The Morning Call + Subscriber Alert

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The Morning Call

1/25/13

The Market

           

    Technical

            The indices (DJIA 13825, S&P 1494) overcame the Apple bomb and stock reaction to log another up day.  The DJIA will confirm the break above 13682 at the close today; further, it has broken above the upper boundary of its short term uptrend (13145-13796).  The S&P remains right on its comparable boundary (1428-1497).  Both finished within their intermediate term uptrends (13207-18207, 1396-1991).  The momentum continues to the upside which has been accentuated by investors’ sanguine acceptance of the Apple disappointment.  14140/1576 remains a near term price objective, tempered perhaps by the upper boundaries of the Averages short term uptrends.

            Volume rose; breadth improved.  The VIX was up slightly, closing within its intermediate term downtrend.

            GLD fell and remains within its very short term uptrend, its short term downtrend and its intermediate term trading range.

Bottom line:  Apple’s financial performance did little to dampen investor enthusiasm suggesting that the current move has further upside despite the numerous warnings from sentiment indicators.   14140/1576 is the next logical resistance level.  Our Portfolios will continue to Sell as our stocks hit either their Sell Half Range or technically overextended levels.

    Fundamental

    

     Headlines

            Yesterday’s economic numbers were modestly positive---weekly jobless claims and the December leading economic indicators were better than expected while the January Kansas City Fed’s manufacturing index came in below estimates.  So the data flow pattern of the week, i.e. some good news, some bad news, continues.  This matches the assumptions in our Economic Model.

            Individual company profit reports comprised the balance of the day’s news.  Most fit the developing pattern of this quarter’s earnings season---in line or a slight beat on EPS but failure to meet revenue expectations.  While that does not exactly portend great future earnings (margin improvement is not an infinite phenomena), investors continue to seem un-phased by any negative implications whatever the source.

            Bottom line:  investor optimism is palpable.  Unfortunately (for me) I just don’t get it for whatever reason.  My only concession has been to slowdown the process of  Selling shares of those stocks trading into either their Sell Half Range or a technically overextended position---and it is driving me nuts.  My fear being that we get that emperor’s new clothes moment, the Market is off 10% in a day and I didn’t Sell.  That said, this slowdown strategy is working although the need remains to continue to lighten up on expensive/overextended equities.

            Pimco on hedging in today’s market (medium and today’s must read):

            http://www.zerohedge.com/news/2013-01-24/pimco-hedging-it-pays-be-countercyclical

            The Fed and the Market (medium):

            http://advisorperspectives.com/dshort/guest/Lance-Roberts-130124-Visible-Hand-of-Fed.php

      Subscriber Alert

            Apple stock has traded below the lower boundary of its Buy Value Range.  Hence it is being Removed from the Aggressive Growth Buy List.  However, (1) our time and distance discipline is now operative, so a quick snap back in price would lead to a re-instatement to the Buy List, and (2) the current price is well above AAPL’s Stop Loss Price, so the Aggressive Growth Portfolio will continue to Hold AAPL.

            At the Market open, the Dividend Growth Portfolio is Selling its position in Colgate Palmolive and reinvesting the funds in Proctor Gamble.  This is not a typical transaction for us, but (1) it reverses a trade that we made three or four years ago, i.e. Sold PG and Bought CL.  That trade has worked out very well. (2) it is being reversed now because [a] CL has been trading in its Sell Half Range for more than  a year {shares were scaled back late 2011} and has continued to advance, [b] while PG is within 5% of its Buy Value Range, and [c] the unusually high CL debt position makes me nervous in the current environment.

            In addition, a portion of the holding of following technically overextended stocks are being Sold.  In the High Yield Portfolio, Genuine Parts.  In the Dividend Growth Portfolio, Home Depot.  In the Aggressive Growth Portfolio, Donaldson.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.