Since our last posting, Gold (GLD) and gold stocks (XAU Index) continue to trade in a range as seen below.
- Japan
- Market Indicator
- Price Momentum Indicators
- Richard Russell
- Silver
- Speed Resistance Lines
- U.S. Dividend Watch List
Apple meets NLO Upside Target
On August 19, 2014, Apple (AAPL) stock price rose as high as $100.66. When Apple was trading at $61.61 on March 9, 2013, we said the following with the accompanying chart:
“Apple Inc. (AAPL) is at the top of our watch list as it is within 5% of the one year low. In our April 14, 2012 test of the quality of Edson Gould’s Speed Resistance lines, Apple fell from $636 [adjusted price of $90.85] to our projected level of $424.15 [adjusted price of $60.59] (found here). Now that the stock has achieved our downside target, we expected that a reaction to the upside is likely.”
On July 17, 2013, when Apple was trading at $61.47, we re-affirmed our view of the upside potential for Apple with the following commentary:
“Currently, Apple is demonstrating a basing pattern that if successful, could result in a breakout to the upside. At the current levels, we wouldn’t be opposed to buying some shares of Apple with the expectation that the stock could decline an additional –25% to –35%.”
The work of Edson Gould has proven to be astounding when considered in its context. On April 14, 2012, we posted an article titled “Considering the Downside Prospects for Apple”. At that time, we were revising the previous estimates of downside risk done on February 5, 2012 (third party source available here).
What was mentioned on February 5, 2012 is critical to understanding how Edson Gould’s downside projections work. At the time, we said:
“The very first thing that we look for, to determine speed resistance lines, is the most recent peak in the price. Because AAPL is continually making new highs, we only need to use the latest price of $455.68 [post split price of $65.09] as our starting point….As the price of Apple increases, so too does the SRL lines based on the work of Edson Gould.”
This means that as long as the price of the stock increases to a new high the speed resistance lines are expected to increase as well. Only when the stock starts on a declining trend can we expect that the stock price might go to the conservative and extreme downside targets.
On April 14, 2012, when Apple was trading at $90.89 (pre-split price of $636.23), we said the following:
“…we believe that, based on the current speed resistance lines, no one would expect Apple to decline to our conservative downside target of $424 (post split price of $60.57)...”
The strength of Gould’s downside risk estimates is that we didn’t even have the peak price of $100.71 set on September 18, 2012 but we were still able to see the conservative downside target of $60.57 achieved. Had we used the peak price, we would have achieved the $67.14 conservative downside target much earlier than the $60.57 level.
Posted in AAPL, Charles H. Dow, Dow Theory, Edson Gould, speed resistance line, SRL
Canadian Stock Review: August 16, 2013
Performance Review
Below is the 1-year performance of the Canadian dividend stocks from our August 16, 2013 list.
| symbol | name | 2013 | 2014 | % change |
| CUF-UN.TO | Cominar REIT | 19.3 | 19.51 | 1.09% |
| BEI-UN.TO | Boardwalk REIT | 55.6 | 68.2 | 22.66% |
| CAR-UN.TO | Canadian Apt Properties REIT | 20.4 | 23.84 | 16.86% |
| EMA.TO | Emera Inc. | 31.3 | 34.61 | 10.58% |
| AX-UN.TO | Artis REIT | 13.8 | 15.88 | 15.07% |
| D-UN.TO | Dundee REIT | 29.6 | 28.95 | -2.20% |
| CWT-UN.TO | Calloway REIT | 24.9 | 26.25 | 5.42% |
| REI-UN.TO | Riocan REIT | 23.8 | 26.75 | 12.39% |
| FTS.TO | Fortis Inc. | 31.2 | 33.55 | 7.53% |
| FCR.TO | First Capital Realty Inc. | 17.2 | 18.95 | 10.17% |
| FTT.TO | Finning International Inc. | 22 | 32.83 | 49.23% |
| REF-UN.TO | Canadian REIT | 40.9 | 48.47 | 18.51% |
| BDT.TO | BIRD CONSTR INC | 11.9 | 15.15 | 27.31% |
| LB.TO | Laurentian Bank of Canada | 45.1 | 50.86 | 12.77% |
| TLM.TO | Talisman Energy Inc. | 11.3 | 11.32 | 0.18% |
| CM.TO | CIBC | 78.8 | 101.32 | 28.58% |
| JE.TO | JUST ENERGY GROUP INC | 6.34 | 6.37 | 0.47% |
| TRP.TO | TransCanada Corp. | 46.5 | 55.59 | 19.55% |
| NA.TO | National Bank Canadian | 39.15 | 48.84 | 24.75% |
| RBA.TO | Ritchie Bros. Auctioneers | 19.6 | 26.1 | 33.16% |
The entire list gained +15.70% as compared to the Toronto Stock Exchange Composite Index gain of +20.16%. The stock with the biggest gains in the last year was Finning International (FTT.TO) with a gain of +49.23%. The stock with the largest decline was Dundee (D-UN.TO), now known as Dream Office Real Estate Investment Trust, with a decline of –2.20%. At the time, we didn’t think much of the REIT sector and said so with the following commentary:
“…we are worried that the REIT sector may spiral downward as was the case in the rising interest rate environment of the early 1970’s.”
We were completely wrong in our assessment of the REIT sector as rising interest rates either never materialized or did not have the anticipated negative impact. The gains that were achieved by the REIT sector were exceptional in our view. As an example, Boardwalk REIT gained +22.66% in the last year for a total return of +26.22%.
Two stocks of interest to us were Just Energy (JE.TO) and Ritchie Brothers Auctioneers (RBA.TO). We said the following of Just Energy:
“Because JE.TO is trending lower, we recommend reassessing the stock when and if it declines to the $6.15 level. The dividend for JE.TO should not be a consideration for this stock as there are continued risks to the dividend going forward.”
After our August 16, 2013 posting, Just Energy’s stock price declined to $6.16 on August 19, 2013. Soon afterwards, Just Energy increased as high as $9.03 by March 19, 2014, a gain of +46.59%. so far, we’ve had tremendous luck with JE.TO rising and falling as anticipated (February 15, 2013 & July 31, 2013). We can’t be certain of the prospects going forward for Just Energy, however, those interested in the stock cannot rely on the dividend and should invest accordingly.
Regarding Ritchie Brothers Auctioneers (RBA.TO), we said the following:
“Another stock of interest on our watch list is Ritchie Brothers (RBA.TO). Although we’d like to provide original analysis each time we write our postings, we find that sometimes such a pursuit is completely unnecessary. RBA.TO completely fits the billing on this matter. On August 17, 2012 (found here), we said that RBA.TO had the pattern of falling to $18/$19 and then recovering to higher ground.”
As we had observed, RBA.TO fell to $18.90 and has since risen as much of +33.16%. At this point, selling the principal position in RBA.TO would be acceptable for the purpose of raising cash or acquiring alternative investments.
Our August 2014 Canadian Dividend Watch List can be found here.
Posted in Canadian Dividend Watch List, D-UN.TO, FTT.TO, JE.TO, RBA
Canadian Dividend Watch List: August 15, 2014
Below is the list of Canadian stocks that are currently on our radar along with the projected price appreciation:
Dow Theory: August 14, 2014
In our last Dow Theory posting on May 18, 2014, we revealed an issue with Dow Theory that had gone unaddressed since S.A. Nelson’s book The ABC of Stock Speculation coined the term “Dow’s Theory.” We believe the acknowledgment of this issue adds clarity to the writings of Charles H. Dow and may produce new insights that have not previously been explored.
Posted in Dow Theory, Dow Theory Bull Market indication, Dow Theory Confirmation, Russell 2000
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U.S. Dividend Watch List: August 8, 2014
There’s an old saying, "Markets climb a wall of worry".
This week's market performance proved just that. Despite an order for air strikes on Iraq, the market managed a gain of +0.3%. For the market to continue higher, we believe that the Dow Jones Industrial Average would need to rise above 17,138 in conjunction with the Dow Jones Transport exceeding 8,468.
We're at an interesting juncture in the market. The recent highs were achieved with relatively weak market breadth. When the market reached its high one year ago (summer of 2013), we saw less than 10 companies that appeared on our dividend watch list. Currently, our list has more than ten times as many companies.
There are 104 companies on our watch list this week. We highly recommend everyone to take a more bearish view of the market at the current time while keeping a keen eye on the companies below.
Berkshire Hathaway Meets NLO Target
On May 6, 2012, we proposed that Berkshire Hathaway (BRK-A) was trading at a price that was well below its true value. At the time, BRK-A was trading at $164,990 per share. However, we proposed that Berkshire Hathaway should have been selling at much higher prices with upside targets of $175k, $197k and $219k in a 2-3 year timeframe. As BRK-A sits within 1% of our mid-range target of $197,190 after two years, we believe it is time to reassess where Berkshire Hathaway sits within the context of Edson Gould’s Altimeter.
Posted in Altimeter, BRK-A, Edson Gould, Warren Buffett
Chip Sector Cycle Says Sell
On December 6, 2012, we said the following of our Nasdaq 100 Watch List:
“We’ve highlighted the chip sector stocks to put emphasis on the fact that, as an industry group, the sector may be at or near a low.”
After a year and a half, the chip sector stocks have achieved all that we had anticipated when we wrote about them in late December 2012. As seen in the chart below, all of the stocks except Altera (ALTR) achieved gains that beat the Nasdaq Composite growth of +46.22% in the same period.
The chip sector does run on a cycle and it is our belief that while this may not be the top it is time to sell the principal in those stocks that have had a decent run. The profit portion should be allowed to compound until new relative lows are achieved.
We’ve been fortunate to successfully identify two chip sector cycles lows on March 20, 2010 and December 6, 2012. As we have in the past, we will notify subscribers of investment opportunities at the next cycle low. Investors may want to consider rotating into sectors that we’ve identified as worth accumulating using the proceeds from the sell of chip sector stocks.
Gold Stock Indicator: August 8, 2014
Gold and precious metal stocks continue their long road to nowhere with a minor increase of +1.32% in the SPDR Gold Share (GLD) during the last week.
Priceline.com Overpays for Ctrip.com
It was recently announced that Priceline.com (PCLN) would take a stake in Ctrip.com (CTRP) (found here). However, we believe that PCLN is vastly overpaying for Ctrip.com as we recommended consideration of CTRP when the stock was trading at $23.10. At the time, we suggested that Ctrip.com would decline to $14.16 level in our December 16, 2011 Nasdaq 100 Watch List with the following commentary (found here):
“Ctrip.com International (CTRP) is on a pace to replicate the performance from the high in April 2008 to the low of January 2009 which equaled a loss of 72%. A similar decline in CTRP from the high of $50.57 would bring the price down to $14.16.Suffice to say, the stock “only” needs to decline another $8.94 or 38% from the current price of 23.10.This seems very easy considering the high volatility of Chinese stocks.We believe that unless CTRP is summarily dismissed from the Nasdaq 100 index, there may yet be life in this company.”
Ctrip.com achieved our downside target and is now trading nearly 3x the 14.16 level. True to form, a company has stepped up to nibble at Ctrip.com just when, in our opinion, the stock is overpriced. Obviously this is a boon for investors of Ctrip, however, this isn’t such a good deal for Priceline.com investors. As can be seen in the chart below, Priceline has had ample opportunities in July 2013 and January-February 2014 to acquire two and three times the current amount (based on the relative price change of Priceline and Ctrip).
Dow’s Theory on when to consider a stock would have done Priceline.com shareholders a lot of good. Now the shareholders of PCLN can only be expected to continue to pay up.
Posted in CTRP, Dow Theory, PCLN
Insurance Watch List: August 6, 2014
“Many shall be restored that are now fallen and many shall fall that are in honor.”
Horace, Ars Poetica
Posted in Analyst Estimate, IAK, Insurance Watch List
Nu Skin Meets Our Downside Target
On January 16, 2014 at 8:40am EST, we said the following of Nu Skin Enterprises (NUS):
“If the stock closes below $79.28 then the price should vacillate at or below the rising conservative SRL in the medium-term. If the stock manages to close above the $79.28 level then the upside target is $118.92. Additionally, the extreme downside target of $46.83 is just on the horizon. In theory, this stock should achieve the extreme downside level before hardened speculators will jump in.”
On August 6, 2014, NUS declined as low as $43.50 and closed at $46.52. An updated Speed Resistance Line is included below:
NUS has met our January 2014 call for the extreme downside target of $46.83. It is at this point that NUS becomes interesting to hardened speculators. Based on Gould’s SRL, NUS has an upside targets of $82.73 and $118.92.
Posted in Edson Gould, NUS, speed resistance line, SRL
Review: Family Dollar
Today it was announced that Dollar General (DG) is considering a bid for Family Dollar (FDO). This recent indication only adds to the hype that has suddenly fallen upon FDO. On March 31, 2014, we wrote a Quick Take on Family Dollar that had the following conclusion:
“Investors interested in FDO could break their investment into at least two purchases, the first being 60% of the intended amount now and the second purchase of 40% at either of the two indicated support levels at $44.95 or $34.83.”
It appears that our indication to consider FDO at the $57.88 range was appropriate as the stock never reverted to any of the suggested downside targets and now trades at $77.47 or +33% higher. This is the second call in a row that FDO has delivered for us. FDO appeared on our watch list of February 17, 2013 which prompted our research and subsequent purchase on March 5, 2013. There is significant room for fine tuning which we will eventually examine going forward with these recommendations.
Posted in Dow Theory, FDO, review
Nasdaq 100 Watch List: August 1, 2014
Below is the performance of the six stocks from our August 9, 2013 Nasdaq 100 watch list (found here) compared to the Nasdaq 100 Index gain of +24.41% over the last year.
| Symbol | Name | 2013 | 2014 | % Change |
| BRCM | Broadcom | 26.06 | 38.19 | +47% |
| CHRW | Robinson Worldwide | 56.79 | 67.7 | +19% |
| EQIX | Equinix | 181.18 | 211.38 | +17% |
| NUAN | Nuance Comm. | 19.11 | 17.83 | -7% |
| SHLD | Sears | 41.35 | 37.27 | -10% |
| ISRG | Intuitive Surgical | 391.87 | 453.17 | +16% |
| average | +14% | |||
| ^NDX | Nasdaq 100 Index | +24.41% |
The watch list underperformed the Nasdaq 100 by –10.41%. However, the stock that we had a strong interest in, Broadcom (BRCM), garnered the following commentary:
“Broadcom (BRCM) tops our list this week and it is the stock that interests us the most, at the moment. Right off the bat, we see that the stock has a price to book (P/B) ratio of 1.93. Among the listed companies above, this is a compelling attribute. Value Line Investment Survey says that the fair value for BRCM is 12 times cash flow. Based on full year cash flow figures for 2012, BRCM is estimated to be fairly valued at $39.96 or +53% above to current price.
“Of concern with the data presented by Value Line is the fact that BRCM went from debt free in 2009 to nearly 15% of capital, as of the most recent reporting. In one sense, corporate borrowing at low rates is a good thing. However, we’re concerned that certain types of borrowing result in loss generating (is that possible) ventures that end up going nowhere.
“Broadcom has recently been slammed in the market based on reduced or declining guidance. This from Investopedia.com:
‘A lot of what has worried Broadcom analysts and investors appeared to come home to roost with the company’s latest earnings report. Weak guidance has investors fearing that the company is losing more and more share to Qualcomm (QCOM), with an overall stagnation in high-end devices leading to fears that ASPs and margins are in danger. (Stephen D. Simpson. “Fear Dominating the Broadcom Story”. Investopedia. July 29, 2013. accessed August 10, 2013. link).’
“Dow Theory has the following downside targets:
“When we ran Edson Gould’s Speed Resistance Lines, we were only able to come up with an extreme downside target of $15.78. It seems that the $24.43 target is highly achievable.”
On August 12, 2013 (one trading day later), our downside target of $24.43 was achieved on an intraday basis as BRCM declined as low as $23.25. After hitting our target low, BRCM trended higher to the tune of nearly +50% gains.
It should be noted that in the 2013 article cited above, investors and analysts were fearful due to anticipated lower profit margins. Please note that the NLO team does not operate by the maxim “be fearful when others are greedy and greedy when others are fearful” as made famous by Warren Buffett. Instead, we think in terms of the words of Dow Theorist William Peter Hamilton, the fourth editor of the Wall Street Journal, when he said the following:
“The best way of reading the market is to read from the standpoint of values. The market is not like a balloon plunging hither and thither in the wind. As a whole, it represents a serious, well-considered effort on the part of farsighted and well-informed men to adjust prices to such values as exist or which are expected to exist in the not too remote future. The thought with great operators is not whether a price can be advanced, but whether the value of property which they propose to buy will lead investors and speculators six months hence to take stock at figures from ten to twenty points above present prices.
“In reading the market, therefore, the main point is to discover what a stock can be expected to be worth three months hence and then to see whether manipulators or investors are advancing the price of that stock toward those figures. It is often possible to read movements in the market very clearly in this way. To know values is to comprehend the meaning of movements in the market.”
Source: Hamilton, William Peter. Stock Market Barometer. Page 38.
At the current price, Broadcom almost appears expensive when considered from where we thought investors should take an interest. However, on August 1, 2014, widely followed market commentator and analyst Charles Payne came out with an article titled “Is It a Good Time to Buy Broadcom?” According to Mr. Payne Broadcom is a compelling buy at the current price with an upside target of $47. We believe that our work has adhered to the recognition of values as outlined by Charles Dow and reiterated by William Peter Hamilton.
We consider ourselves value investors. This means buying stocks at intrinsically low valuations and never selling, regardless of market conditions. In theory, individuals who sell stocks in periods from several days to 10 years are considered traders. However, a different reality pervades our market experience. Lacking a vast pool of resources, we can only operate with an eye for values and downside risk. For those with a similar reality, we can only advise the best scenario that would ensure that the pool of investment resources is guarded against buyers remorse. With this in mind and the nearly +50% gains in BRCM, we recommend selling only the principal while letting the profits compound into perpetuity. This is our only remedy to dealing with our own personal fear of loss. We hope this will prove useful to others.
Nasdaq 100 Watch List: August 1, 2014
Below are the Nasdaq 100 stocks that we’re following along with estimated price projections for the remainder of the reported fiscal year:
Posted in Analyst Estimate, BRCM, CHRW, EQIX, ISRG, Nasdaq 100 Watch List, NUAN, SHLD
Gold Stock Indicator: July 31, 2014
Gold and gold stock continue to remain range-bound as indicated in the chart below.
Our Gold Stock Indicator appears to be registering an unprecedented pattern that has not occurred since the inception of the XAU Index.