Nettlesome

My final post before I depart could be about the markets, I suppose, but my head is bloodied enough from the attempt. So, instead, I leave you with a moment of beauty...


Well, okay, 4 minutes and 54 seconds of sheer beauty.

See you in several weeks!
-- David M Gordon / The Deipnosophist

Self-portrait

I depart next Friday, the 18th, for a few weeks of holiday; the markets will continue (to open, to trade) despite my absence. Imagine that! I should post a time or two more before I leave. I likely will miss several weeks of increasingly bullish market behavior while away, if I have correctly identified the market's true trend. Continue to check the building base (or top, for the bears) for the subtle clues that will announce its breakout, whichever direction, before the actual event occurs.

My holiday will include a few days of sightseeing in Spain, a trek of the Camino de Santiago, and several days in London.

Self-Portrait
by Mary Oliver

I wish I was twenty and in love with life

   and still full of beans.

Onward, old legs!

There are the long, pale dunes; on the other side

the roses are blooming and finding their labor

no adversity to the spirit.

Upward, old legs! There are the roses, and there is the sea

shining like a song, like a body

I want to touch

though I'm not twenty

and won't be again but ah! seventy. And still

in love with life. And still

full of beans.

© Beacon Press, 2008. Reprinted with permission.

The poem above adequately describes me, I suppose -- although I am full of something other than beans, and decidedly not 70! The image below is a striking visual of me while trekking...

I will be in London the week of 4 October, staying in the City. Please contact me, if you would like to get together for a pint or two and good conversation.

Otherwise, I will see you upon my return on Monday, 12 October. I hope to have ready the new website soon after. Thank you to Dan Hung, for his invaluable assistance in the creation of the new site.
-- David M Gordon / The Deipnosophist

[UPDATED] Important notice re The Deipnosophist

My original intention was that The Deipnosophist site not be an investments-only site, but instead a reflection of whatever was on my mind at that time. Based upon numbers of readers and their participation, it is clear that I fail to attract the audience I seek.

So, after 4 1/2 years of posts and many consultations with friends and colleagues, I have decided to make the following changes:

1) This site (The Deipnosophist) will remain largely as is -- a mix of topics drawn from my own broader interests, but will specifically exclude investment recommendations.
2) Reader comments will be disabled. This is done to simplify the management of the site, since this feature is sadly underused and takes up an undue amount of time relative to the participation of readers.
3) I will initiate a new site, which will include my up-to-date investments, be available only to subscribers, and will have comments enabled so that subscribers can ask questions of me and of each other.

If you wish to be notified when my new site goes live, please contact me.

UPDATE (8.28.2009)
1) Thank you for your many indications of interest re the new site
2) The new investment site will have a subscription fee, though not especially dear
3) The new site will not go live until late-October (after I return from Spain and London)
4) New posts will occur here (and soon), but placement will be under this post, which will remain at the top, so scan down the page;
5) I will continue to post here re investing, but not investments

I welcome your questions and comments.
End UPDATE.

Thank you,
David M. Gordon / The Deipnosophist

Sugar and spice and everything...Bad?

Ever wonder just how much sugar is in the common food items you eat?

-- David M Gordon / The Deipnosophist

Of meltdowns, meltups, and portfolio success

Despite the recent upsurge in prices, the market remains in its seasonal (summer) doldrums; that is, the market continues to oscillate within its base.

Yes, base. I realize most market commentators call repeatedly for a resumption of the bear market -- a plunge back to the lows, if not a sustained breakdown beneath those lows. But the bears have been wrong for 10 months now, as the market increasingly betrays its true direction, its winning hand.

Understand: Much of the selling that occurred during 2008, especially late-September through early-November, happened for many reasons, but its net result was a portfolio blowout: a forced liquidation in the frenzied quest to raise cash during a liquidity crisis. That melt-down, amid the twin crises of liquidity and (lack of) confidence, is followed today by a melt-up as a sense of normalcy returns; stocks oscillate on individual fundamentals, valuation, and/or technicals. And, of course, the swings of the general market.

Can you feel or sense it? The decline of Fall 2008 (Ha!) had become so emotional that our skin would horripilate at the mere thought of the markets -- and another disastrous down day. The market's resolute advance since then is one the bears repeatedly decry and declaim, as though the current up trend is, in and of itself, sufficient reason for the market to resume its decline, if not plummet. Perhaps, yes, typically -- price is risk -- but the markets traded atypically during the decline of 2008. And so one extreme begets another.

In essence, the market bounced off the lower boundary of its high level consolidation; moreover, I believe the market climbs its clichéd Wall of Worry. Bad economic and fundamental news no longer propagates a resumption of the selling pressure, and individual groups and sectors begin to rise to the fore as they rise to all time highs. In the process, these groups and sectors become the market's leaders. Can you see them (rise)?

[Click on chart to enlarge]

So this is how it works:
1) Recognize that markets and individual stocks oscillate always;
2) Recognize those oscillations occur within trends -- up, down, or sideways;
3) The market averages and indices remain in their 12 years long high level consolidations; 
4) The market has traded sideways for many weeks, ~8-10 weeks, as it builds power for another upward thrust;
5) Individual sectors begin to out-perform on the upside;
6) Individual groups begin to lead higher;
7) Individual stocks within those groups and sectors bifurcate into those that trade higher, or base;
8) Many of those stocks in bases within leading groups within leading sectors should break out (up) soon, and lead higher the general market.

All trends die eventually, but until this one does, I want to own the leading sectors, groups, stocks; the market's leaders. You do as well. Especially because the market provides every hint that its up trend is nowhere near complete.
-- David M Gordon / The Deipnosophist

Cruel

I considered briefly naming this post "Cruelty," but that word allows us to get off easy. Watch the horrifying video below, and then ask yourself, "We are this planet's stewards...?"



Good thing you can not see me; I actually sobbed while watching the video. I knew the truth, intellectually, but chose to look the other way. Until today. Even the utterance of the Roman slaves, "Oh, Master, you are but a man" (as the general took his triumphal tour of the city), offers no solace. This video betrays us for what we are, less than human.

Sorry, no noble, uplifting thoughts today.
-- David M Gordon / The Deipnosophist

The bear market growls on

Not!

See charts below...

[Click on charts to enlarge]

Oh sure, the stock in the chart above got slammed by the bear market's ferocious end (September/October 2008), but it has since risen back to its prices prior to the decline, and then some. Wow!

I identify many items in the chart above, up-to-date through today's close of business. Yes, it is a symmetrical triangle; better (more bullish) than that, though, is the internal ascending triangle now building. Note trend line 1, and especially points a and b, which show the breakout and successful test of that breakout. And today, the stock breaks above trend line 3, at point c -- with 180% of average daily volume.

Look at the chart below, which is the same stock and carries over the trend lines from the chart above, but is basis weekly rather than daily: the set up and pattern look bullish to my eyes...

So where is the bear market...? The charts above -- and many, many more -- betray an increasingly bullish picture.
-- David M Gordon / The Deipnosophist

From (seeming) chaos, order

You see a chart like this...

[click on all charts to enlarge]

... and your first cogent thought is, "Keep away!" The thoughts that got you there include, "Sheesh, in near 2 years, all this stock has done is oscillate wildly (~$50 to $66), and got nowhere fast." And, "The stock appears to be breaking down, as it trades beneath its 50 and 200 day simple moving averages." And, finally, "Hey, the 50 day sma points down..." which all lead you to, "Keep away!"

Perhaps more order might be found, if we were to identify a trend or an area pattern. Begin by identifying resistance...

I admit the trend line of lower highs is drawn fairly liberally -- I could tighten it up, thus purchase earlier and at a better price -- but the stock's trading volume will tell me the correct angle of the trend line, and when I should buy. Next I draw the trend line of higher lows, as below...


Okay, now we have something, but what...? Solely because one trend line slopes downward and the other upward, we have delineated a symmetrical triangle. Which is great but for one item: The breakout of symmetrical triangles tend to break in the direction of the primary trend -- but what is this stock's primary trend?

I retain the trend lines and change the periodicity to a weekly basis from daily basis...



Ahh, now the picture offers more clarity; an obvious symmetrical triangle within an extant up trend, and a powerful up trend at that. But wait: the stock rose to $67 from $12 in fewer than 18 months. How do I know this symmetrical triangle, this time, will hold true to form, and continue its upward trajectory? So I change the periodicity to a monthly basis (below)...

And see the entire picture: the symmetrical triangle, identified on the daily basis, confirmed on the weekly basis, now reveals itself to be a mere hesitation after the breakout above the stock's multi-year high level consolidation. (While a tad wide and loose, I understand the plummet to $12; but for extreme exogenous circumstances the stock would probably have held at $20-21.)

The company? McDonalds/MCD. I delve deeper into McDonalds to discern why this stock at this time. And what I find I like. We all know the fundamental story... But do we really? The company's McCafe story ignites a sudden flurry of consumer and investor interest and growth; the company's overall growth story remains dependable, even reliable; an oasis of certainty in an epoch of prevalent uncertainty.

At the current price ($55.57), the stock offers a dividend yield of 3.6% -- nice for a foundational investment. And assuming I have identified correctly the trend lines for the symmetrical triangle, the current price is immediately above its sell stop ($55), although I would grant a little extra leash to $54. The initial upside breakout would occur at $60-$61; the first upside target would be ~$80, and the second objective ~$100. Each objective assumes the bullish resolution of the symmetrical triangle, which should occur soon because the area pattern, as delineated, now is 75% of the way to its apex. This means the stock has coiled to a posture of maximum thrust.

An item or two though before you go. Why do I get to draw the up trend line (in the third chart) as I do? After all, it defies my primary rule for the correct delineation of trend lines. Well, one reason is I expect the bullish resolution of this pattern, so I identify the low prior to the subsequent (expected) higher high. A second reason is that trend line captures sequentially higher lows, a pattern and trend yet to break. Until it does...

The really cool thing for me as an investor is that this long time blue chip growth story, which today is ~20% off its high, can move 50% to 100% in short order, once it breaks out and up. To that return, I can add a dependable 3.6% dividend yield, which serves to sweeten the pie. All that for a measly ~2.5% risk before I must admit my error, and move on.

Full Disclosure: Long McDonalds/MCD.
-- David M Gordon / The Deipnosophist

The Emotional Cost of Inflation

Less frequently even than once in a blue moon, I share an article or essay by Theodore Dalrymple. That drought is not due to any given essay's comparative insignificance in Dalrymple's oeuvre, but that I point you hither and yon; if you care for a writer's work, you will seek more of the same.

Every once in a while, though, an essay by Dalrymple is especially uncommon, such as this one. And so here I am again, pounding the table for you to read yet another article.

Some items you should know about Theodore Dalrymple:

1) His name is a nom de plume

2) He typically writes outside of his professional expertise -- even for a polymath

3) His essays tend to be intelligent, culturally literate, informed, impassioned, and convincing. For example...

"There seems to be no choice, then, but for everyone to have constant regard to his own pile, and to try to outwit the economic moth and rust that threaten to erode all but the largest fortunes: in short, he must speculate, or risk losing nearly everything. The question of whether it is best to hold shares, or bonds, or property, or gold, or some combination of them, is constantly before him. Further, as many who have taken tips from their brokers or bank will attest, funds’ managers and investors do not always have the same interests. A man trying to preserve a competence learns to trust neither himself nor others."

Now don't you want to click on that link and discover what he has to say this month?

-- David M Gordon / The Deipnosophist