Wednesday, March 25, 2015

Why One Tenet of Dow Theory is Dead:

To-day let us focus on the Dow Industrial Average because unlike the “hot” 1980’s - today’s Dow should have a name change – to the Dow Consumer Average because unlike the 1980’s when there were 18 industrial components – now there are only 6 industrial components. The number of consumer related components has jumped from 6 in 1982 to 12 in 2014

Last September 2013, Dow Jones Indices announced that Goldman Sachs, Visa and Nike will be added to the Dow Jones Industrial Average, to replace Hewlett-Packard, Bank of America and Alcoa. The recent addition of Apple Inc – a consumer related entity is just another example of the transition to a Dow Jones buy-stuff-made-somewhere-else average

The “new” Dow has rendered one Dow Tenet – according to Charles Dow  -The Averages Must Confirm Each Other totally useless. That is because Charles Dow referred to the industrials and the rails and to-day the Dow Jones Industrials are no longer “industrial”.

Our chart displays the Dow Industrials and the SPDR Consumer Discretionary sector – monthly bars spanning about seven years – marked a plot A and plot B – which is which? Probably not what Charles Dow had in mind with his “Averages Must Confirm” theory. By the way - the “NEW” consumer weighted Dow will react badly to higher interest rates.

Friday, March 20, 2015

Getting bullish on the energy stocks:

I have avoided the TSX Energy sector following the great mid 2008 price spike that effectively ended the 1998 – 2008 linear advance. The TSX energy sector is replicated in the TSX listed iShares S&P/TSX Capped Energy Index (XEG) and Imperial Oil (IMO) is the fifth component by weight out of a total of 57 holdings..

The longer term monthly bar chart of IMO ($47.34) displays the mid 2008 price spike – of about $63 and the subsequent corrections and rebounds that I have numbered from (1) through (5).- all completing a large symmetrical triangle. Note the January 2014 breakout and the subsequent bullish re-test at the lower rising trend line. If IMO can hold here we can do a measured move (more on that latter) up to about $80 – and what is good for IMO is likely good for the entire energy complex


Sunday, March 8, 2015

Stocks I love to hate:

I always ask myself three questions before the selection or rejection of a particular stock – the first being the technical picture which gives me the trend, the relative perform and the money flow direction. The second question is that of over-crowding or being over-hyped by the business media and the third question is - do I like the business model?

Unfortunately I can’t plot the last two questions and so I just create a personal list of names I love to hate – such as Crescent Point (CPG), AutoCanada (ACQ). Amaya Gaming (AYA), Avigilon (AVO) and Wi-Lan (WIN) – just to name a few.

Here are clips (out of context) from The Globe and Mail Published Sunday, Jun. 29 2014 about Avigilon, “The hype surrounding Avigilon went into reverse in May when the company’s chief financial officer, Bradley Bardua, resigned the day before first-quarter earnings were to be announced. The company cited personal health reasons. Mr. Bardua was the third executive to leave Avigilon within six months”, and “Skeptics of Avigilon’s staying power have long asserted that a powerful competitor could squeeze the company on price. And yet, Avigilon’s improving margins are solid evidence that price pressure has not yet materialized.”

The weekly bar chart displays a broken uptrend, declining money flow numbers (negative divergence) and a long series of negative key reversals – to bad I can’t plot the business model. For more street talk about Avigilon visit