Tuesday, March 31, 2015

The Morning Call---China appears ready to ease further

The Morning Call


The Market

The indices (DJIA 17976, S&P 2086) had a strong follow through from Friday’s up day.  In the process, they soared above their 100 day moving averages, the lower boundaries of their very short term uptrends and their 50 day moving averages.  Clearly, their 100 day moving averages once again offered enough support to halt a downtrend.  However, this move was assisted by quarter end portfolio window dressing.  The Averages remained well within their uptrends across all timeframes: short term (16870-19647, 1971-2952), intermediate term (16965-22116, 1785-2543 and long term (5369-18860, 797-2122).   Resistance exists at the last highs (18193/2114); and if that gets taken out then the next stop is the upper boundaries of their long term uptrends.

Volume fell; breadth improved. The VIX declined, finishing within its short term trading range, its intermediate term downtrend, its long term trading range, back below its 50 day moving average and within a developing pennant formation.  I continue to think that it remains a reasonably priced hedge. 

Update on NYSE margin debt (short):

The long Treasury was off, but closed within its short term trading range, intermediate and long term uptrends and above its 50 day moving average. 

GLD’s price dropped, closing within its short and intermediate term trading ranges, its long term downtrend and below its 50 day moving average.  GLD has a number of tough resistance levels yet to overcome before we can assume that the worst is over.

Bottom line: the Averages had a great day, assisted by quarter end portfolio window dressing.  Related buying momentum will likely influence today’s pin action.  This move was marked by a bounce off their 100 day moving averages---which I have noted before has offered significant support over the last year.  So our attention shifts back to the overhead resistance levels: the prior high and the upper boundaries of the indices long term uptrend.  I continue to believe that the latter will prove too formidable for a break away to the upside.

            It was a pretty active Monday, US economic data wise.  The results were basically mixed: February personal income was better than expected, personal spending was worse and the PCE deflator was in line; in addition, February pending home sales were much better than estimates while the March Dallas Fed manufacturing index was much worse.

            Overseas, Chinese banking officials made a statement suggesting that they could lower interest rates again.  While it was later denied, investors seemed to grasp at it like a drowning sailor to a life buoy. 

            ***overnight, the March EU price deflator improved from -0.3% in February to -0.1% and unemployment went from 11.4% in February to 11.3% in March.

Bottom line: this holiday shortened week started with mixed US economic data and a shot in the arm for the speculator/yield chaser/carry trader hoping and praying for more QEInfinity.   And what better place to get it than from a really big player (i.e. a central bank that has the ability to really get the presses humming) like China.

The geopolitical events that held the headlines last week stayed below the radar yesterday, though none (Greek bail out; NATO/Russia face off; escalating war in the Middle East) have been resolved.  Out of sight, out of mind.

The key issues remain a deteriorating US economy, a weak global economy, slowing corporate profit growth, a death wish among central bankers as they relentlessly pursue competitive currency devaluation and a stock market that is a short hair away from all-time high valuations. 

Update on the Buffett valuation indicator (short):

I can’t emphasize strongly enough that I believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.

Bear in mind, this is not a recommendation to run for the hills.  Our Portfolios are still 55-60% invested and their cash position is a function of individual stocks either hitting their Sell Half Prices or their underlying company failing to meet the requisite minimum financial criteria needed for inclusion in our Universe.

            The importance of liquidity tomorrow (medium):

       Investing for Survival

            The greatest danger to your portfolio (medium):
      Company Highlight

AT&T is one of the world’s largest telecommunications companies.  The company has grown its dividend at a 5% pace over the past ten years (profits have been flat) earning approximately 10-15% return on equity.  T went through a rough period (2008-2011) as the growth of its traditional wireline business slowed and margins came under pressure.  Looking forward profits should regain momentum as a result of:

(1)    providing fastest internet speeds,

(2)          investing heavily in enhancing spectrum and networking capabilities as well as building out is fiber network,

(3)          acquisitions,

(4)          share repurchases.


(1)  intense competition,

(2) losses in wireline business,

(3) highly regulated industry.

T is rated A++ by Value Line, carries a 41% debt to equity ratio and its stock yields 5.7%.

  Statistical Summary

                 Stock      Dividend         Payout      # Increases  
               Yield      Growth Rate     Ratio        Since 2005

T                5.7%           4%               68               10
Ind Ave      3.5              6*                59              NA 

                Debt/                        EPS Down       Net        Value Line
                Equity         ROE      Since 2005      Margin       Rating

T               41%            15%             3                10%           A++
Ind Ave     46               12              NA               8              NA

*many companies in T industry do not pay a dividend


            Note: T stock made good progress off the October 2008 surpassing the downtrend off the May 2008 high (straight red line) and the November 2008 trading high (green line).  Long term, it is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines).  Short term, it is in a trading range (brown lines).  The wiggly red line is the 50 day moving average.  The High Yield Portfolio owns a 75% position in T.  The upper boundary of its Buy Value Range is $31; the lower boundary its Sell Half Range is $48.

      News on Stocks in Our Portfolios

   This Week’s Data

            The March Dallas Fed manufacturing index was reported at -17.4 versus expectations of -9.0.

            February pending home sales rose 3.1% versus estimates of up 0.3%.




  International War Against Radical Islam

            Iraq just keeps getting from chaotic (medium):

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