The last time we updated this indicator in March 2020, the Coppock curve changed directions from an upward bias to a move down. Two months later, the curve now stands in negative territory. This mean that the next meaningful move on the upside of this indicator is a buy signal. Below is a chart of the Coppock at the end of June 2020. Continue reading
On this date in 1997, Richard Russell, in his Dow Theory Letters, said the following:
"The market, April through mid-June, experienced one of the most powerful rallies in recent history. As a rule, such power moves seldom end with a rise. Normally, when a power move finally ends, the market will back-and-fill, perhaps decline somewhat, but in reality it is usually building strength for the next upside assault.
"In other words, primary bull markets don’t normally end with a power move to the upside. They do tend to end with ebbing volume, non-confirmations, declining momentum, and general exhaustion of buying power."
-Richard Russell. Dow Theory Letters. July 2, 1997. page 1.
Posted in On This Day, Richard Russell
On April 11, 2014, in an attempt to project the direction of unemployment and the subsequent economic outcome, we said the following:
“Given our prior experience with Dow Theory and downside projections, any decline in the unemployment rate below 5.87%-5.90% would be exceptional with only the 4.40% and 3.80% levels as mere reflections of an overextended economic boom which should be followed by an equally impressive bust.”
On August 24, 2018, we said the following:
“If the unemployment rate drops further then we would have stretched the capacity of the economy to its 48-year limits on the downside. If the unemployment rate increases from the current level it would, as has been the case in the past, jump dramatically.”
Since August 2018, the unemployment rate declined to 3.50% in December 2019. The dramatic jump in the unemployment rate has followed immediately afterwards.
Up Next: Unemployment Forecast
Posted in recessions, Unemployment
On this day in 1998, Richard Russell, in his Dow Theory Letters, said the following:
"...Another very, important consideration is this: Many wealthy and sophisticated investors are ardent practitioners of compounding. In order to compound, you must receive a return on your investment. A 1.5% return or less from stocks, compounding becomes almost impossible. But with 5.5% coming in, compounding works. For this reason, large individual investors, who are well aware of the fortune-building power of compounding, will opt for bonds rather than stocks at this juncture."
"There, I’ve given you a cold, unemotional rundown on the price action for gold. Everything else, all the rumors, all the hopes, all the concepts they’re interesting but we don’t buy and sell concepts, we buy and sell PRICE."
-Richard Russell. Dow Theory Letters. July 1, 1998.
Posted in 1992, compound interest, On This Day, Richard Russell
Below is a chart of San Diego City building permit from 1894 to 1989 as found in Jon Strebler’s San Diego Housing Prices, 1887-1989: The Myth of Invincibility.
Strebler was often quoted in Richard Russell’s Dow Theory Letters and was kind enough to send us a copy of his Myth of Invincibility many years back.
The 44% rally off the March low appears to be fading. If the market (S&P 500) can’t break through the 3,230 high set in June over the next few weeks, we estimate that 2,800 will be the next leg down. Fears of COVID first wave is a legitimate one and many states are easing restriction while new cases accelerate. Below are 20 companies on our watch list this week. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
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This from Richard Russell’s Dow Theory Letters dated December 19, 1979:
“Note that all the zero years have started poorly and have been in a state of collapse by their 5th month (May). The single exception since 1900 was the year 1950 (Issue 772. page 2.).”
How have the “zero years” from 1980 to 2020 done?
In the period from 1900 to 2020, that average percentage change has been -5.65%. The average percentage change from 1980 to 2020 has been +0.62%.
Not much can be gleaned from this perspective other than the zero years having below average market returns [+8.64% inflation adjusted] 77% of the time.
Posted in 1900, 2020, DJIA, Richard Russell, zero years
"The problem with such diseases as influenza and HIV is that the viruses have an uncanny ability to change their makeup. Thus, the immune system is not prepared to combat the new or mutant strain. For instance, at intervals the flu virus attacks with a virulent new strain – 1900, 1918, 1957, 1968, 1977."
Russell, Richard. Dow Theory Letters. July 20, 1994. Issue 1152. Page 5.
see also:
Posted in COVID-19, Flu, Quote of the Day, Richard Russell
In an article titled “Retail REITs: Double-Digit Yields, Secular Shifts And Mean-Reversion” (link), it was recently proposed that:
“If you believe in a mean-reversion, REITs with sound balance sheets and strong value drivers should be considered in the portfolio.”
This quote on REITs seems accurate if you’re willing to overlook that publicly traded REITs have existed since the late 19th century. Since that time, there have been many fits and starts and resets making for a complicated outcome in the publicly trade REIT market.
In the same article, a graph was presented to demonstrate the general ebb and flow of the REIT market, or markets in general, that graph is illustrated below:
Following this graph is the mention of Macerich Co. (MAC) with the following remark:
“Let's take MAC as an example here. In my recent article "Macerich: 2 Scenarios Of Default - Positive For Value Investors", I calculated that MAC trades at a significant (at least 75%) discount to its NAV. It is hard to believe that such a discount will exist forever.”
The reality of this specific example [MAC], on a total return basis (adjusted for dividends and splits) is far from the ascending average with a range in price from undervalued to overvalued extremes.
Below is the history of Macerich (MAC) from 1994 to the present:
Macerich Co. (MAC) could be exceptionally undervalued and likely to survive the current market malaise. However, on an adjusted basis, MAC has recently been where is has been in 2008, 1999, and 1995.
So while the prospects are bright for Macerich Co., if we excluded the complicated history of publicly traded REITs and that on an adjusted basis MAC does not have an ascending average over time, there is a limit to what an investor should be willing to accept in exchange for the hard earned capital.
see also:
New one family homes sold for the month of May 2020 was reported today and it looks like the low has been reached. The year-over-year perspective belies the image conveyed in the absolute change which is far from the 2005 peak.
Absolute Change
There is little need to expect that the prior absolute increase needs to be achieved (1,389 on July 2005). However, it is no coincidence that we see some kind of reaction within a long-term rising trend at a similar level during the 1990 to 2005 increase. The two prior reactions broke the rising trend into three separate periods as noted by Edson Gould’s Three Steps Rule:
Three steps up in an advancing market and three steps down in a declining market usually exhaust the bullish potential accumulated at the bottoms and the bearish potential accumulated at tops- but sometimes there is a fourth step (Edson Gould Reports. Edson Gould’s 1975 Forecast. November, 1974. page 8. ).
When we speak of the “long-term” rising trend, we’re referencing our December 9, 2010 article titled “Real Estate: The Verdict Is In” and the subsequent updates since 2010 which is primarily based on the work of Roy Wenzlick.
Year over Year Change
The year-over-year (YoY) change shows that a reversal of the trend within a NBER recession has typically meant a reaction to a 27%-30% change at some point down the road. We’re currently at 12.66% in the YoY change in New One Family Homes Sold so there should be some room to the upside before the current recession ends and the next recession begins.
As always, prepare for the worst as the current pandemic will not start the second wave until after the one year anniversary of the first wave.
See Also:
Posted in Edson Gould, real estate, three step rule, Wenzlick
Below is the annual silver/Dow Jones Industrial Average ratio from 1900 to 2020.
See Also:
Posted in Silver Dow Ratio
Below is the year-to-date (YTD) performance of various major indexes and from December 31, 2019 to June 19, 2020.
The following is the breakdown of the Dogs of the Dow (found here) in week 25, compared to other fundamental ratios. Continue reading
