Tuesday, March 10, 2015

The Morning Call & Subscriber Alert---No follow through to Friday

The Morning Call


The Market

The indices (DJIA 17995, S&P 2079) bounced off of Friday lows, ending within uptrends across all timeframes: short term (16733-19504, 1949-2930), intermediate term (16798-21949, 1768-2482) and long term (5369-18860, 797-2112).  They both closed above their 50 day moving averages and right on their mid-December highs. 

            Volume declined; breadth improved.  The VIX fell, closing within its short term trading range and its intermediate term downtrend, below its 50 day moving average and   the upper boundary of a developing very short term downtrend. 

            The long Treasury recovered, but not enough to regain the lower boundary of its newly reset short term trading range.  A close below that boundary today, will reset the short term trend to down.  It also finished below its 50 day moving average but within its intermediate and long term uptrends. 

            GLD also lifted and remained within a short term trend trading range, its intermediate term trading range, a very short term downtrend and below its 50 day moving average. 

Bottom line:  I was a little surprised with the lack of follow through from Friday’s sell off.  Clearly, despite the S&P’s inability to surpass the upper boundary of its long term uptrend, there is still plenty of bullish sentiment around.  So momentum remains to the upside and will continue in the absence of any threat to the lower boundaries of any of the Averages uptrends.

 TLT busted the lower boundary of its short term uptrend and will repeat the process to the lower boundary of the newly reset trading range unless there is a sharp move up today.  Likewise, GLD broken its short term uptrend and reset to a trading range.

            What a key ratio says about stock market risk (short):


            There was no economic news yesterday here or abroad.
            ***overnight, Chinese February PPI was down 4.8% while CPI was up 1.4%.

            There was news, however:

            Greece quickly folded (again) following the EU/ECB/IMF rejection of its most recent proposals to secure a bail out (short):

            But the pressure (food shortages) is on (short):

            The ECB started its QE (medium):

With these results---central banks will buy 100% of all new bonds issued by Japan and Germany (short):

            Bank of Japan bond dealer survey (short):

Bottom line: yesterday was quiet, though (1) the Troika did send Greece back to the drawing board regarding their new proposed ‘austerity’ program (expected); and investors apparently remained convinced that sooner or later the new Greek administration will be beaten into submission and (2) the ECB did begin its QE (also expected), though questions remain as to how this process is going to work. 

The most significant news was the Market bounce back following Friday’s scare about higher interest rates sooner than expected.  I am not sure if this means that investors thought it over and decided that (1) the Fed wouldn’t raise rates sooner, (2) or if it did, it wouldn’t be by much and any subsequent increases would be few and far between, or (3) with all the other central banks pumping at max capacity, it just doesn’t matter.  What no one seems concerned about is the steady drumbeat of lousy economic stats which could be presaging an economic slowdown/recession.  

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 latest from John Hussman (medium):

            The continuing search for higher yield (medium):

            More on valuation (medium):

            And (medium):

       Subscriber Alert

            The stock price of Fastenal (FAST-$41) traded into its Buy Value Range.  Accordingly, it is being Added to the Aggressive Growth Buy List.  The Aggressive Growth Portfolio owns a 50% position in FAST, having Sold Half in early 2012.  No new shares will be purchased at this time.

      Company Highlights

Medtronic Inc. (MDT) is the world’s largest manufacturer of implantable biomedical devices in the cardiac, neurological and vascular markets. The company has grown profits and dividends 10-16% annually over the last ten years earning a return on equity of 18-20%.   Facilitating the continuation of this trend:

(1) recent acquisition of Covidien,

(2) stabilization in the defibrillation market,

(3) expansion into international markets,

(4) a stock buyback program.


(1)    it is in a highly competitive industry,

(2)    economic uncertainty can impact customer willingness to incur the cost of new procedures,

(3)  it is involved in several patent infringement suits.

MDT is rated A++ by Value Line, carries a 35% debt to equity ratio and its stock yields 1.9%.

   Statistical Summary

                 Stock      Dividend         Payout      # Increases  
               Yield      Growth Rate     Ratio        Since 2005

MDT          1.9%          8%                30%              10
Ind Ave      1.4            11*                28                NA 

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

MDT        35%            18%           0                 23%           A++
Ind Ave     25               14            NA               13              NA

*the majority of companies in MDT industry do not pay a dividend

            Note: MDT stock made great progress off its March 2009 low, quickly surpassing the downtrend off its August 2008 high (straight red line) and the November 2008 trading high (green line).  It is in uptrends across all timeframes: long term (blue lines), intermediate term (purple lines) and short term (brown line).  The wiggly red line is the 50 day moving average.  The Dividend and Aggressive Growth Portfolios own 50% positions in MDT, having recently Sold Half.  The upper boundary of its Buy Value Range is $38; the lower boundary of its Self Half Range is $78.


      Investing for Survival

            The problem with ‘long term’ (medium):

      News on Stocks in Our Portfolios

   This Week’s Data




Quote of the day (short):

  International War Against Radical Islam

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