Category Archives: downside

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.

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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.

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ABM: Downside Targets

Below we have posted the downside targets for ABM Industries Inc. (ABM).

Ethereum Seeks Footing at Lower Levels

On February 16, 2018, we said the following of Ethereum:

“Failure of the price of Ethereum to achieve the $1,040.05 by a substantial amount ($1,111 or more) would be an indication that the price will retest the $695.08 level.  A retest of the $695.08 level without falling below the level would be constructive for a new bull market. It would be a second failure to decline below the $692.99 level.  According to Dow Theory, this would one of the most constructive bullish indications going forward. Alternatively, if Ethereum fell below $692.99 then the expectation is that $617.09 is the minimum downside target.”

Unfortunately, Ethereum did not managed to exceed the $1,040.05 level.  In addition to achieving the $695.08 level, Ethereum has fallen below the conservative downside target of $617.09, as mentioned in our February 5, 2018 posting. 

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DJIA: Downside Targets

Based on the nature of the decline in the market on February 2, 2018, it is worth examining the downside targets for the Dow Jones Industrial Average (DJIA).  Below are the downside targets based on the work of Edson Gould’s Speed Resistance Lines.

Aflac Inc.: Downside Price and Timing Targets

On January 11, 2018, in an article titled “Behind the Duck: Former Aflac Employees Allege Fraud and Abuse in Nearly Every Aspect of Company” published by The Intercept, it is alleged that Aflac (AFL) “…has exploited workers, manipulated its accounting, and deceived shareholders and customers, according to nine former employees.”

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These allegations have had a material impact on the stock price of Aflac on January 12, 2018.  Currently, the stock is down –7% on the day.  Below are the downside price and timing targets of AFL based on the Speed Resistance Lines since the 2009 low.

Bitcoin Downside Target

“The four most expensive words in the English language are ‘this time is different.” –John Templeton

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Walgreens Altimeter

Below is the Altimeter for Walgreens Boots Alliance (WBA) with fair value (FV) overvalued and undervalued targets.

Synopsys Downside Targets

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.

Adobe Systems: Downside Targets

In determining downside targets for Adobe Systems Inc. (ADBE), we have applied Speed Resistance Lines [SRL] to the stock price over multiple periods of increase and subsequent decline. Starting in the 1986 to 1987 period, we see Adobe Systems Inc. increase from $0.21 to as high as $1.69.  In the decline that followed, the SRL indicated that the downside targets from the peak price of $1.69 were as follows:

  • $0.93
  • $0.75
  • $0.56

As seen in the chart below, ADBE declined as low as $0.46 from the $1.69 high.

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Much of the decline could have been attributed to a new company and speculative fervor for the stock taking it up +700%.  However, the inevitable decline was due and took investors down –72% before a recovery was seen in the stock price.  The stock achieved the conservative ($0.93), mid range ($0.75), and extreme ($0.56) downside targets.

In the period from 1987 to 1997, we see ADBE stock price increase from the $0.46 low to a high of $9.00, a whopping increase of +1,856%.  In the subsequent decline, ADBE fell “only” –58% from 1995 to 1996.  Adobe achieved only the conservative downside target ($3.97).

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In the period from 1998 to 2002, Adobe rose as much as +1,264%.  In the decline that followed, ADBE notched a –79% drop. In this instance, ADBE achieved all of the downside targets of $18.90 (conservative), $16.39 (mid range), and $13.88 (extreme).

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The next period that we track is from 2002 to 2008.  In that period, ADBE rose as much as +474%.  The decline that followed saw Adobe slide –66%.  Again, all downside targets achieved at $33.20 (conservative), $24.60 (mid range), and $16.00 (extreme).

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Worth noting is the fact that in all cases, Adobe Systems (ADBE) declined at least to the conservative downside target. Additionally, in 3 of the four cited examples, ADBE managed to fall to the extreme downside target as established by the Speed Resistance Lines.

Is the past a fair indication of what to expect in the future?  What do we believe the future to hold?

Our take on the future prospects for ADBE stock price are that we can reasonably expect the price to decline to the conservative downside target in accordance with past declines.  However, expecting that ADBE will achieve the extreme downside target is overly ambitious at present.   After all, ADBE is a mature, well-established company that dominates several categories in their respective product lines (by a wide margin as compared to the next closest competitor).

With this in mind, after an increase in price of +881%, from the 2009 low, we have outlined the Speed Resistance Lines from 2009 to 2017.

Review: O’Reilly Automotive

On July 5, 2017, O’Reilly Automotive (ORLY) suffered a substantial decline in share price when the company reported that same store sales decline –1.7% as contrasted with consensus expectation of +3.90%.  Below we outline the downside targets and a Coppock Curve analysis.

Bitcoin: What to watch

According to Coindesk.com, Bitcoin achieved a closing high of $3,018.55.  This was +30% above our January 1, 2017 estimated upside target of $2,316.35, when Bitcoin was priced at $997.69.  Now that Bitcoin has establish a new declining trend, we’ll provide our interpretation on the short-term moves in the price of Bitcoin and new upside/downside targets based on the $3,018.55 peak.

Just Energy Downside Targets

Below are the downside targets for Just Energy (JE.TO).

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Dow Jones Downside Targets

Below are the downside targets for the Dow Jones Industrial Average applying Dow’s Theory and the Dow Jones Transportation Average applying Edson Gould’s Speed Resistance Lines.

Shanghai Composite Index: Broken Breakers & Downside Targets

In our last posting of the Shanghai Composite Index on September 15, 2015, we applied Edson Gould’s Speed Resistance Line (SRL) in an attempt to see where the support levels are and downside risk.  At the time we posted the following chart.

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We had asserted that a decline below the ascending 2,867.34 level would likely mean that there would be a good chance of the index falling to 2,294.73 and 1,722.12.

A Short Circuit in the Regulation

Since our September 2015 posting, it appeared that with government intervention, the stock market was on the road to recovery.  The institution of rules like no short selling, banning of corporations selling stock and government investment funds being required to buy Chinese stocks and limit down or circuit breakers were thought, by the Chinese government, to be a cure to the market decline.  However, such interventions, while well intended, usually treat the symptoms and not the actual problem.

The first obvious failure of the intervention policy has been none other than the circuit breakers as the start of 2016 has not been easy for the Shanghai Composite Index.  Already, trading has been suspended in two of four trading days with circuit breakers being triggered at intraday declines of –7%.  With half of the trading days halted in the new year, Chinese regulators have decided to suspend the use of circuit breakers until a better plan has been formulated.

The way that the circuit breakers were supposed to work was that they would halt trading for 15 minutes after a –5% decline in the Shanghai Composite Index and suspend trading for the remainder of the day after a decline of –7%.  These circuit breakers are modeled after those in place in other markets around the world.  For example, in the U.S., stock exchanges are halted when the market falls –7% and –13% and trading is suspended if the market declines –20%.

The failure occurred when Chinese market authorities and regulators created a narrower band of declines in a market that is less liquid than an exchange like the S&P 500.  If circuit breakers were to be put in place, they should have been at percentages that are much wider than that of the U.S., like halts at –10% and –20% and suspended trading at –30%.

There is a distinction between what the Chinese authorities are doing with circuit breakers as compared to what the U.S. regulators have in place.  The Chinese hope to stop a stock market decline with their narrow band for circuit breakers.  It seems that U.S. regulators want an “orderly” decline with their rules.  Stopping a massive decline in stocks is not possible while an “orderly” decline is a goal that has can be achieved, as demonstrated from October 2007 to March 2009.

Intervention of any sort is not ideal.  However, the perception of having control cannot be avoided by regulators no matter the country.  Since intervention is the rule, the best that Chinese regulators can hope for is to set the expectation that they’re only trying to accomplish an “orderly” decline with circuit breakers rather than stop a decline from happening.  Also, Chinese regulators should acknowledge that their market is young and illiquid relative to other markets.  This means that volatility rules and circuit breakers should reflect this fact.  Make the circuit breakers much wider than the most liquid and oldest markets.

Downside Targets

Based on the recent market activity since the December 22, 2015 peak, the support level of 2,867.34 has been broken on the downside.  This suggests that the next stop will be 2,867.34 while 2,294.73 is waiting in the wings.

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A bounce between 2,867.34 and 2,292.73 should be expected before a continuation of the declining trend.  Any reversal to the upside should experience resistance at the ascending 2,867.34 level.  Historically, a decline to 1,437.70 is not out of the question.

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Clean Harbors Meets Downside Target

On January 28, 2015 we said the following:

“So far, CLH has adhered to the SRL that was initially outlined in 2012.  If we consider the period of 2007 to 2009, when the stock fell as low as $20.54 and extend that same decline to the current period, then CLH could decline as low as $41.40.  This assumption is predicated on the stock market not experiencing a precipitous decline from the current level.  A broad market decline would easily bring CLH to the ascending $23.43 level in the SRL.”

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The assessment was based on our February 2012 review of Clean Harbors when the stock was trading at $64.28.  Since Clean Harbors has reached our technical target, it is now time to assess the fundamentals through a source like Value Line Investment Survey and Morningstar.  Morningstar typically gives a bearish case on a stock so if Clean Harbors has full coverage it be helpful to carefully read the negative assessment to contrast the upside review.