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Duke Energy: Downside and Time Targets

We’re very fascinated by the recent price activity of Duke Energy (DUK) and have decided to outline our thoughts on the downside targets that may exist for the stock.  Below we have applied Dow Theory and Gould’s Speed Resistance Lines for what we believe to be conservative estimates that may help investors avoid buying high, allow for buying low, or reduce loses.

Dow Theory says that investors should always refer back to the last time a given stock had performed the worst, on a fundamental basis, as the benchmark for estimating the prospects for going forward. 

"The point of importance for those who deal in industrial stocks is whether the capitalization of the companies into which they propose to buy is moderate or excessive, when compared with the aggregate earnings of the various concerns forming the combination in a period of depression. It is probable that consolidated companies will be able to earn as much in the next period of low prices as the companies forming the combine were able to earn in the last one; hence the very foundation of investments in industrials should be knowledge of what these companies earned, say in 1893 to 1896, making, perhaps, reasonable allowances for economies under consolidation. Where the earnings so shown would have provided dividends for industrials now active, the fact must be regarded as a very strong point in favor of those stocks (George W. Bishop Jr., Charles H. Dow: Economist, Dow-Jones & Company,Princeton, 1967, page 11.)"

If price action is a forward reflection of company fundamentals and investor sentiment, then the period from the 2003 low is the best starting point for our review.  The decline in DUK from the 2001 peak to the 2003 low was the worst decline in magnitude when the stock fell more than -70%.  We’re not suggesting that DUK will fall by that much this time, instead, we’re watching for the intermediate stages that lead up to a possible –70% decline.

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