the same editorial (Wall Street Journal, 1/4/1902) Dow goes on to give a useful definition from which legitimate inferences may drawn. He says: ...

‘It is a bull period as long as the average of one high point exceeds that of previous high points. It is a bear period when the low point becomes lower than the previous low points. It is often difficult to judge whether the end of an advance has come because the movement of prices is that which would occur if the main tendency had changed. Yet, it may only be an unusually pronounced secondary movement.’

This passage contains, by implication, both the idea of ‘double tops’ and ‘double bottoms’ (which I frankly confess I have not found essential or greatly useful) and the idea of a ‘line,’ as shown in the narrow fluctuation of the averages over a recognized period, necessarily one either of accumulation or distribution.”

Hamilton, William Peter. Stock Market Barometer. Harper and Brothers. 1922. page 32.

In my May 15, 2009 article, I pointed out how important double tops and double bottoms have played a role in defining the direction of the Industrials and Transports. So important is the role of double tops and double bottoms that they have accounted for 72% of the major bull and bear moves in the stock market. The current market action, since May 1st, has been in favor of double tops and bottoms in the Transports index portending the change in the market direction in the intermediate term.

As you can see from the chart below, there have been two double tops and two double bottoms. So far, both double bottoms (B and C) and one double top (A) have been followed by sizable moves in the Transportation and Industrial index.

Currently, we're faced with the double top indicated as D1 and D2. From what I can tell, if the decline from D2 goes any further below the August 17th low then we may retrace up to 75% of the gains from C2 to D1. This assessment is based on the prior correction of A2 to C1 from the rise of B2 to A2. On the way down to C2 there are smaller support levels however their significance is not as pronounced as the percentage change from A2 to C1. We should assume the worst case scenario and expect that the Transports will go to 3239.36. Falling to points C1 and B1 would be the next order of operation.

Interestingly, Charles H. Dow says that the action of double tops and double bottoms is most commonly associated with market manipulation. In Hamilton's Stock Market Barometer there is a July 20, 1901 Wall Street Journal excerpt where Dow says:

"Another method [for detecting manipulation] is what is called the theory of double tops. Records of trading show that in many cases when a stock reaches top it will have a moderate decline and then go back again to near the highest figures. If after such a move, the price again recedes, it is liable to decline some distance."

Hamilton, William Peter. Stock Market Barometer. Harper and Brothers. 1922. page 36.

The method described by Dow is commonly executed by institutions and other large money interests. The term that is most often used today is called a trial balloon. If successful, the money interests can gauge small investors willingness to sell or buy stocks and then execute a bull or bear raid. Today, it would seem unheard of for the editor of the Wall Street Journal to suggest there is manipulation and then go so far as tell how to detect it. And yet, the words of Charles H. Dow ring true today as they did in early 1900.

Note: On August 25th I said that the great Dow Theorist Richard Russell was wrong about his call of a new or renewed bull market. Well, after placing a call to Russell and talking to his staff the bull market indication was taken away the very next day and a non-confirmation was iterated. I'm sure that Mr. Russell got many calls on that error so I don't think that I swayed him personally (though I'd love to think that I did.)

My goal wasn't to have the bull market indication taken away, instead it was to demonstrate that a non-confirmation needed to be worked through. For this reason I still stand by my belief that the bullish move (within the context of secular bear market) from the March 9th low isn't over unless we resolutely pierce the 8146 level on the Dow Industrials. Touc.


Please revisit Dividend Inc. for editing and revisions to this post.

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Posted in book, Dow Theory, Dow Theory Non confirmation

Reviewing the Stock Analysts

Posted on August 30, 2009 by | Comments Off on Reviewing the Stock Analysts
When I came up with the idea of writing about stock analysts, I thought about many of the negatives that I've observed over the years. After all, I've seen analyst ratings go from a buy to a hold overnight. In other instances, I've seen ratings on stocks lowered the same day that the stock was crashing. Analyst ratings never seemed to match up with the concept of offering foresight or depth of knowledge.

In doing my research on stock analysts, I realized that instead of focusing on those who got it wrong in their upgrades and downgrades, I would try to find those who got it right. This turned out to be like searching for a needle in a haystack. So many analysts were unclear on their ratings that I couldn't really use recommendations like neutral, accumulate, market perform and outperform.

Additionally, I couldn't use buy recommendations since they were a dime a dozen and possibly had more to do with investment banking relationships. For this reason, I was forced to track only the stock recommendations that had sell ratings. Sell recommendations comprise only 5% of all ratings issued. The performance of such ratings are easier to track with clear instructions of what to do with the stock and little in the way of issues like conflict of interest with a buy rating.

What I found was enlightening and refreshing. I found the sell recommendation of Select Comfort (SCSS) issued on August 30, 2007 by Matrix USA, LLC. Naturally, SCSS fell from the high of $17.09 to the most recent 52-week low of $0.19. The decline equaled 98.9% and has only risen to $3.25 as of August 28, 2009.

Clearly I was shooting ducks in a barrel because I went straight to where I knew the market was topping out to find clear sell recommendations. However, it is precisely the top of the market where few analysts are willing to issue outright sell recommendations.

When I looked for a little background on Matrix USA, I learned that it had already been a leader in quality buy and sell recommendations. Unfortunately, you cannot find Matrix USA LLC any longer but the former managing director Daniello Natoli was found to be working at EVA Dimensions LLC. Stern Stewart, Founder and CEO of EVA Dimensions, is the author of the book Quest for Value which outlines the principles behind economic value added (EVA) measurements for publicly traded companies. EVA is the model that helped Matrix USA LLC build a successful string of buy and sell recommendations.

Apparently, Matrix USA LLC no longer exists, however the ability to issue solid buy and sell recommendations makes the method that they utilized well worth investigating. This would be one time I could honestly say that the book Quest for Value might be a good "investment." Touc.

Please revisit Dividend Inc. for editing and revisions to this post.

Comments Off on Reviewing the Stock Analysts

Posted in book, Quest for Value, stock analysts