Thursday, October 1, 2015

The Morning Call---Dead cat bounce?

The Morning Call


My daughter and her family move this weekend; and I will be helping.  No Morning Call tomorrow or Closing Bell on Saturday.

The Market

Yesterday, the indices (DJIA 16284, S&P 1920) gave us the bounce off an oversold condition that I had expected on Tuesday.  However, there was little change in the technical condition of the Market.  The Dow ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term downtrend {17131-17866}, [c] in an intermediate term trading range {15842-18295}and [d] in a long term uptrend {5369-19175}.

The S&P finished [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] below the upper boundary of a very short term downtrend, [c] in a short term downtrend {2001-2065}, [d] challenging its intermediate term uptrend {1923-2716}; it closed below the lower boundary of its intermediate term uptrend (1923) for a third day.  If remains there through the close today, the trend will re-set to a trading range.   Were that to occur, the next two levels of support are the August low of 1867 and last October’s low of 1819 and [e] a long term uptrend {797-2145}. 

Volume rose; breadth improved. The VIX (24.5) was off 8%, remaining [a] above its 100 day moving average, now support, [b] back below the lower boundary of its short term uptrend; if it trades there through the close on Friday, the trend will re-set to a trading range and [c] within an intermediate term trading range {it remains well above the upper boundary of its former intermediate term downtrend} and a long term trading range.

The long Treasury was down slightly but was well within a defined strong two week rebound.  It finished above its 100 day moving average, still support; and within short term and intermediate term trading ranges. 

The dollar closed right on its 100 day moving average after two days below.  Strictly following the rules of our Time and Distance Discipline, I wait for the next day’s pin action to determine if it reverts to resistance (if it is off today) or void the break (if it is up today).

GLD fell again, finishing [a] below its 100 day moving average, still resistance, [b] within short, intermediate and long term downtrends and  [d] is threatening to break the still developing very short term uptrend. 

Bottom line: stocks bounced hard, which I had expected on Tuesday.  However, the S&P couldn’t get back above the lower boundary of its intermediate uptrend.  That sets today up as technically important: if the S&P can close above that boundary that would reconfirm its strength and likely point to higher prices; if it fails, then the S&P joins the Dow in an intermediate trading range and lowers the downside objective for this index. I continue to watch.
            Stock performance in fourth quarter after down third quarter (short):



            Yesterday’s US economic data had a bright spot---a better September ADP private payroll report; overall, not so hot---weekly mortgage and purchase applications fell and the September Chicago PMI was well short of expectations.  No break in a lousy trend.

            Overseas, it wasn’t much better: September EU CPI fell below 0 and its unemployment was unchanged; August German retail sales dropped; and amazingly, Abe is suggesting yet another round of QE.

            ***overnight, September manufacturing data from Japan, China and the EU were all disappointing; plus capital continues to flee the yuan.

Bottom line: the political class saved investors from having to worry about a government shutdown.  Score one for the good guys.  Unfortunately, the economic data remains crappy both here and abroad.    Unless that changes, economic and valuation forecasts on the Street are likely to move lower irrespective of whether the Indian or Japanese central banks double (or in Japan’s case, quintuple) down on QE or whether or not the Fed raises the Fed Funds rate by 25 basis points.

Of course, ‘unless’ is the operative word above.  To be sure, change could occur and, meanwhile, investors could continue to ignore the numbers and keep stocks rising on the hopes of better numbers.  And that might happen.  That said, hope is not a strategy.

In the meantime, I continue to believe that right now, short term the technicals are more important to watch than the fundamentals.’

            For the bulls (medium):

            For the not so bullish (medium):


            Plus, Mae West on Fed policy (medium):

       Investing for Survival
            Lessons from the bull market (medium):

       Company Highlight

AmeriGas Partners LP is a retail and wholesale distributor of propane gas in the US.  It serves two million residential, commercial, industrial, agricultural and motor fuel customers in 50 states.  It also sells, installs and services propane appliances and heating systems. APU has grown profits and dividends at a 5% annual rate for the past 5 years earning a 15-20% return on equity.  When coupled with the stock’s 7.5% yield, APU is an attractive investment and should continue to be as a result of:
 (1) an increase in customers converting form other fuels to natural gas,
 (2)  focus on higher profit investments and lower costs.
(1) pricing turmoil in the energy sector.
AmeriGas is rated B++ by Value Line, has a 62% debt to equity ratio and its stock yields approximately 7.5%.

  Statistical Summary

                 Stock      Dividend         Payout      # Increases  
                Yield      Growth Rate     Ratio       Since 2005

APU           7.5            5%                70%*           10
Ind Ave      3.2             4                  57              NA 

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

APU          62               20%            3                7%           B++
Ind Ave     44               11             NA               7             NA

            *payout as a percent of cash flow


            Note:  APU stock made good progress off its September 2008 low, surpassing the downtrend off its May 2007 high (straight red line) and the November 2008 trading high (green line).  Long term, the stock is in a trading range (blue lines).  Intermediate term, it is in a downtrend (purple lines).  The wiggly red line is the 100 day moving average.  The High Yield Portfolio owns a full position in APU.  The stock is on the High Yield Buy List, even though it is below the lower boundary of its Buy Value Range.  As I noted earlier, with the Market in a correction, I leave stocks on the Buy List unless they trade below their Sell Half Price; the lower boundary of its Sell Half Range is $71.   


    News on Stocks in Our Portfolios
Paychex: FQ1 EPS of $0.58 beats by $0.07.
Revenue of $723M (+8.4% Y/Y) beats by $5.45M.


   This Week’s Data

            Weekly jobless claims rose 10,000 versus expectations of up 5,000.





  International War Against Radical Islam

            Global reaction to Russia’s air strikes in Syria (medium):

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