Thursday, April 28, 2016

The Morning Call---Surprise, surprise

The Morning Call


The Market

The indices (DJIA 18041, S&P 2095) traded in minus territory for most of the day, then closed narrowly up after the Fed delivered another confusingly dovish FOMC statement. Volume rose, breadth improved and the VIX continues to look like it has found a bottom.


The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {17610-18565}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5541-19413}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2095-2197---notice how the S&P has followed its lower boundary up the last three days}, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218 1%}. 

The long Treasury was up on good volume, responding to lowered odds of a June rate hike.  It closed above its 100 day moving average and a key Fibonacci level as well as within a short term uptrend.

GLD was also up 1%, finishing within in a short term uptrend and above its 100 day moving average and a key Fibonacci level. 

Bottom line:  as expected investors responded merrily to another dovish Fed statement which likely means the upward momentum will continue.  There is nothing in the technicals to alter my assumptions: stocks are in heavily congested territory, so the upward progress will be more plodding but I expect them to challenge their all-time highs and fail.

            Chinese commodities crash:  I am not sure what this means but it bears watching (too much speculation? lack of economic activity? both?) (medium):



            Yesterday’s economic data turned a bit positive: weekly mortgage and purchase applications were down but the March trade deficit and March pending home sales improved.  Not much but better than a sharp stick in the eye.

The slowdown is consumer driven (medium):

            Overseas, the numbers were mixed: first quarter UK GDP growth slowed but April German consumer confidence rose.

            Overnight, March Chinese industrial profits were up 10%+, April EU economic confidence rose slightly, German unemployment declined and (drumroll, please) the Bank of Japan did NOTHING.

            Of course, the headlines of the day came out of the FOMC meeting’s statement which was another ‘on the one hand, on the other hand’ (global concerns less, domestic concerns more) bowl of mush.  The bottom line is that there remains a low probability of a June rate hike (though the odds did rise fractionally)---which my six year old grandson already knew.   Unless the world economy explodes to the upside, there is no way the Fed is raising rates in front of the potentially disruptive Brexit vote.  Still it reassures investors another two months of a worry free Fed policy.  For those who are bored enough to want to read the statement, the link is here.

Bottom line: the Fed statement read pretty much as expected; and the BOJ has now stiffed the algos traders.  It will be interesting to see how much follow through to the downside there is.

            The madness of negative interest rates (medium):

            Tuesday I tried to make a strong case for always having a Stop Loss Discipline in order to never take a big loss.  Today I want to emphasize the opposite, to wit, don’t buy a stock, unless you are trying for a big gain.  That is the reason that our Sell Half Discipline is set at or near all-time relative and absolute highs.  As long as a stock is bought at or near its all-time relative and absolute lows and the underlying long term fundamentals of a company are intact, there is no need to disturb the position---too often you will be wrong, plus there is the commission costs and taxes.  Sure it may take longer than you want to achieve that all-time high.  But in the meantime, you are still making money. 

‘Letting you profits run’ is also the rationale for only Selling Half of a winning position once the price objective is achieved---again, as along as the underlying long term fundamentals haven’t changed.  CR Bard is a perfect example.  Our Dividend Growth Portfolio Bought BCR, it doubled, the Portfolio Sold Half and it doubled again.  To be sure, this is an exception rather than the rule.  But the point is, I don’t have perfect knowledge.  I can’t control what occurs after a stock hits our Sell Half Price; but I can control what happens when it does---our Portfolio takes a large profits and then plays with the House’s money.

A wise investor once said ‘Amateurs go bankrupt by not taking small losses. Professionals go bankrupt by taking small gains.’


       Investing for Survival
            The what, why and how of quality.

    News on Stocks in Our Portfolios
W.W. Grainger (NYSE:GWW) declares $1.22/share quarterly dividend, 4.3% increase from prior dividend of $1.17.

Chevron (NYSE:CVX) declares $1.07/share quarterly dividend, in line with previous.

C. R. Bard (NYSE:BCR): Q1 EPS of $2.34 beats by $0.17.
Revenue of $873.5M (+6.6% Y/Y) beats by $27.27M

Exxon Mobil (NYSE:XOM) declares $0.75/share quarterly dividend, 2.7% increase from prior dividend of $0.73.

Automatic Data Processing (NASDAQ:ADP): FQ3 EPS of $1.17 misses by $0.01.
Revenue of $3.24B (+6.9% Y/Y) misses by $30M.


   This Week’s Data

            March pending home sales rose 1.4% versus estimates of up 0.5%. 

            First quarter real GDP came in at +0.5% versus consensus of +0.7%; the price index was up 0.7% versus expectations of up 0.5%.

            Weekly jobless claims rose 9,000 versus projections of up 13,000.


            Greece goes from bad to worse (medium):



  International War Against Radical Islam

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