Below is the updated Oil and Gas Stock Index (XOI) for August 2018 and the performance of the respective fundamental categories.
- Japan
- Market Indicator
- Price Momentum Indicators
- Richard Russell
- Silver
- Speed Resistance Lines
- U.S. Dividend Watch List
Dow Theory: August 2018
Review
On May 10, 2018, we said the following of the Dow Jones Industrial Average and Dow Jones Transportation Average:
“…we want to know whether these two indexes decline below the late March (Industrials) and early April (Transports) lows. A joint decline below these levels would be the strongest indications that a bear market is eminent.”
Since that time, neither index fell below the indicated low points.
U.S Dividend Watch List: August 17, 2018
Previous Year Performance Review
In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from August 18, 2017 and have checked the performance one year later. The top five companies on that list can be seen in the table below.
| Symbol | Name | 2015 Price | 2016 Price | % change |
| IBM | IBM | 139.70 | 146.06 | 4.6% |
| MSM | MSC Industrial Direct Co Inc | 67.28 | 87.12 | 29.5% |
| VNO | Vornado Realty Trust | 73.91 | 76.89 | 4.0% |
| GWW | W.W. Grainger | 161.39 | 357.73 | 121.7% |
| CSL | Carlisle Companies | 92.75 | 125.17 | 35.0% |
| Average | 38.9% | |||
| DJI | Dow Jones Industrial | 21,674.51 | 25,669.32 | 18.4% |
| SPX | S&P 500 | 2,425.55 | 2,850.13 | 17.5% |
The average gain from the top five companies were amazing with gain of 38.9%. One can thank W.W. Grainger (GWW) for such strong performance with price more than double (121.7%). We were upbeat about the company after the pull back last year and loaded up on shares. Below is what we said about W.W. Grainger.
We wrote a short commentary on W.W. Grainger (GWW) on April 21st. There, we specifically advised our readers to wait for a -15% decline before accumulating shares. Sure enough, shares have fallen -17% since and now would be the time for accumulation. An initial purchase should be coupled with additional purchases 10% below the current level if and when it occurs.
U.S. Dividend Watch List: August 17, 2018
The all-time high is just few ticks away. With that, it's hard to begin buying at this level and yet an all-time high would be mark a bullish pattern. If we wish to go long, our team would start with companies on the watch list below. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
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Commodity Index Review: August 2018
On February 26, 2018, we said the following:
“…BCOM needs to actually break out to the upside in order to indicate the direction going forward. In the chart above, we have indicated with a blue dashed line the 50% Principle for the established trading range to show that the most recent decline from 90.79 and subsequent rebound is a very positive indication. A break above the 90.79 level would be a declarative statement of the uptrend.”
A review of the Bloomberg Commodity Index (BCOM) since February 2018 indicates that our analysis was wrong on the very important point of exceeding the 90.79 level. Below we have plotted the course of BCOM to show what has transpired and what we’re looking for from the index.
Ethereum: August 2018
On February 5 , 2018, when Ethereum was trading at $699, we said the following of the cryptocurrency:
“In addition to the conservative downside target, we have indicated the level Ethereum would be at if it lost –93% (red line) as Bitcoin did in the period from June 2011 to November 2011 (yeah, it took only five months). Such a decline in Ethereum would bring the price to $96.95. We don’t expect this but must be realistic about the prospects regardless of our own personal expectations.
“Finally, we have included our own worst case scenario (green line) based on one half the difference between Gould’s extreme downside target at $461 and the –93% experienced by Bitcoin in 2011. This would bring the price of Ethereum to $279.31. Although this seems like a dire call for Ethereum, in reality it is not unusual to see an –80% decline in price from such extreme parabolic moves.”
As we write, Ethereum has declined to $266, just slightly below our worst case scenario target of $279.31. Below we have included our technical assessment of ETH at the current price.
Interest Rate Monitor: August 2018
Last year, we said the following of interest rates:
“When it comes to financial markets, the trend is your friend. In the case of interest rates, more specifically the 3-month Treasury, the trend is up.”
At the time, the daily 3-month Treasury rate was at 0.98%. Today, the 3-month Treasury sits at 2.05%, more than double the level from last year.
Lam Research: Fighting Gravity
On September 27, 2017, we said the following of Lam Research (LRCX):
“Our view is that all parabolic moves are met with entropy. This should bring a breakdown in the stock price to at least the conservative downside target of $90.43. This isn’t a wish, it is based on the historical pattern in the price as previously indicated.”
Since September 2017, LRCX has increased from $177.12 to as high as $228.65, a change of +29%. However, as of August 10, 2018, LRCX sits at $178.10, a change of +1% from the September 2017 posting. Our belief is that the downside targets for LRCX are still in play based on the Speed Resistance Lines [SRL] that we propose. Below is the updated SRL along with a Dow Theory consideration of upside targets.
Dentsply Sirona: Dodging Bullets
Review
On February 6, 2017, we took a position in Dentsply Sirona (XRAY). Dentsply Sirona is a leading manufacturer of dental products provided to dentists throughout the world. By February 8, 2018, we said the following of XRAY:
“At the time of the purchase of XRAY on February 6, 2017, we sold our shares of UNM Group (UNM) which had increased exceptionally from the February 5, 2016 purchase. XRAY did not meet our goal [gaining +1.14%] and while UNM has gained +5.19% in the same period of time.”
On February 8, 2018, we sold our holdings of XRAY and the stock has subsequently declined –31.30%, a staggering loss in such a short period of time.
Downside Targets
According to Charles H. Dow, co-founder of the Wall Street Journal, a stock should be viewed from the context of when it last performed the worst. Dow has the following to say (emphasis ours):
"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.)"
Without seeing the reported earnings, dividends, debt and shares outstanding, the price of the stock is the best quick take on the downside risk. In theory, the price reflects some or all of the news and fundamental data on a given stock. Looking at the price and applying the work of Edson Gould, we have estimates for the downside target.
Sears Holdings: Circling the Drain
Our last posting on January 28, 2018 closed with the following remark:
“So what do we expect from SHLD management in the short-term? We believe that the stock will experience another short squeeze with news that is supposed to reflect that the company has ‘turned the corner.’ The temporary boost will rout the short-sellers and buy some time for management. However, as we said in our February 10, 2017 posting, ‘…anyone who continues to hold their position in Sears will not be rewarded for the value that has been lost since Lampert came on board.’”
The goal of our posting in January was to continue to caution readers before they consider putting money into SHLD stock. Since January 2018, we’ve seen the following “short squeeze” action in SHLD.
After not having posting anything on his blog since October 2017, on February 11, 2018, Lampert responds to critics questioning his involvement in the Sears Canada bankruptcy. Lampert, in spite of having a combined 53% stake in Sears Canada said, “…I don’t have firsthand knowledge of their internal deliberations and the alternatives considered.” Apparently, this was good enough to see reversal of the long-established declining trend in SHLD stock price.
On March 14, 2018, SHLD was reported to have sales profit from the holiday quarter. However, much of the profit was due to the $470 million dollar gain from U.S. tax legislation. Without the tax gain, SHLD would have a reported loss for the same quarter.
In spite of losing $10.8 billion since 2010, on March 29, 2018, it is reported that Lampert gets a pay increase of +24%. However, it is pointed out that Lampert continues to do a bulk of his charity work for Sears at a meager annual salary of $1.
On May 9, 2018, it was reported that at the annual shareholder meeting, Eddie Lampert said to the amassed crowd, “…we are still ‘fighting like hell…’”
All of these talking points have managed to increase the price of SHLD from a low of $2.15 on February 9, 2018 to a high of $3.80 by May 16, 2018, a change of +76% in three months. This had to be a devastating blow to the short sellers that were right about the company prospects but wrong about the timing.
Based on our January 28, 2018 article, Sears has lost –23% in the share price. We aren’t confident about the prospects for SHLD at this time. However, a “short squeeze” is always a tactic for boosting confidence that won’t draw the same kind of criticism from regulators that a short selling campaign would.
U.S Dividend Watch List: August 3, 2018
Previous Year Performance Review
In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from August 4, 2017 and have checked the performance one year later. The top five companies on that list can be seen in the table below.
| Symbol | Name | 2015 Price | 2016 Price | % change |
| OMI | Owens & Minor | 28.39 | 18.28 | -35.6% |
| BMS | Bemis Co Inc | 42.43 | 51.53 | 21.4% |
| IBM | IBM | 145.16 | 147.70 | 1.7% |
| MSM | MSC Industrial Direct Co Inc | 70.95 | 83.30 | 17.4% |
| SON | Sonoco Products | 49.35 | 56.56 | 14.6% |
| Average | 3.9% | |||
| DJI | Dow Jones Industrial | 22,092.81 | 25,462.58 | 15.3% |
| SPX | S&P 500 | 2,476.83 | 2,840.35 | 14.7% |
Top five companies gained, on average, 3.9% which under performed the market that rose nearly 15%. The biggest drag came from Owens & Minor (OMI) which fell 35.6%. Our team were bullish on the company because of the valuation and learn a hard lesson. That lesson is, cheap company could get cheaper even if a model doesn't account for it.
On the opposite end, we thought that Bemis (BMS) was fairly valued and could experience 15% downside. However, shares closed this week nearing its all-time high driven by news of potential take over.
U.S. Dividend Watch List: August 3, 2018
The market is approaching an all-time high at the end of the week. If the trend continue, we'll see the bull market optimism renewed as the S&P break its record set back in January. Below are companies that are on watch list this week. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
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Lumber Liquidators Languishes
On August 1, 2017, Lumber Liquidators (LL) soared +31% on news that the company had recorded their first quarter of earnings since 2015.
The staggering increase in the stock price was of particular interest to us as we had previously laid out the case that Lumber Futures contracts and Lumber Liquidators had a lot in common.
Amazon Effect Wearing Thin
On April 18, 2017, W.W. Grainger (GWW) declined –11% when the company announced earnings that seemed to disappoint analysts.
In addition, many analysts were confident that the effect of Amazon would torpedo GWW even more than what had already been done up until April 2017.
Our take on W.W. Grainger was materially different than some of the big name analysts. However, we weren’t alone in saying the GWW was worth buying.
Posted in Amazon.com, AMZN, GWW
O’Reilly Automotive Rises Again
On July 5, 2017, O’Reilly Automotive (ORLY) crashed on news that same store sales declined –1.70%. At the time, much of the concern was that ORLY was going to become a victim of Amazon.com as online sale were being eroded by the online retail giant.
“what's happening right now in terms of sentiment within retail stocks is no one wants to discount the power of Amazon anymore."
"While (O'Reilly) blamed the mild winter and weak demand, we think this exacerbates concerns about encroachment from Amazon.com, which is dragging down other parts retailers too"
In this review, we take a look at our analysis of O’Reilly and the performance of the stock price one year later.
Posted in ORLY
Investment Observations: ABM Industries (ABM)
ABM Industries is a leading provider of facility services in the United States. They provide janitorial, parking, and engineering services for commercial, industrial, institutional, governmental, and retail client facilities. The company was established in 1909. This mid cap company ($2.0 Billion) first appeared on our watch list back in March this year. The stock was trading at $35 then and lost 12% since.
Posted in ABM, Coppock Curve, investment observation, investment strategy, technical review, Uncategorized
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Dogs of the Dow
Below is the performance of the individual Dow Jones Industrial Average constituents from December 29, 2017 to July 30, 2018 (GE is no longer a constituent).
As expected, General Electric (GE) was dropped from the Dow Jones Industrial Average and replaced by Walgreen’s Boots Alliance (WBA). However, for the sake of tracking the actual performance of the Dogs of the Dow, we will keep GE on the board until year end to get accurate performance data on the theory for selecting stocks.