Monthly Archives: September 2017

Crypto Bubble? What Makes You Say That?

Posted on September 30, 2017 by | Leave a comment

In a graphic provided by the cost information website HowMuch.net, there is a eye opening review of crypto currencies compared to well known companies like Facebook,PayPal, and others. 

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On one side are companies providing services that seems to be increasing in demand. PayPal is an online payment system, Expedia is an online travel agency, Zillow is an online real estate resource, Brighthouse Financial is an insurance company, Groupon is an e-commerce marketing company.  On the other side, there are five different crypto currencies.

There is no way that so many cryptocurrencies can exist, simply to do the same thing.  There will have to be winners and losers.  This reminds us about the market share of cell/smart phones and the change that occurred over time.  In our November 7, 2010 article titled “Market Price and Market Share” we highlighted how much the cell phone market change from the the peak of the dot-com bubble to 2010.  In that time, the top cell phone makers (now called “smart” phones) changed in unexpected ways.

Top Mobile Phone Vendors 1999
Vendor market share
Nokia 32.00%
Qualcomm 14.80%
Ericsson 12.70%
Motorola 11.20%
Audiovox 7.40%
Samsung 6.70%
Sony 6.60%
source: RCR. July 5, 1999. Dataquest Inc. page 1. 
Top Mobile Phone Vendors 2010
Vendor 3Q market share
Nokia 32.40%
Samsung 21.00%
LG Electronics 8.30%
Apple 4.10%
R.I.M. 3.60%
Others 30.50%
Total 99.90%
Source: IDC Worldwide Quarterly Mobile Phone Tracker, October 28, 2010
Top Mobile Phone Vendors 2016
Vendor 3Q market share
Samsung 20.00%
Apple 12.50%
Huawei 9.30%
OPPO 7.00%
Vivo 5.80%
Others 45.40%
Total 100.00%
Source: IDC Worldwide Quarterly Mobile Phone Tracker, October 26, 2016

What we always like to point out is that Nokia was the biggest by market share in 1999 and 2010 and yet it wasn’t the most innovative.  Also, in 1999, Apple was nowhere to be found on the list of top five mobile phone vendors and yet it is among the top two today.  Samsung has managed to stay among the top 6 in spite of not having the cache of Apple or (dare we say it) Rimm.

Which brings us back to the cryptocurrencies.  Whoever is on top today is likely to not be a contender down the road.  In fact, we believe that a yet-to-be-determined entrant will likely supplant Bitcoin as the “it” cryptocurrency.  How are we going to find out the latest and greatest cryptocurrency?  It will take a deflation and inflation cycle to get us there. 

For now, keep in mind that there were hundreds of manufacturers of planes, trains, automobiles and mobiles phones before there were the big three.  Deflation of the boom in cryptocurrencies will go a long way towards separating the wheat from the chaff.

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Posted in Bitcoin, bubble, ethereum, market share

Wanted: Real Gold Experts

Posted on September 29, 2017 by | Leave a comment

Experts on the topic of gold are a dime a dozen.  However, few, if any, are actually experts at all.  With the ability to be quoted day in and day out, there is little or no accountability when it comes to accuracy of claims.  Of course the “expert” will not provide the gaping (and ongoing) lapses in their analysis and the published website touting them won’t bother to define what makes them an expert.  All that seems to matter when qualifying as an expert on gold or gold stocks is that they are loud, speak often, never fail in their love of gold, make exaggerated claims, and go to the many headlining confabs arranged by the industry.

So what is a “real gold expert?”  A real gold expert is someone who appreciates the good and bad of gold whiled able and willing to make the call, buy OR sell (no hold recommendations allowed).  A gold expert that we have been working hard to get more information on is Alden Rice Wells.  We know that Wells was bullish on gold stocks in the 1960’s in his Monetary Reports newsletter (PO Box 401, Exeter, NH, 03822) and was a contributor in the Inflation $urvival Letter (410 First Street S.E., Washington D.C., 2003) in the mid-1970’s.

What stands out about Alden Rice Wells?  After being a big proponent of gold and gold stocks through the 1960’s and early 1970’s, Wells warned that gold and gold stocks were going to crash in May 1974.  The following excerpt is from Richard Russell’s Dow Theory Letters dated May 31, 1974:

"Several subscribers have asked us to comment on the recent recommendations of Alden Rice Wells, one of the original gold bugs, that silver and gold holdings be liquidated in anticipation of a crash, or depression (Richard Russell. Dow Theory Letters. May 31, 1974. Letter 599. page 6.).”

This is the performance of the Barron’s Gold Mining Index leading up to and after Wells’ recommendation to sell gold.

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In the same period of time that Wells made the call for a crash in precious metals, gold declined –33% and silver declined –25%.  This is what we would consider an expert opinion on the topic of precious metals.  

What do investors need in a precious metal expert? A bullish perspective when it is time to be bullish and a bearish perspective when it is time to be bearish. Where are the experts today?

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Posted in Alden Rice Wells, Barron's Gold Mining Index, BGMI, gold bugs

Lam Research: Downside Targets

Posted on September 27, 2017 by | Leave a comment

Review

The following is the pattern of price appreciation and decline for Lam Research (LRCX) from 1990 to 2017 with the application of Speed Resistance Lines [SRL].

1990 to 1998

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In the period from 1990 to 1995, Lam Research (LRCX) increased more than +3,470%.  From the peak of 1995, LRCX declined by –87.70% by 1998.  Based on the peak at $23.92, all of the Speed Resistance Lines [SRL] achieved their downside targets.

In addition, we’ve included the scenario for if the peak in the price were to have been the $13.13 level.  We included this because much of the analysis is based on parabolic moves to the upside.  Because we couldn’t possibly know where the peak in the price would be in real-time, we attempt to take the view, “what would happen if we were wrong about the peak?” Amazingly, even if we had chosen the $13.13 peak and used the downside targets based on the SRLs, we would have seen all of them achieved and would have been otherwise pleased if only the conservative target was met.

1998 to 2003

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In the above chart, from 1998 to 2000, LRCX increased +1,789%.  in the following decline, LRCX fell as much as –87.90%. 

There weren’t many “fake peaks” to initiate “what if” scenarios.  However, let’s assume that along the way up we had run the SRL and tried to project downside targets.  Any price above $14.00 would have generated a conservative downside target that the price action later achieved.  Also note that the period when LRCX rose from $2.94 to $12.79 and then fell to $9.04 would have generated a conservative downside target of $9.72.  This would have easily achieved the downside target.

2002 to 2008

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In the period from 2002 to 2007, LRCX increased +777.67% and later declined as much as –74.56%.

Not much can be said other than all downside target being achieved of the course of a six year period.  Again, in an attempt to prove our calculations wrong, we ran the $35.40 peak to see if the $19.80 number would have been an expected downside target. In the short term, the conservative downside target and mid range targets would have been accomplished.  In the long term, from the $35.40 level to the $15.00 in 2008, the low in 2008 would have met the SRL parameters for downside targets being achieved.

2008 to 2017

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Posted in entropy, Lam Research, LRCX, Nasdaq 100, parabolic, speed resistance line, SRL

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U.S Dividend Watch List: September 22, 2017

Posted on September 25, 2017 by | Leave a comment

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 September 23, 2016 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
WFC Wells Fargo & 45.74 54.25 18.6%
TROW T. Rowe Price Group 65.92 86.69 31.5%
GCI Gannett Co Inc 11.75 8.05 -31.5%
NPBC National Penn Bancshares 10.72 10.72 0.0%
CVS CVS Caremark Corp 90.60 79.63 -12.1%
      Average 1.3%
         
DJI Dow Jones Industrial 18,261.45 22,349.59 22.4%
SPX S&P 500 2,164.69 2,502.22 15.6%

The top five companies on our underperformed the market due to loss from Gannett Co (GCI) and CVS Caremark (CVS). We didn't elaborated on these companies but did highlighted two that out performend the market. Wells Fargo (WFC) and T.Rowe Price (TROW) were both mentioned by our team. Lucky for us, they have gained 18.6% and 31.5% respectively. At the time, we thought that the issue Wells Fargo faced regarding fraudulent account was a one-time problem. Continue reading →

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

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S&P 600 Additions and Deletions 2003 to 2016

Posted on September 24, 2017 by | Leave a comment

Below are the S&P 600 Additions and Deletions from 2003 to 2016.

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S&P 400 Additions and Deletions 2003 to 2016

Posted on September 24, 2017 by | Leave a comment

Below are the S&P 400 Additions and Deletions from 2003 to 2016.

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S&P 100 Additions and Deletions 2004 to 2016

Posted on September 24, 2017 by | Leave a comment

Below are the S&P 100 Additions and Deletions from 2004 to 2016. Continue reading →

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Posted in S&P 100

S&P 500 Additions and Deletions 2003 to 2016

Posted on September 24, 2017 by | Leave a comment

Below are the S&P 500 Additions and Deletions from 2003 to 2016.

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Posted in S&P 500

Bed Bath & Beyond: History Repeats, So Far

Posted on September 20, 2017 by | Leave a comment

On April 29, 2014, we posted a chart of Bed Bath & Beyond (BBBY) comparing the price performance of the stock from 2000-2008 and 2008-2014, as seen below:

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At the time, we suggested that on a technical basis, BBBY might decline in the post-2008 period as much as the 2000-2008 period, on a percentage basis. Along with the technical perspective on BBBY, we provided downside buy targets based on Dow Theory.  The Dow Theory perspective was woefully inadequate compared to the strictly technical downside target provided in the chart above.  Below is the updated side-by-side comparison of the 2000-2008 period to the 2008-2017.

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From what we can tell, history is repeating.  Then as now, the peak in the price and the relative lows are occurring near each other, in timing.  Sharpen your pencils and get your Value Line Investment Survey out, time to verify the numbers and invest accordingly.

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Synopsys Downside Targets

Posted on September 18, 2017 by | Leave a comment

Since the beginning of the bull market in 2009, Synopsys Inc. (SNPS) is a stock that has perform in line with the Nasdaq Composite Index until early 2016.  Since February 2016, SNPS has accelerated well outside of the historical trend for the stock.  While there are many fundamental reasons for excessive gains in the last two years, the gains are still excessive and therefore should, at minimum, revert to the mean. 

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The challenge with reversion to the mean is that the stock price will likely overshoot on the downside.  With this in mind we have provided the Speed Resistance Lines indicating the conservative, mid range, and extreme price targets below.

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Posted in downside, Edson Gould, SNPS, speed resistance line, SRL

Canadian Dividend Watch List: September 2017

Posted on September 17, 2017 by | Leave a comment

Performance Review

Below are the actual returns from our Canadian Dividend Watch List dated September 2016.

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The companies are ranked based on their expected performance from worst (on the left) to best (on the right), click on the chart to see how the analysts expected the stocks to perform last year. 

The standout performers from the analyst estimates were Dream Office REIT (D-UN.TO), Cogeco Inc. (CGO.TO), and Boardwalk REIT (BEI.UN.TO).  These stock met or exceeded the analyst estimates.  The stocks that underperformed analyst expectation were Imperial Oil (IMO.TO), Cominar REIT (CUF-UN.TO), and Riocan REIT (REI-UN.TO).

As compared to the Toronto Stock Exchange 1-year return of +4.67%, the watch list from last year gained +6.53%. Below is our watch list and analyst projections.

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Dow Theory on Gold

Posted on September 17, 2017 by | Leave a comment

Dow Theory attempts to define and identify major moves in markets referenced here as the “primary trend.”  In this piece, we will outline the price of gold according to Dow Theory.

We’re going to review and analyze the primary trend that extends from the September 2011 peak to the currently established low in the price of gold in December 2015.  We believe that this information is critical to understanding where we are and where we might be going.  This interpretation is based on the work of Charles H. Dow, co-founder of the Wall Street Journal and namesake to the longest continuous stock market indexes. 

Keep in mind that all of the analysis that follows is done in generalities so that an individual who is curious about Dow Theory can refer to the technical manual on the topic titled The Dow Theory by Robert Rhea.  However, the true heart of Dow’s theory is found in his original writing which covered the topic of earnings, dividends, effect of dilution of shares and economic outlook AND NOT lines on a chart.  Two books that cover Charles H. Dow’s work as a fundamental analyst and an adept economist are titled Dow Theory: Unplugged and Charles H. Dow: Economist, respectively.

Lines on a Chart

Dow Theory has been synthesized down to a level of lines on a chart, which isn’t all bad.  The lines still reflect fundamental economics.  The challenge is the accurate interpretation of what is implied by the meaning of those lines.

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Posted in Dow Theory, gold, Robert Rhea

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Equifax: Downside Targets

Posted on September 17, 2017 by | Leave a comment

Equifax is on a tear, to the downside.  Let’s see what happened to the stock in the last decline from an all-time high and see if there is any precedence for what we can expect going forward.

2002-2009

In the period from 2002 to 2009, the price of Equifax (EFX) increased +158% to a high of $41.22.  the decline that followed brought the stock to $17.80.

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Equifax fell to the conservative downside target ($34.18) and the mid range downside target ($23.96).  At the time, Equifax had an extreme downside target of ($13.74) but somehow didn’t manage to decline to that level, in spite of the fact that the housing crisis was co-opted by credit bureaus changing their standards which materially affected FICO scores.

“…the higher the credit score, the larger the increase in serious delinquency rates between 2005, 2006 and 2007. For example, for borrowers with the lowest credit scores (FICO scores between 500 and 600), the serious delinquency rate in 2007 was twice as large as in 2005—an increase of nearly 100 percent over the two years. For borrowers with the highest credit scores (FICO scores above 700), the serious delinquency rate in 2007 was almost four times as large as in 2005—an increase of nearly 300 percent. In addition, the serious delinquency rate in 2007 for the best-FICO group was almost the same as the rate in 2005 for the worst-FICO group.(Demyanyk, Yuliya. ‘Did Credit Scores Predict the Subprime Crisis?’ . Federal Reserve Bank of St. Louis. October 2008. link.).”

Bending of rules towards what was considered a prime rated credit score contributed significantly to lenders justifying the approval of home loans which later failed.  With all this in mind, Equifax and their competitors should have fallen much more than they did.  In fact, under normal conditions, at least one of the leading credit bureaus should have gone out of business.

Now, Equifax has declined based on a recent hack of their data systems.  The resultant decline in the stock price seems natural.  However, given the resilience  of the stock price after the housing crisis, we have to default to the view that the company won’t go out of business but will be severely impacted in the short-term.

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Posted in Edson Gould, EFX, speed resistance line, SRL

Activision Blizzard: Downside Targets

Posted on September 15, 2017 by | Leave a comment

Review

The following is the pattern of price appreciation and decline for Activision Blizzard (ATVI) from 1993 to 2017 with the application of Speed Resistance Lines [SRL].

1993 to 1996

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In the period from 1993 to 1996, we can see that Activision Blizzard (ATVI) increase from $0.27 to as high as $1.50 or a gain of +455%.  The decline that followed saw ATVI fall –58%, achieving the conservative downside target of $0.80 and the mid range downside target of $0.65.  Although the chart doesn’t show it, ATVI did not rises above the 1995 level and subsequently fell as low as $0.43 by 2000 and ultimately achieving the extreme downside target of $0.50 in the process.

1999 to 2003

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In the period from 1999 to 2003, ATVI rose from $0.43 to as high as $3.96, a gain of +821%.  The resulting decline saw ATVI drop –63%.  In the chart above we do note a possible scenario that the SRL is run on the stock at the $3.12 peak, assuming you don’t know where the ultimate peak would be.  In such an instance, a conservative downside target of $1.83 and a mid range target of $1.44 were calculated. 

In the big scheme of things, the conservative downside target was achieved and the mid range target was one penny short of the mark in 2002. The point of this exercise is to see, what would have been the outcome if there was an error in the timing of the calculation of the downside targets.  As we shall see, these situations are all too real with outcomes that are generally surprising. However, in the immediate decline after the $3.12 price peak, the conservative downside target of $1.83 was $0.02 cents short of the $1.85 low set in September 2001.

2002 to 2009

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In the period from 2002 to 2009, ATVI increased in price by +1,084%.  The decline that followed brought the stock down as much as –56% before a recovery ensued.  Again, we have marked off the points where an error of early use of the SRL could have been applied.  In each of the three examples, the conservative downside target was achieved.  Suffice to say, in the case of the SRL and price peaks, the conservative downside target is a reasonable point of reference for consideration of ATVI.

2012 to 2017

The price action of ATVI has seen the stock price increase from a 2012 low of $10.08 to the 2017 high of $66.16.  The gain in the stock price has been +556%.  Our SRL has the following downside targets:

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Posted in atvi, Edson Gould, entropy, speed resistance line, SRL

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Bitcoin: How Much Pain Before Fear Sets In?

Posted on September 14, 2017 by | Leave a comment

Bitcoin is going through the customary pullback in the price.  The new threshold to watch for is –35.77% on the downside.  This was the amount of loss that speculators and investors were willing to accept from the June 11, 2017 high of $3,018.55 to the July 16, 2017 low of $1,938.94 before a new bull run to the upside ensued.  Most traditionalist say that a bear market starts at or near a decline of –20% or more.  At which point, it takes some time before the “investment” gets back to the previous high (example: Nasdaq Composite took 15 years to get back to the 2000 high). 

In this case, we’re not talking about a stodgy technology stock index, we’re talking about a potentially new currency mechanism which will likely supplant many existing currencies.  Bitcoin is only one among many competing to be the final choice of a new money.  However, in order to get that prize, Bitcoin will need to survive the high risk phase of speculative boom and bust.

Right now, we’re watching Bitcoin investors test their tolerance for pain as the price swoons from the high of $4,950.72, as report by Coindesk.com, to the current level of $3,390.  As we said in our August 21, 2017 posting:

“…participants will accept even larger declines if the expectation is that it will exceed the prior peak.  So far, Bitcoin participants accepted a –14.94% decline followed by a –35.76%.  In each instance, these declines were followed by new highs in the price of Bitcoin. By our rationale, Bitcoin will now fall as much as –35% and possibly more as participants become inured to the pain of loss in anticipation of new highs.”

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Posted in Bitcoin, entropy, parabolic, SRL