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  • XOI Downside Targets

    In the period from 2002 to 2009, the NYSE Oil and Gas Stock Index (XOI) presents us with a possible template for what to expect in the current decline in the same index. Below is Gould's Speed Resistance Lines (SRL) for 2002 to 2009 of the XOI Index.

    (click to enlarge)

    The above chart shows the conservative downside target of 1,326.48 and the extreme downside target of 543.36. The mid-point of the downside targets is 934.92. In the case of the XOI index, it managed to achieved the conservative and mid range for the index. However, the extreme downside target was not achieved. The full extent of the decline is indicated in red at the 761.30 level.

    Our guess is that the XOI index will accomplish a similar pattern of "performance" on the downside in the current run as was the case in the 2002 to 2009 period. We've charted the progress of the XOI Index in the period from 2008 to the present with Gould's SRL.

    (click to enlarge)

    The conservative downside target of 1,454.79 has been constructed while the mid-point of 1,015.10 is also indicated. However, we did not include the extreme downside target of 575.41. We did indicate in red the 812.08 level which was the extent of the decline in the period from the 2008 high to the 2009 low.

    Suffice to say that we expect the XOI index could easily fall to 1,015.10 and subsequently to the 812.08. Those interested in the oil sector should start initiating positions at or below the ascending 1,015.10 level.

    Two funds that trade in line with the XOI index are PowerShares DB Oil ETF (NYSEARCA:DBO) and Direxion Daily Energy Bull 3x (NYSEARCA:ERX). One ETF that trades the opposite of the XOI index is the Direxion Daily Energy Bear 3x (NYSEARCA:ERY).

    Tags: DBO, ERX, ERY, XOI
    Jan 06 3:02 PM | Link | Comment!
  • Review: Dogs Of The Dow

    As the year 2014 has comes to an end, we can't help but review the strategy known as the "Dogs of the Dow" which suggests that investors buy the top ten highest yielding stocks from the Dow Jones Industrial Average at the beginning of the year. The table below highlights the performance of the 2014 "Dogs of the Dow."

    Dog of the Dow 2014

    TickerCompanyBeginning of 2014 PriceEnd of 2014 PriceDividend Yield (1/1/2014)Dividend Yield (12/31/2014)YTD % Chg
    TAT&T, Inc.35.1633.65.2%5.5%-4.5%
    VZVerizon Communications Inc.49.1446.84.3%4.6%-4.8%
    MRKMerck & Co. Inc.50.0556.83.5%3.1%13.5%
    INTCIntel Corporation25.9636.33.5%2.5%39.8%
    PFEPfizer Inc.30.6331.23.4%3.3%1.7%
    MCDMcDonald's Corp.97.0393.73.3%3.5%-3.4%
    CVXChevron Corporation124.91112.23.2%3.8%-10.2%
    GEGeneral Electric Company28.0325.33.1%3.5%-9.8%
    CSCOCisco Systems, Inc.22.4327.83.0%2.7%24.0%
    MSFTMicrosoft Corporation37.4146.53.0%2.5%24.2%
     Dog of the Dow Average  3.56%3.49%7.04%
     S&P 5001831.982058.9  12.39%
     Dow Jones Industrial Average16441.3517823.07  8.40%

    The overall performance of the group was subpar when compared to the S&P 500 but nearly matched the performance of the Dow Jones Industrial Average.

    Looking at the subgroup, within the top ten highest yielding stocks, you can clearly see that the big name technology companies outperformed the market, with Intel (NASDAQ:INTC) gaining as much as +40%. Not only was Intel the best performer in the group but it was also the best performer in the entire index.

    Cisco (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT) also had exceptional gains for the year, excluding dividend, of +24%. The worst performing was Chevron (NYSE:CVX) which was hit by the large declines in the price of oil.

    Looking broadly at the index, it was the energy sector and large industrial companies such as General Electric (NYSE:GE) that was hit the hardest. Large telecoms like AT&T (NYSE:T) and Verizon (NYSE:VZ) didn't do as well but their large dividends provided enough of a buffer that the total return was in positive territory.

    While we don't have a strong view of the strategy, whether it works or not, we are often curious about the actual performance of other strategies. As such, the table below highlight the 10 companies that are consider the Dogs of the Dow for 2015.

    TickerCompanyBeginning of 2015 PriceDividend Yield (1/1/2015)
    TAT&T, Inc.33.595.5%
    VZVerizon Communications Inc.46.784.6%
    CVXChevron Corporation112.183.8%
    GEGeneral Electric Company25.273.5%
    MCDMcDonald's Corp.93.703.5%
    PFEPfizer Inc.31.153.3%
    MRKMerck & Co. Inc.56.793.1%
    XOMExxon Mobil Corporation92.452.9%
    KOThe Coca-Cola Company42.222.9%
    CATCaterpillar Inc.91.532.8%
     Dog of the Dow Average 3.59%

    It shouldn't surprise anyone that many companies which appeared on the 2014 list are also in the 2015 list. Interestingly, this list consists of various sectors. The telecom sector generally has the largest payout of dividends which put AT&T (T) and Verizon (VZ) on the list by default.

    The energy sector has two companies, Chevron (CVX) and Exxon (NYSE:XOM). Sectors that rely heavily on consumer discretionary spending are McDonald's (NYSE:MCD) and Coca-Cola (NYSE:KO). If you believe in big pharma, look no further than Pfizer (NYSE:PFE) and Merck (NYSE:MRK). Last but not least are the large industrial names which are pegged to world growth, Caterpillar (NYSE:CAT) and General Electric (GE).

    It seems that investors can select a winner based on the sector that they believe to be the top "theme" for 2015 but a study of what has worked in 2014 may provide some edge to how one can maximize the use of this list.

    Technology companies obviously did extremely well in 2014 and if you look back the normal dividend yield for the sector, you would see that they're in the range of 2.0% - 2.5% yield. At the beginning of 2014, Intel was yielding 3.5%, Microsoft and Cisco both yield 3.0%.

    Clearly all companies were trading much higher than their historical average yield. As for the strategy highlighted in Dividend Don't Lie by Geraldine Weiss, we should really look at the relative yield rather than the absolute yield when assessing the valuation of a company.

    Tags: T, VZ, CVX, GE, MCD, PFE, MRK, XOM, KO, CAT
    Jan 05 2:27 PM | Link | Comment!
  • 2015 Analyst Expectations For Dow Components

    Below are the estimated price changes for the components of the Dow Jones Industrial Average in the coming year. The price estimates are based on the current analyst low expectation of annual earnings assuming the stock retains the p/e ratio at the end of 2014.

    (click to enlarge)

    Our experience has been that stocks that are expected to underperform generally do much better than those stocks that are expected to increase in the coming year.

    As a test, we're comparing the performance of the "end of 2014 p/e ratio" against the performance of the stocks if they all had a p/e ratio of 15 as depicted below.

    (click to enlarge)

    Jan 05 2:23 PM | Link | Comment!
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