2020 v. 2008: You Are Here

Posted on March 23, 2020 by | Leave a comment

On March 23, 2020, the Federal Reserve announced that they are standing ready to provide unlimited quantitative easing. Among the actions included in Fed’s announcement:

  • The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities
  • the FOMC will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.
  • Supporting the flow of credit to employers, consumers, and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing.
  • Establishment of two facilities to support credit to large employers
  • Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses.
  • expanding the Money Market Mutual Fund Liquidity Facility (MMLF)
  • Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF)
  • establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses

This action by the Federal Reserve seems eerily familiar to us.  Why?  Because March 2008 was the year many of these same programs were implemented by the Federal Reserve.

Below is a chart of the Dow Jones Industrial Average covering the 2007 to 2009 period when the Fed stepped in in a similar way.

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The position of where you are can change very quickly based on the type of policy action taken.  The less policy action the faster the market gets closer to the “bottom.”

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Posted in 2008, DJIA, Federal Reserve Bank, You Are Here

Review: Oil and Gas Stock Index

Posted on March 22, 2020 by | Leave a comment

On January 6, 2015, we said the following of the Oil and Gas Stock Index (XOI):

“The conservative downside target of 1,454.79 has been constructed while the mid-point of 1,015.10 is also indicated.  However, we did not include the extreme downside target of 575.41.  We did indicate in red the 812.08 level which was the extent of the decline in the period from the 2008 high to the 2009 low.”

On September 7, 2015, we said the following of the XOI:

“…lurking in the background is the extreme downside target of 575.41.  Since our experience has been that the extreme downside target is commonly achieved, we hazard to guess what would happen globally to the oil market in order to decline to such a low point.”

Unfortunately, we made the following mistake on December 27, 2017 regarding the XOI:

“Assuming that the primary movement is still a bear market, then the expected upside target should have been from 1,210.15 (3/8) to 1,313.37 (½).  With the XOI above the 1,313.37 level, Dow Theory suggests that a bull market is on the way as the balance of losses sustained by the buyers near the previous peak is giving rise to optimism that breakeven on their investment is possible.”

We incorrectly interpreted Dow Theory in the belief that a bull market was on the way.  It could be argued that as the prior peak was not achieved then a bull market wasn’t signaled and therefore the analysis was somehow right.  However, we’d like anyone who uses both Dow Theory and Speed Resistance Lines to know that it is the interpretation that is incorrect and generally not the tools.

XOI Index: 2008 to 2020

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The descending 575.41 level on the XOI Index is the equivalent of 375 (it continues to decline over time).  That will likely be the point when the XOI bounces.  From the 375 level it is uncharted territory.  However, that is the point when values will come into play and investment can be done with relative abandon.  Keep in mind the effort for many countries to phase out oil consuming vehicles.

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Posted in Dow Theory, SRL, XOI

The Most Dreaded Chart of Boeing

Posted on March 22, 2020 by | Leave a comment

As we enter the bailout phase of Boeing, there is one chart that should alarm all investors.

Since the low in the stock market on March 9, 2009, Boeing (BA), (as of March 20, 2020) has gained approximately +206%.

In the same period of time (March 9, 2009-March 20, 2020), the Dow Jones Industrial Average has increased +192%.

Let that sink in for a minute.  We are about to bail out a company that as of March 20, 2020 has exceeded the gains of the Dow Jones Industrial Average since the March 2009 low.

Now, Let’s look at the chart that should be causing dread for all investors.

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The comparison between Boeing and the Dow Jones Industrial Average, when drawn on a relative basis, shows the extent of the bubble in the price of Boeing stock.

Defenders of the Boeing bailout say that the total shutdown of the airline industry and the coronavirus are the reasons that Boeing is suffering more than usual.  However, when viewed on a relative basis against the Dow Jones Industrial Average, which Boeing is a part of, we can only conclude that Boeing is only reverting to the mean.

As noted above  (206% v. 192%), the mean has not been reached and as Charles H. Dow has said, the reaction will swing to the opposite direction before being resting at the mean.

see also: Dow Theory’s December 2018 Bear Market Indication

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Posted in BA, DJIA, relative

U.S. Dividend Watch List: March 20, 2020

Posted on March 22, 2020 by | Leave a comment

Could things get any worse after a horrendous week? We certainly hope the curve for COVID-19 will flatten soon but only time can tell.

The S&P 500 has broken below the 2018 low at a record setting pace and has fallen -32% from the peak.

If you think that this situation is worse than the financial crisis then we probably have more room on the downside as the market fell more than -50% in 2008.

If you have the stomach to ride this out and want to pick the bottom, there are plenty of companies on our watch list this week. Continue reading →

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Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List

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Review: Texas Pacific Land

Posted on March 21, 2020 by | Leave a comment

On January 30, 2019, we said the following:

“The rebound has been exceptional but requires one last step in the process of confirming that the trend is actually up.  In order for the trend to be CONFIRMED as up, the price of TPL needs to retest the $409 level and hold.  Without holding at the $409 level, TPL would be expected to test the ascending $290.66 target, at minimum.”

Since January 30, 2019, Texas Pacific Land has had the following activity:

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We’ve updated the Speed Resistance Lines because the peak in the price increased from our prior level at $871.99 to $901.04.  Unsurprisingly, TPL has achieved our lowest downside target after bouncing at the $410 level.

Now our concern is how far below the $300 level that TPL might go.  We seem to be in the early stages of the current market decline so we’ll have to update the downside risk as we go.

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Posted in Edson Gould, SRL, TPL

GE: Is the Party Over?

Posted on March 21, 2020 by | Leave a comment

Review:

  • On January 21 2018, when General Electric (GE) was trading around $16, we said, “the speed at which the current decline is taking place indicates that sentiment will push the stock to the $5.27 price and the elimination from the Dow Jones Industrial Average is eminent.”
  • On December 12, 2018, General Electric (GE) achieved a closing low of $6.45, 22% above our estimated downside target.
  • On January 1, 2019, when General Electric was trading around $7.25, we said, “…now is the time to consider the upside resistance targets.  The above chart lays bare the expectations for an upside move.” We also said, “The year 2019 could be forgiving to GE…” This was 12.40% above the December 12, 2018 low.
  • On December 31, 2019, the closing price of General Electric stood at $11.16.

Update

Before the full year of 2020 was under way, General Electric had managed to give back all ofthe  2019 gains.  The era of forgiving has been quickly forgotten.

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Now that General Electric sits on the cusp of the 2018 low, the questions becomes, can the stock recover and retest the 2020 peak?  We don’t think so for two primary reasons.

  1. Declining below the $19.82 upside resistance target.
  2. The potential for a recession for the next 6 months.

The fact that the price could rise as expected and the falter at the very resistance target that was highlighted near the 2018 low suggests that there are powerful forces at work.

The reality is that a recession is on the way.  the depth and length is the only unknown.  However, we have always maintained that if General Electric couldn’t do well during a booming economy then what should be expected during a recession?

We advise caution as the market seems bound and determined to expose failings and frauds which will result in collateral damage to companies like General Electric.

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Posted in GE, General Electric

TBTF: Too Boeing To Fail

Posted on March 21, 2020 by | Leave a comment

Advocates for the bailout of Boeing (BA) are citing the “black swan” event of COVID-19 as the reason the company has reached the tipping point of failure.  These same people are saying that, in spite of Boeing:

  1. distributing defective merchandise
  2. that resulted in loss of life
  3. then lied about knowingly distributing a defective product

The company is too big to fail because the cascade of job losses throughout the entire U.S. economy would be catastrophic.

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We’d argue that demise of Boeing began near the February 20, 2018 period.  We don’t know why it occurred at that time, However, the stock had run out of upside momentum and vacillated between the $356.66 price since that time.

The most recent decline is the culmination of the collective wisdom of the markets which decided after March 4, 2019 that the fate of the company had been determined.

As with the bank and auto bailouts of 2008, the belief is that there doesn’t exist the capacity of the largest and most broadly developed economy in the world to absorb the loss of such a big company.  Thanks to the bailout to come, we will continue to never know.

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Posted in AIG, BA, GE

SPDR Gold Shares Downside Targets

Posted on March 21, 2020 by | 2 comments

Below are the downside targets for the SPDR Gold Shares (GLD).

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  • $124.16 (intermediate target)
  • $106.27 (mid-range target)
  • $52.60 (extreme target)

The $124.16 level is not an “official” downside level as it is only an intermediate point on the way to the actual level of $106.27.  As we’ve seen in the past, the extreme downside target is always the concern.  For GLD the extreme downside target is $52.60.

Top three stocks, commodities, or indexes that achieved our downside targets by year:

2020

2019

2018

2017

2016

How do we use Speed Resistance Lines? Once a target is achieved we assess the possibility of investment.  If the target is not achieved we move on to the next stock. 

There are approximately 15% to 20% of the SRLs  that we’ve run that haven’t come to fruition, yet.  However, in this current market decline, many that weren’t fulfilled are now getting completed.

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Posted in Edson Gould, GLD, Speed Resistance Lines, SRL

Update: Tesla Inc. Targets

Posted on March 19, 2020 by | Leave a comment

When Tesla (TSLA) was trading at $734.70, we said the following:

“Parabolic increases rarely go unchecked.  This typically means that a decline to the conservative downside target is the norm, at minimum.  However, Tesla has had a history of defying the “norm” when it comes to price change.”

At that time, February 5, 2020, we provided the following downside targets:

  • $507.09 (conservative target)
  • $401.39 (mid-range target)
  • $295.69 (extreme target)

Seventeen days after our downside price targets, the price of TSLA increased as high as $917.42 on a closing basis.  The increase in price marginally affected the downside targets for TSLA.  So far, Tesla has achieved two of the three downside targets and looks to easily achieve the last target (extreme downside target).

Below are the updated downside targets for Tesla Inc. (TSLA).

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  • $517.21 (conservative target)
  • $411.51 (mid-range target)
  • $305.81 (extreme target)

Pendulums swing from one extreme to another.  We’ll watch to see if the extreme to the upside is matched on the downside.

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Posted in Speed Resistance Lines, SRL, TSLA

Transaction Alert

Posted on March 19, 2020 by | Leave a comment

The NLO team executed the following transaction: Continue reading →

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Posted in Transaction Alert, TSLA

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Transaction Alert

Posted on March 18, 2020 by | 2 comments

The NLO team executed the following transaction: Continue reading →

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Posted in Transaction Alert

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Gold Market Review: March 2020

Posted on March 17, 2020 by | Leave a comment

In our last Gold Stock Indicator, published October 28, 2018, we offered up $1,755.41 as the extreme upside resistance level for gold.  When the same level is drawn to the most recent price, we find that gold has struggled at the $1,755.41  resistance line.

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It is one thing to struggle but it is an entirely different situation to collapse below the last remaining upside resistance level.  Ordinarily, the price action above the descending $1,755.41 line would have assured us of a rise to the previous peak.  Now, with the latest collapse, the price of gold is slated to bounce at the descending $1,615.82 level.  That descending line is the equivalent of the $1,343.75 price.

Looking at the Philadelphia Gold and Silver Mining Stock Index (XAU) leads us believe that the $1,343.75 level in gold, although a very extreme level on the downside, could be a realistic target.

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Notice that the XAU index could not exceed the upside resistance target of 166.09 AND the prior peak set in August 2016.  That is a significant hurdle that should have been breached on the upside.  Instead, the failure puts emphasis on the downside target.

The XAU index stands to re-test the 133.80 level which is the equivalent of 52.00. It should be noted that the XAU is the leading indicator for the direction that the price of gold should go.  If you didn’t notice the rise in gold stocks from the late-2015 low then you shouldn’t notice it now.

The latest upside action of double digit percentage increases is a warning of more downside risk rather than a resurgence to the 2010 peak at 228.76 (our April 2011 call that the XAU would decline -66% [it lost -83%] found here).

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Posted in gold bugs, XAU

NYT Recession/Depression Index

Posted on March 15, 2020 by | Leave a comment

Below is the monthly New York Times Recession/Depression Index from January 2000 to mid-March 2020.

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We think the corner has turned on the New York Times Recession/Depression Index.  This means that we think that the U.S. economy is about to enter a recessionary period as designated by the National Bureau of Economic Research (NBER).

What about the Federal Reserve’s recent implementation of an emergency rate reduction to zero percent and QE?  What about the president’s actions in declaring a national emergency?  This may reverse the trend from the November 2017 low.

We’ll gladly take in any new information that can reverse or change the index numbers going forward.

Visit our December 30, 2018 explanation of this index (found here) which goes back to 1851.

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Posted in NYT Recession/Depression Index

AT&T Yield Profile

Posted on March 14, 2020 by | Leave a comment

AT&T stock has fallen -11% in 2020 yet it has outperformed the S&P 500 Index by 5%. Perhaps the largest driver for that could be the dividend yield.

As of the closing price on Friday March 13, 2020, the dividend yield for AT&T sits at 6.64%.

This leads us to do some comparative assessment of the AT&T dividend since 1984 until now. Not only will we look at the absolute yield but we will compare this to the risk-free guaranteed rate from the 10-year treasury. Continue reading →

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Posted in ATT, dividends, T

DJIA Yield Profile: March 12, 2020

Posted on March 12, 2020 by | Leave a comment

This bear market has taken everything in its path down. Unless you are shorting the market, there is nowhere to hide. Perhaps the most scary thing is that this downturn is probably far from over.

The rate of change for new cases for COVID-19 continue to rise and even accelerate. Until we see a deceleration in the total cases for the US, the market will continue to fall.

The first chart comes from worldometers.info which we believe has better data than WHO (data from WHO shows 0 new cases over the past weekend).

COVID19_ActiveCase_03.12.2020

Despite the bad news, we are persistent in keeping our focus on long-term investment opportunities. If and when this is behind us, there will be tremendous opportunity to purchase blue-chip companies that will provide you with higher than average income. Take the Dow Jones Industrial as example.

Based on the close of March 12, 2020, the dividend yield reached 3%. Contrast that with 10-year T-Bill which fell below 1%. The risk-premium on the Dow (based on yield) spike to 2%.

This is not an indication that a bottom is here or even near. However, from an investment perspective, investing $10,000 today in the Dow seems like a better bet than a bond that will mature in 2030.

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This too shall pass and we can't wait until then. Please take care of yourself and those around you.

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Posted in dividends, DJIA, Dow Industrials