Category Archives: entropy

Bitcoin December 2017: Downside Targets

Posted on December 22, 2017 by | Leave a comment

“A mob’s a monster; heads enough, but no brains.” –Benjamin Franklin

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Posted in Bitcoin, crash, entropy, parabolic

Craft Brew Alliance: Ebb and Flow

Posted on December 16, 2017 by | Leave a comment

On September 1, 2016, Craft Brew Alliance was trading at $19.41, we said the following:

“…we have the following downside targets:

  • conservative: $12.57
  • mid-range: $10.02
  • extreme: $7.47

Although there is no assurance that the stock needs to decline to the referenced downside targets, any parabolic move must be watch closely as entropy will kick in at some point.  In this case, we believe that the ascending conservative target is a lock.”

Since September 1, 2016, BREW declined as much as –38% to the $12 level on April 18, 2017, on an intraday basis.  On April 7, 2017, we said the following:

“We don’t necessarily believe it but here we are, with BREW at a price of $13.15 and well within the range of the conservative downside target set at $12.57”"…”

Since April 7, 2017, BREW has increased by as much as +46%.  Anyone contemplating a purchase of BREW, barring a takeover by another company, should consider the exceptional increase in 8 months as a warning to protects your profits.

Below we have charted the price action for BREW and suggest that if the 2016 peak is not exceeded then the April 2017 lows will be retested and possibly violated by as much as –24% or falling to as low as $9.31.

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Posted in BREW, entropy, parabolic

China Lodging Group Downside Targets

Posted on October 2, 2017 by | Leave a comment

China Lodging Group (HTHT) is primed for downside action.  The only issue is, will the stock really achieve the conservative downside target of $59.24 or –52.72%?

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We can say with a high level of confidence that the $92.27 level is a certainty.  While it is normal for a stock price to retrench –50% or more after a parabolic rise, there are potentially outside sources to mute the downside reaction.  In spite of any effort to hold the stock up market realities will set in and bring the stock price close to the conservative downside target.

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Posted in China Lodging Group, entropy, HTHT, parabolic

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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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.”

Continue reading →

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Posted in Bitcoin, entropy, parabolic, SRL

Adobe Systems: Downside Targets

Posted on September 13, 2017 by | Leave a comment

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.

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Posted in downside, Edson Gould, entropy, parabolic, SRL

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Swiss National Bank: Downside Targets

Posted on September 12, 2017 by | Leave a comment

In a posting on ZeroHedge there is mention of Swiss National Bank (SNBN) and the “bubble” that seems to be percolating in the stock.  We don’t know whether or not the price of the stock is in a bubble.  However, what does resonate with us is any sign of a parabolic rise in price.  In the case of SNBN, we believe that we can attribute Speed Resistance Lines (SRL) that are consistent with viable downside targets.

First, whenever applying SRLs, we like to find out if there has been any precedence on the matter. In the case of SNBN, we have obtained data from Yahoo!Quotes (ChartIQ), which goes back to 1995.  It is just our luck that there is a prior period when SNBN has a similar rise and subsequent decline.

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Considering that there is a reasonable amount of precedent in the stock price movement of SNBN in the period from 1995 to 1997, we have taken the liberty in projecting what the current level of price increase could result in, if history is any guide. 

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Posted in Edson Gould, entropy, parabolic, SNBN, speed resistance line, SRL

Bitcoin Review

Posted on May 10, 2017 by | Leave a comment

On January 12, 2017, after Bitcoin achieved our prior downside target of $772.12, we said the following:

“Those who wish to speculate on Bitcoin should assess the risks and consider buy[ing] at [the] current level.”

Anyone who bought based on our work should have known that on January 1, 2017, we had the following upside targets:

  • $1,158.18 (conservative)
  • $1,737.26 (mid range)
  • $2,316.35 (extreme)

What is important about our upside targets, issued on January 1, 2017, is that we emphasized a downside assessment was necessary after a parabolic run-up.  We expected that the price would need to experience a large decline before any material rise could ensue.  Shortly afterwards, on January 12, 2017, our downside targets were met.

On May 10, 2017, Bitcoin has achieved a new high of $1,750.  If this level can be sustained, we think that the extreme upside target of $2,316.35 is possible.  However, we have to acknowledge the downside targets that come with a parabolic increase.

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Serious speculators (as opposed to investors) in Bitcoin should consider the inevitable decline that is to come as a reaction to the parabolic rise.  Yes, there is a good chance that our target of $2,316.35 will be achieved.  However, if, as a speculator, you have enjoyed some or all of the run-up since our January 12, 2017 recommendation, then you probably want to be able to enjoy it.  We recommend selling now and watch for the ascending downside targets.

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Posted in Bitcoin, entropy, parabolic, risk

Craft Brew Alliance Meets Our Target

Posted on April 7, 2017 by | Leave a comment

On September 1, 2016, we said the following of Craft Brew Alliance (BREW):

“Although there is no assurance that the stock needs to decline to the referenced downside targets, any parabolic move must be watch closely as entropy will kick in at some point.  In this case, we believe that the ascending conservative target [$12.57] is a lock.  With established history as an indication, the mid-range target [$10.02] looks to be a safe “bet” as well.  We’ll check back in on this as more time has passed.”

We don’t necessarily believe it but here we are, with BREW at a price of $13.15 and well within the range of the conservative downside target set at $12.57 as established in our piece dated September 1, 2016.

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The September 1, 2016 article lays the groundwork for what a person interested in BREW should look for and expect.

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Posted in BREW, entropy, parabolic, SRL

Market Speaking Volumes

Posted on April 7, 2017 by | Leave a comment

Volume Review

In a Dow Theory Q&A piece dated April 8, 2013, we said the following of stock market trading volume:

“The lack of trading volume in the stock market since 2009 reflects little or no participation on the part of the public.  If this is true, then any meaningful rise in trading volume (on the buying side) due to added participation from the public could result in tremendous gains.  This thought sits in the back of our mind as we strategize the best way to take advantage while not being over exposed.”

The story on trading volume is somewhat murky, sometimes it matters and sometimes it doesn’t.  Learning to discern the two can be frustrating.  However, it is hoped that our work on the topic will help provide proper perspective.

Taking a step back, our prior work in trading volume should be reviewed critically.  Below are key articles that touch on the topic with the March 13, 2013 piece being, in our view, the most important real-time article on the subject:

Taking the Plunge

What is the best way to describe how trading volume has changed in the last eight years?  We would equate trading volume to the preparatory stages of what would be considered a successful competitive dive into a swimming pool.  There are three stages to a successful dive: 1) touchdown 2) maximum depression 3) takeoff.

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In the stock market, the “touchdown” in trading volume occurred in late September 2009 as the Dow Jones Industrial Average was in the recovery stage of largest stock market decline since the 1973 fall of –45%.  The “maximum depression” stage of trading volume lasted from the period of late September 2009 to mid-September 2014.  In terms of “liftoff” in trading volume, nothing has rivaled the amount of change that has occurred from mid-September 2014 to the present.

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On One Hand…

From all appearances, the stage is set for takeoff from a volume standpoint.  And yet, the stock market, as represented by the Dow Jones Industrial Average, since the 2009 low is already ranked seventh on the list of recoveries from prior crashes since 1835.  Can the market achieve the vaunted heights of 10 times the prior low as was the case in 1942 to 1966 or 1982 to 1997?  Considering that the period of the interest rate cycle corresponds to the 1942 period, we think there is a distinct possibility that “takeoff” is a possibility.

…On the Other Hand

As this has been the most hated bull market in history, which has seen it rise from 6,547 to as high as 21,115, or +223%, there are some elements that are cause for concern.  First, fulfilling the above three stages to takeoff are ultimately for successful dives.  Is the stock market setting up for a dramatic and steep dive?  Why would the stock market rise increase for 8 years on declining volume and suddenly spike on volume 3 times the 90-day average (No, it is not because of the Fed) in the last 4 months?

(Not So) Final Analysis

What would eliminate our questions about the nature of the current “liftoff” stage of volume? Well, we would have preferred a continuation of the stealth increase in volume that began in August 2014.  A stealth volume increases is far better because it would have continued the level of suspicion of the market increase.  Instead, parabolic increases fall into the category of pending and inexorable declines of large magnitude, after years of market gains.

How does an investor cope with the mixed signals of the market?  We believe that a concentration of assets is in order.  Pare down the non-staple holdings, focus on income and accept downside risk (we’re thinking semis, insurance and dollar stores).

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Posted in entropy, parabolic, volume

Downside Targets for Craft Brew Alliance

Posted on September 1, 2016 by | Leave a comment

The latest run for Craft Brew Alliance (BREW) from the low set in November 2015 to the most recent peak on August 2016 requires that we check for the downside targets.

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 A parabolic peak is one thing.  However, having them play out in a consistent fashion is something else.  In the case of BREW, we’ve had two prior parabolic peaks since 2008 that were true to form and function.  In the period from the 2008 low to the 2010 peak, BREW declined to below the mid-range Speed Resistance Line [SRL].  In the period from the 2008 low to the 2013 peak, BREW declined below the extreme downside target.  In the chart above, we have the following downside targets:

  • conservative: $12.57
  • mid-range: $10.02
  • extreme: $7.47

Although there is no assurance that the stock needs to decline to the referenced downside targets, any parabolic move must be watch closely as entropy will kick in at some point.  In this case, we believe that the ascending conservative target is a lock.  With established history as an indication, the mid-range target looks to be a safe “bet” as well.  We’ll check back in on this as more time has passed.

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Posted in BREW, Edson Gould, entropy, parabolic, SRL

WD-40 Co.: Downside Targets

Posted on June 21, 2016 by | Leave a comment

Below are the downside targets for WD-40 Co. (WDFC) based on the work of Edson Gould’s Speed Resistance Lines (SRL).

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The assumption by many momentum investors is that WDFC will continue to rise further.  However, prior experience suggests that a parabolic rises usually end in a breakdown in the price.  Regardless of any further rise in the price of the stock, the conservative downside target is the minimum downside target to watch for.  At this time, the conservative downside target is $72.49.  We’d become interested in reviewing the fundamentals when WDFC falls at or below the $72.49 level.

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

Shanghai Composite Index: Where To Now?

Posted on August 25, 2015 by | Leave a comment

On August 23, 2015, we said the following:

“The next move in the price to the downside should confirm the downside move or indicate the ongoing battle between buyers and sellers.  The point indicated as the critical support will reveal the overall short-term direction of the index.  Although the move up or down is academic, it is the size of the move that will be most fascinating as we believe it will be massive.”

So far, the Shanghai Composite Index (SSE) has confirmed that the direction of the index is down, now it is only a matter of magnitude.  Already the Shanghai Composite Index has reached the mid-range downside target of 2,867.34.

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A large bounce at this level is hoped for as a continuation of the declining trend could spark a genuine panic.  If an upside bounce were to occur at this level, the SSE would face resistance at the ascending conservative downside target of 4,012.56.   It would be a +48% rise to the 4,400 ascending conservative downside target from the close of August 25, 2015. 

The flip side of a reversal to the upside is a decline to the extreme downside target of 1,722.12.  Our breakdown of the potential reversal points are as follows:

  • 2,450
  • 2,100
  • 1,722

The actions of the Chinese government have not been constructive for a change in the declining trend of the market.  The sooner restrictions intended to stop prices from falling are lifted the better the chance for Chinese stocks to fully recover.  The more involved the government becomes in the stock market the more we believe that 1,722 on the SSE is likely to occur.

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Posted in Edson Gould, entropy, Shanghai Composite Index, speed resistance line, SRL

Shanghai Composite Index: Downside Targets

Posted on August 23, 2015 by | Leave a comment

The index to watch in the coming week is the Shanghai Composite Index (SSE) as it represents the raw emotions of the stock market in China.  Below we have applied Edson Gould’s Speed Resistance Lines [SRL] to the SSE to determine the potential downside targets to watch for.

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The SRL is ideally suited for a stock or index that has experienced a parabolic move to the upside.  When viewed from a historical perspective, the Shanghai Index meets the criteria of entering the entropy stage. 

Already the Shanghai Composite Index has declined below the conservative downside target of 4,012.56.  The July 23, 2015 upside failure coincided with the ascending conservative target.  This is the first true test of weakness in the upside move.  The next move in the price to the downside should confirm the downside move or indicate the ongoing battle between buyers and sellers.  The point indicated as the critical support will reveal the overall short-term direction of the index.  Although the move up or down is academic, it is the size of the move that will be most fascinating as we believe it will be massive.

Because the Shanghai Composite Index has a history of parabolic rises and subsequent crashes, our guess is that  declining to the 1,722.12 level should be expected.  In addition, if the SSE were to replicate the previous rise and fall in the period from 2005 to 2008, the index could drop as low as 1,447.37.

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Posted in Edson Gould, entropy, Shanghai Composite Index, speed resistance line, SRL