The Coppock Curve is one of the technical indicators that we focus on for long-term buy signals for the stock market. The Coppock Curve is only useful as a BUY indicator when the chart goes from positive territory to the negative territory and then starts to turn decidedly upwards. As previously indicated, the Coppock Curve does not provide SELL signals in any way.
The following is one of our personal favorite watch lists. We started tracking the insurance industry in January 2011 and we’re very impressed with the results so far.
Anyone who wishes to be successful in insurance stocks should read the book The Davis Dynasty by John Rothchild. The book starts with Shelby Collum Davis investing approximately $50,000 to $100,000 that ultimately grew to $900 million after 47 years. The strategies employed by Davis seem highly accessible to average investors.
On March 2, 2013, we pointed out the fact that, based on our Gold Stock indicator, there was a pattern of initial panic declines that were followed by secondary panic declines (found here). We said the following:
Below is a list of the Financial Times Stock Exchange 100 (FTSE 100) companies that are within 10% of the one year low based on what we believe to be reliable sources.
Below are the 18 companies on our U.S. Dividend Watch List that are within 11% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.
Posted in NLO Dividend Watch List
This is a list of Canadian dividend stocks that currently, or in the past, had a history of consecutive dividend increases. For those wishing to find the most complete fundamental information on these companies, we recommend visiting one of Canada’s leading financial websites, the Financial Post (found here). However, Yahoo!Finance probably has the better long-term charts and historical dividend data.
Below are the Nasdaq 100 companies that are within 10% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.
According to a March 18, 2013 Wall Street Journal article titled “'Wash Trades' Scrutinized; Issue Is Whether High-Speed Firms Illegally Buy, Sell Futures in Same Deals,” “U.S. regulators are investigating whether high-frequency traders are routinely distorting stock and futures markets by illegally acting as buyer and seller in the same transactions, according to people familiar with the probes.” (found here)
We’re not sure what really prompted this action, however, the New Low Observer has been tracking these issue for a very long time (since 2008). In an August 2009 article titled "After Hour Conundrum" (found here), we said the following:
"My suspicion is that institution(s) are accumulating short/long positions as the price of the stock rises during the regular hours. Once the market closes, the same institution sell/buy the shares to/from themselves or a related party. Additionally, options for the stock could have been purchased, sold or written in anticipation of the expected change in price after-hours."
An activity that has been going on since 2008 and was easily identifiable begs the question, Why now? We’ve become inured to the claims that regulators are going to take action on issues that are deemed illegal, especially when said illegal activity is so widespread.
We have extensive records of wash trades from 2008 to the present. The playground for such illegal activity is in the pre-market and after hour markets. Our February 2013 article titled “Investors Pay Big for Loss Protection” (found here) said the following:
“At some point, there will be a mass of pre/post market participants that will cause a stampede for the narrowest exits on a much broader scale that will put into the question whether what remains of the current system actually works.”
In the past, we’ve asked that regulators address this fraudulent activity before it is too late. However, when regulators actually start to get involved it usually too late. Let’s see how this plays out.
Note: A partial depository of after hour shenanigans is highlighted in the link below:
Posted in After Hours, pre-market, scheme
Since the bull market run began in 2009, Apple (AAPL) analysts have been making persuasive arguments for the stock. The fundamental case for Apple includes price-to-earnings, price-to-sales, cash reserves, China as an untapped market, etc. However, as investors have found out, it is the price that matters most as Apple’s stock has taken a hit from the high of $702 on September 19, 2012 to the current price of $443 (March 18, 2013). While fundamentals are important, there is one obvious problem and that is the trading volume.
In the section on Dow Theory, in the Edwards and Magee book Technical Analysis of Stock Trends, volume is interpreted in the following manner:
“…in a Bull Market, volume increases when prices rise and dwindles as prices decline; in Bear Markets, turnover [volume] increases when prices drop and [volume] dries up as they [prices] recover (33).”
When we compare the previous bullish moves in Apple’s stock price, we find that the most recent run-up stands out as trading volume has not only failed to increase with the stock price, it has been on a divergent path by declining. However, we need to see how different this most recent rise in the stock price is in contrast with the previous bullish moves.
In the bull market run of Apple from December 30, 1997 to February 29, 2000, the stock price rose +900% while average trading volume increased +1,000%.
In the bull market run of Apple from April 1, 2003 to December 30, 2007, the stock price rose over +1,400% while average trading volume increased +1,000%.
In the bull market run of Apple from January 21, 2009 to the present, the stock price rose nearly +900% while average trading volume decreased -51%.
The obvious problem with the current rise in the price of Apple from the January 21, 2009 low to the September 19, 2012 high is that while the stock price has increased dramatically, the trading volume has fallen precipitously. Already, Apple has inexplicably declined –36% from the high. There is little in the way to indicated that the blood-letting is over.
According to Robert Rhea, in his book The Dow Theory, “…the volume of trading has proved to be such a useful guide in attaining proficiency in the art of forecasting market trends that it is necessary to urge all students to study intently the relation of volume to price movement (88).”
It would be foolish for us to think that the decline in volume, from 2009 to the present, while the stock price increased wasn’t a warning sign. It is suggestive of the fact that all was not well and therefore the party had to end at some point in time. This is despite the otherwise glowing fundamentals that are associated with Apple.
Now, if the almighty Apple can decline –36% in spite of the glowing fundamentals as the Dow Industrials and Dow Transports keep going higher, then what is the fate of two main components of Dow Theory? By all indications, we should be considered to be in a bear market based on the fact that the price of the Industrials and Transports is increasing as the trading volume dries up.
From our vantage point, there are two distinct outcomes possible for the stock market, based on the above quoted sources. Either the stock market explodes higher than anyone has ever imagined possible or the stock market declines, –20% to –30% from the current level, as average trading volume skyrockets. However, our experience so far has been for volume to decrease as the price increased. Therefore, by our logic, when and if volume starts to increase it will be because institutions will be selling instead of buying the market.
While we have constructed two possibilities, the probabilities are something else altogether. We think that the fact that volume has been in a clear declining trend, the probabilities favor a decline of the stock market over a sustained increase. To put this idea into perspective, when we wrote our April 14, 2012 article titled “Consider the Downside Prospects for Apple,” we said that Apple would decline to $424 (found here). After the article was written, Apple increased by +11%. However, after Apple peaked, the stock declined –30% from the price where our article was written. Our only question is, was it worth seeing a rise of +11% only to realize a loss of –30%?
Notes:
Comments Off on Apple’s Pain May Be a Warning for the Dow Indices
Posted in AAPL, Dow Industrials, Dow Theory, Dow Theory Non confirmation, Dow Transports
Below are the 16 companies on our U.S. Dividend Watch List that are within 11% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.
The Gold Stock Indicator was relatively unchanged the week from March 11, 2013 to March 15, 2013.
The world of Dow Theory was abuzz after the Dow Jones Industrial Average and the Dow Jones Transportation Average charged to all-time highs on March 5, 2013 (found here). At the time, the Dow Jones Industrial Average had finally capitulated to the inexorable forces that had long since propelled the Dow Jones Transportation Average above the 2011 all-time high. The confirmation of a Dow Theory bull market came when the Dow Jones Industrial Average finally exceeded the all-time high of 14,164 set in October 2007.
The action of the Dow Industrials and Transports has been so compelling that Dow Theorist Richard Russell acquiesced to the strength of the market on March 11, 2013 by saying the following:
“Yes, I know that this market is uncorrected during its long rise from the 2009 low, and I know that there are risks in buying an uncorrected advance that is becoming uncomfortably long in the tooth, but my suggestion is that my subscribers should take a chance (after all, Columbus took a chance) and take a position in the DIAs.”
In the same posting, Russell later punctuates the point by saying:
“I really believe that subscribers should take a flyer on this market. After all, after weeks of flirting with a new high in the Industrial Average, the Dow finally confirmed the previous record high of the Transportation Average. With the Industrials and the Transports both in record high territory, I think being in the market is justified under Dow Theory.”
By all indications, this Dow Theory bull market indication is the real deal, especially when it is endorsed by Russell’s 55 years of experience on the topic. The implications of this signal are significant for one very important reason, this time we’ve achieved a secular bull market indication (learn about cyclical and secular trends).
Throughout stock market history, cyclical primary bull markets tend to last 2-4 years. These bull markets require rapt attention to the nuances and vagaries of changes in the trend. The last indication of a cyclical primary bull market was on July 23, 2009, when the Dow Industrials traded at 9,069.29. Based on our interpretation of Dow Theory, we received a cyclical primary bear market indication on August 2, 2011 when the Dow Jones Industrial Average was at 11,866.62.
Secular bull markets, on the other hand, require very little attention and have typically lasted between 15 and 18 years. Secular bull markets are the proverbial sweet spot of investing with the trend, where “buy-and-hold” is the rule. The two most prominent secular bull markets resulted in the Dow Jones Industrial Average increasing by 10-fold or more. From 1942 to 1966, the Dow rose from 100 to 1000 and in the period from 1982 to 2000, the Dow went from 1,000 to 11,722. If the current implications are correct, we could be on the cusp of a run to Dow 100,000.
Volume: The Lone Holdout
The three major components of Dow Theory are the Industrials, Transports and trading volume. As described above, the Industrials and Transports have achieved the required all-time highs at (or near) the same time which would indicated that we are in a new cyclical AND secular bull market. However, volume has been the holdout in the current move higher.
In the seminal book on Dow Theory titled The Stock Market Barometer, written by William Peter Hamilton, it says the following about trading volume, “It is worth while to note here that the volume of trading is always larger in a bull market than in a bear market. It expands as prices go up and contracts as they decline.”
The average trading volume for the Industrials and Transports has been in a declining trend (contracting) since the 2009 low, as seen in the charts below.
In order for Dow Theory to have relevance, increasing volume needs to accompany the rise of the stock market to ensure that there is sufficient participation and interest. Unfortunately, average trading volume, as indicated in the above charts for the respective indexes, has been trending lower since 2009. This suggests that we could only be in an extended cyclical bull market, within a secular bear market, rather than at the beginning of a cyclical and secular bull market. The key to understanding trading volume and its interpretation are found in the table below.
| volume | price | interpretation |
| decrease | decrease | positive |
| decrease | increase | negative |
| increase | decrease | negative |
| increase | increase | positive |
In the days before volume was tabulated for the individual Dow indexes, the New York Stock Exchange trading volume was the proxy for the market trend in conjunction with the Industrials and Transports. Below is the 200-day average trading volume of the NYSE since 2001.
What is evident is the dramatic rise and peak of average trading volume during the decline of the stock market from the peak in 2007 to the bottom in 2009. However, once the market started taking off, the trading volume uncharacteristically plunged. To emphasis the point, below we have included the charts for the cyclical bull markets from 2001-2007 and 2009 to the present.
In the chart from 2001, we can see that NYSE average trading volume hit a peak in 2002 and then flat-lined for a couple of years until 2005. However, as the strength in the stock market grew, the trading volume accelerated to new highs. This was the hallmark of a true bull market run, rising prices and rising volume.
In the chart from 2008, the average trading volume for the NYSE has had a declining trend throughout the whole bull market run from 2009 to the present. As indicated in the table above, declining volume with increasing prices should be interpreted as a negative. After volume has been in a declining trend for so long, the only alternative is for a dramatic increase.
When the increase in volume arrives, the question then becomes, will there be a dramatic increase or decrease in stock market price? Will the general public’s lack of participation be the catalyst that charges the market to move higher? This situation has to be resolved at some point.
To round out our thoughts on the potential secular bull market signal that we recently received, we thought we would compare it to the last secular bull market change in trend. In the period from 1966 to 1982, the Dow Industrials never traded significantly above 1,000. However, that all ended in late 1982 when the stock market broke above 1,000 and never looked back.
Below is a chart of the Industrials, Transports and NYSE trading volume from March 1982 to November 1982:
The most important information to be gleaned from this chart is the fact that all three of the essential indicators for Dow Theory were confirming each other at a critical point in time. They all achieved clear bull market indications by rising in unison. The current divergence between the Dow indexes with the NYSE trading volume suggests that we will be witness to the greatest transition in the history of the stock market.
The above examination of trading volume, based on a what we believe to be reliable sources, has us concerned that a new secular bull market is not really what we’re witness to.
As William Peter Hamilton has said in The Stock Market Barometer:
“The professional speculator is no more superfluous than the pressure gauge of the steam-heating plant in your cellar. Wall Street is the great financial power house of the country, and it is indispensably necessary to know when the steam pressure is becoming more than the boilers can stand.”
The pressure in the market is building and we may be watching the beginning of the most spectacular stock market blow-off ever. Just before an even more astonishing decline.
Since our last posting on the topic, the Gold Stock Indicator has moved up +6.65% (found here).
On February 14, 2013, Berkshire Hathaway and investment firm 3G announced a deal to buy H.J. Heinz (HNZ) for $28 billion, or $72.50 per share. Naturally, Warren Buffett, not being one to get the short end of any stick, is investing only $4.4 billion in Heinz common stock and another $8 billion in preferred shares yielding approximately 9%. The rest of the purchase is being financed through investment group 3G and bank borrowing.
According to the Wall Street Journal, Warren Buffett “…has previously expressed disdain for private-equity buyouts that employed excessive leverage.” However, as the details of the acquisition have unfolded, it becomes apparent that the leveraged nature of the transaction is on par with the deals that Buffett has spoken out against. So what is the motivation of Warren Buffett to engage in such a transaction? In this case, the allure of an inflation hedge that performs much better than gold in high inflation environments and that is proven to succeed after the high inflation period ends.
In the past, we have been outspoken on the matter of investing in food processing companies instead of gold and gold stocks if you want to beat inflation. On December 17, 2008, we pushed the idea that Sysco Corporation (SYY) is an inflation hedge that will beat gold and gold stocks. Our closing remark were, “…if you're of the mind that inflation is coming down the road, with all this liquidity being injected into the economy, then SYY might be a good "long-term" hedge against inflation (found here).”
In a December 1, 2010 article we re-iterated that value of inflation protection provided by food processors by comparing ConAgra (CAG), to Newmont Mining (NEM) during the gold bull market from 1974 to 1980. This was a time when ConAgra exceeded Newmont Mining by 10 times. Again, this was within the gold bull market from 1970 to 1980 (found here).
One article published as recently as September 20, 2012 was titled “Gold Stock Investors: To Beat Inflation Look to Food Processors, Producers and Distributors (found here).” In that article, we said, “As an alternative to the ‘mines’ of precious metal stock investing, we’ve recommended investing in food processors, producers and distributors that have a history prudent of dividend increasing policies to take advantage of the expectations of high inflation down the road.”
We cannot emphasis enough the fact that there are vastly superior alternatives to gold and gold stocks if you want to beat inflation. Additionally, investment in companies like Heinz will be richly rewarded even as the period of inflation comes to an end. This will not be the case for gold and gold stocks, as found out by gold permabulls in the period from 1980 to 1999. This explains why Warren Buffett would be involve in the Heinz transaction, it is the appropriate alternative to buying gold or gold stocks if runaway inflation is expected down the road.
Source:
Below are the Nasdaq 100 companies that are within 11% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.
Posted in Nasdaq 100 Watch List