In our previous work, we have outlined the impact of dividends and the historical precedent related to the qualitative elements of Anheuser-Busch InBev (BUD). Why have we put so much focus on ONLY one fundamental element as it relates to a stock and its future prospects. As stated by Geraldine Weiss in her book Dividends Don’t Lie:
“The philosophy that the dividend yield of a quality company can reveal volumes about a stock’s future performance does not lend itself merely to a certain tax climate or a particular market cycle. It is a basic principal. one that serves as a faithful guide through even the most confounding stock market phases (page 10).”
Many argue that such a narrow perspective on esoteric points regarding the dividend doesn’t tell the whole story. Our writing on this topic since calling the bull market in 2009, and starting this site, highlights the exceptional consistency of the perspective that we have offered.
Price Reveals Fundamentals, Fundamentals Reveal Price
According to Charles H. Dow, co-founder of the Wall Street Journal and creator of the indexes that bear his name:
"The one sure thing in speculation is that values determine prices in the long run. Manipulation is effective temporarily, but the investor establishes price in the end. The object of all speculation is to foresee coming changes in values. Whoever knows that the value of a stock has run ahead of price and is likely to be sustained can buy that stock with confidence that as its value is recognized by investors, the price will rise (Dow, Charles H. Review and Outlook. Wall Street Journal. February 25, 1902.)."
With this in mind, we will venture into the indication that are provided by the activity of the price for Anheuser-Busch InBev.
Downside Speed Resistance Lines
Below are the Downside Speed Resistance Lines (SRL) for Anheuser-Busch InBev (BUD) covering the period from July 2009 to November 2019.
The downside targets based on the data from 2009 to the present are:
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$94.20 (conservative)
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$69.34 (mid-range)
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$44.48 (extreme)
We can see that BUD has managed to decline through the conservative and mid-range targets. All that remains is the extreme downside target of between $44.48 and $47.70. The lack of historical precedent does not allow for the richer analysis of the price that we’d normally like to do. Such analysis makes for what we believe would be better interpretation of the price activity.
Three Steps Rule
In addition to Gould’s Speed Resistance Lines, there is the theory of the Three Steps Rule. According to Gould:
Our Three Step Rule (not to be confused with our Three Step and Stumble Rule, Which refers only to monetary conditions) has been helpful over the years in our attempt to project stock market moves and to anticipate stock market tops and bottoms.
Our Three Step Rule says: In any stock market move, up or down, large or small or in between, expect three steps but be prepared for a fourth.
It applies to large moves as well as small moves.
Three steps up in an advancing market and three steps down in a declining market usually exhaust the bullish potential accumulated at the bottoms and the bearish potential accumulated at tops- but sometimes there is a fourth step (Edson Gould Reports. Edson Gould’s 1975 Forecast. November, 1974. page 8. ).
We have included, in the chart above, the Three Steps (red circles). In this case, the third “step” cannot occur unless it is at some point below the second “step.”
Upside Speed Resistance Lines
Below are the Upside Speed Resistance Lines (SRL) for Anheuser-Busch InBev (BUD) covering the period from September 2016 to November 2019.
The upside targets based on the data from 2016 to the present are:
As with downside prospects there must be upside resistance. From the all-time low set in late 2018, BUD has managed to climb as high as $101.58. However, not achieving the $111.00 upside resistance and then falling below the $99.44 upside resistance level suggests, at minimum, a re-test of the $65.43 level.
Speed Resistance Lines are based on the work of Edson Gould who was famous for precisely calling market tops and bottoms and widely quoted in Barron’s throughout the 1970’s. How powerful are the indications provided by Gould’s SRL?
Among the many posting we have on the topic, our April 26, 2012 on the downside risk for Chesapeake Energy (CHK) titled “A Warning for Chesapeake Shareholders” suggested that although the stock was trading at $18.10, CHK could potentially decline as low $0.67 as a normal reaction to the prior peak. On November 12, 2019, CHK had a closing price of $0.67.
