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As a contributor to the New Low Observer (http://www.newlowobserver.com/about-this-site), we intend to give new insights on a low risk approach to trading in dividend paying stocks for tax deferred accounts. The New Low Observer (http://www.newlowobserver.com/about-this-site) is not intended for... More
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  • Dow Jones-UBS Commodity Index Approaching Technical Support 6 comments
    May 9, 2013 2:58 PM

    When you look at the Dow Jones-UBS Commodity Index (below), you'll notice that, so far, the index has a well established pattern of higher lows since 1999. Obviously this can change drastically, after all we're talking about commodities, the most volatile instruments widely available for the longest period in history.

    (click to enlarge)www.newlowobserver.com

    The long-term technical support is the most obvious downside target (ascending red line). Next is Edson Gould's extreme downside target at the rising 79.32 level (ascending blue line).

    At the current level, we've been accumulating individual commodity stocks. However, we'd be committing significant amounts of our portfolio to food producers, processors and distributor stocks if the index hits the extreme downside target or lower.

    Until the extreme downside support is broken, we're considered to be in a commodity bull market with an understanding that there will be dramatic volatility. Break below the 1999 low and we're definitely in a bear market.

    Disclaimer: This analysis relies on our assumption that an investor did not accumulate commodity related investments at significantly higher levels. As investors who seek opportunities at or near a new low in price relative to value, we assume significant risk of loss in the event that our analysis is incorrect. We automatically invest with the assumption that once purchased, our investment will loss -50% or more before a gain is achieved. Please confirm all data before acting on strategies that we have and will employ.

    Themes: commodities
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Comments (6)
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  • New Low Observer
    , contributor
    Comments (2268) | Send Message
     
    Author’s reply » for some reason, in the disclaimer the word "investor" appears twice by default despite several attempts to edit it before publishing.
    9 May 2013, 03:00 PM Reply Like
  • Marc Gordon
    , contributor
    Comments (510) | Send Message
     
    New Low Observer, now I am confused. In your comment on May 1 you extremely bearishly wrote "The Dow Jones-UBS Commodity Index (^DJC) peaked in 2008, then peaked at a much lower level on April 2011. This cannot to be the definitive article on this topic since, as you've said, "It has been over for quite a while now." Dare was say it, we're probably 2/3rds of the way to the bottom rather than near any kind of a top."

     

    Yet above you state "Until the extreme downside support is broken, we're considered to be in a commodity bull market."

     

    So from here are we going down ("we're probably 2/3rds of the way to the bottom") or going up ("we're considered to be in a commodity bull market")? Should one now buy, hold, or sell ^DJC?
    10 May 2013, 12:59 PM Reply Like
  • New Low Observer
    , contributor
    Comments (2268) | Send Message
     
    Author’s reply » MGordon,

     

    The comment above:

     

    "The Dow Jones-UBS Commodity Index (^DJC) peaked in 2008, then peaked at a much lower level on April 2011. This cannot to be the definitive article on this topic since, as you've said, "It has been over for quite a while now." Dare was say it, we're probably 2/3rds of the way to the bottom rather than near any kind of a top."

     

    In our opinion, this is quite bullish since we consider all investments as they are in a substantial declining trend and near a new low.

     

    This has consistently been our message with the application of Edson Gould's Speed Resistance Lines [SRL] indicating conservative and extreme downside targets.

     

    All of the SRLs have been extensively written about on our site and have been surprisingly useful for determining opportunities for investment. Naturally, they don't all work our but we're only targeting those that do work out.

     

    More of our work and background on SRLs can be found here on SA at the following links (http://bit.ly/10gs1UJ).

     

    We only use SRLs for downside targets, so when the conservative and extreme downside is achieved it really help avoid paying a high price for an investment opportunity that was previously missed.

     

    It helped us anticipate the downside risk for Green Mountain Coffee Roaster (found here: http://seekingalpha.co...) at $37 when the stock was trading at $69.

     

    Buy NFLX at $62 based on the SRL for the trading price of $205 in December 2010 (found here: http://seekingalpha.co...).

     

    The SRL anticipated that AAPL had a conservative downside target of $424 (found here: http://seekingalpha.co...).

     

    If the downside targets aren't met then we're fine with that. However, when they are achieved, that is when we're scrambling to do our fundamental analysis to confirm that the company has viable business model going forward.

     

    We wait for the investment opportunities to come to us. When they do, we can then decide if all the fundamentals are in alignment.

     

    Again, we're happy if an investment vehicle has declined nearly 2/3 of the prior peak. That for us is the epitome of "buy low, sell high." Again, we don't automatically buy low, we run the numbers. However, this process has allowed us to avoid losses. See the timing of our other instablog posts as evidence of what we're trying to achieve.

     

    Hope this is a good primer on what we're trying to achieve at the New Low Observer.

     

    Thanks for the question.

     

    Regards.
    10 May 2013, 02:46 PM Reply Like
  • Marc Gordon
    , contributor
    Comments (510) | Send Message
     
    Thanks New Low Observer, I now understand that you're being consistent. I will do some reading on Edson Gould's Speed Resistance Lines since this is a new concept to me. It is exposure to ideas like this that male SA in general, and your writings in particular, so valuable!
    11 May 2013, 03:49 PM Reply Like
  • flash9
    , contributor
    Comments (3741) | Send Message
     
    Your chart does look bullish but the CRB and Goldmans CCI look much more toppy with room to the downside.
    10 May 2013, 01:29 PM Reply Like
  • New Low Observer
    , contributor
    Comments (2268) | Send Message
     
    Author’s reply » Hi Flash,

     

    You are absolutely right that there is more downside risk. We think the worst case is the rising extreme downside target at 79. Obviously it could go lower, however, it far exceeds recommending at the 2008 high or the 2011 peak.

     

    What is the cutoff to make it a bad new investment? In our opinion, anything above the halfway point between the 2008 peak and the 2008 trough.

     

    From this point, and lower, it is accumulation time for those stocks that compensate for the wait and with good fundamentals in the right industries. Most preferably at a new low.

     

    Thanks for commenting, much appreciated.

     

    Regards.
    10 May 2013, 03:06 PM Reply Like
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