The Morning Call
1/29/15
The Market
Technical
The indices
(DJIA 17191, S&P 2002) took in the chops again yesterday but remained
within uptrends across all timeframes: short term (16464-19236, 1911-2892),
intermediate term (16493-21648, 1737-2451) and long term (5369-18860,
783-2083). The Dow finished below its
most recent support level (17288), although the S&P is still above its
comparable level.
Volume
fell; breadth was lousy, again. The VIX
climbed 18% finishing within a short term trading range, an intermediate term
downtrend and above its 50 day moving average.
The latest from
TraderFeed (short and a must read):
The
long Treasury jumped, closing above the lower boundary of its very short term
uptrend which it broke Tuesday. I am
going to retreat on that confirmed break and await another day or two before
re-setting a trend call. It remained
within its uptrends across all the remaining timeframes and above its 50 day
moving average. This pin action keeps
TLT’s chart quite strong.
GLD
fell, ending right on the lower boundary of its very short term uptrend, above
the upper boundary its short term uptrend, within an intermediate term trading
range and above its 50 day moving average.
It also keeps GLD in consolidation.
Let’s see if it follows TLT recent pattern.
Bottom
line: clearly the Yahoo and Apple news
weren’t enough to keep the sellers at bay.
The good news is that the Averages remained within all uptrends. The bad news is that the Dow broke its recent
the mid December support lows (17288). In
addition, the above comments from TraderFeed on Market breadth suggests that
more weakness may lie ahead. So the
focus is on the S&P mid-December low and the lower boundaries of the
Averages’ uptrends.
Fundamental
Headlines
Only
one secondary datapoint yesterday---mortgage and purchase applications fell. Not great but so far this week’s stats have
been upbeat.
On
the earnings front, after a terrible Tuesday, I think most investors hoped that
the after-hours report from Apple would presage a better day on Wednesday; and
we did get a great announcement from Boeing which help start the day on an
upbeat note. However, after the close,
Qualcomm reported and lowered its guidance; investors made their displeasure
known. In any case, this keeps the trend
of disappointing profit reports/guidance from major players in significant industries
alive and well.
To
be fair, looking at total earnings announcements to date, 70% have beat
expectations, 10% have been right on and 19% have been below estimates. However, (1) a number of the negative
surprises that we have received have been from guidance not the actual profit report
and (2) the misses that we are getting have all been from large players. In other words, companies that represent a
disproportionally large part of total corporate earnings. To quantify that a bit, in December, 2015
S&P earnings guidance was for growth in the mid-single digits. Now it is zero.
The
big news of the day was the release of the statement of the January FOMC meeting
which contained one surprise to the Market.
For the first time, the Fed included the weak international economy as
one of its concerns---better late than never I guess. This seem to be the proximate cause for the
sudden precipitous decline in stock prices and a jump in the long Treasury bond
price.
How
long it takes for investors to tie poor US corporate profits with something
more than a strong dollar, to wit, poor international demand, is only a
guess. I have been pounding on this
theme for months. Not that it will even
prove correct ultimately. But, investors
have had their collective heads in the sand on the issue for too long. For it to take a Fed statement to bring this development
as a potential risk to the forefront of their consciousness only supports the
notion that these guys have been in serious denial. To be clear, I am still not convinced that
the weak international economy is finally starting to lap our shores; but it
has been a risk and perhaps yesterday is a sign that it is now getting priced
into stocks.
Overseas,
reports are out that China will lower its 2015 growth forecast---not helpful to
those unconcerned about slowing international growth. In addition, Singapore initiated its own QE
policy. This only reinforces my worry
that when everyone is trying to ‘beggar they neighbor’, no one does; it just
makes matters worse.
***overnight, German CPI
fell 0.5%.
Bottom line: the
risks of slowing US corporate profit growth and weakening international
economies impacting our economy are at last impinging on investor’s alternate
reality. If these problems remain on the
front page, then my thesis that stocks are overvalued will likely get a solid
test. In the meantime that means the
risks of more downside have probably increased---whether or not my thesis is
proven correct.
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.
Investing for Survival
The
problem with leverage (short):
Company Highlight
Qualcomm Inc.
develops, markets and licenses cutting edge integrated circuits used primarily
in wireless applications, provides data and positioning services for
transportation applications, develops content management technologies and
provides a platform for wireless application development. QCOM
has grown profits at a 23% annual rate over the last 10 years; and has raised
its dividend per share from an initial $.19 in 2004 to $1.54 in 2014. It has done this while earning a 15-20%
return on equity. The company future
appears equally promising as a result of:
(1) it is a
major beneficiary of the growth in 3G/4G wireless technology,
(2) it is the
established technological leader in global wireless baseband chipset market
with 200+ royalty bearing licenses,
(3) new product
development [next generation processors and Wi-Fi chipsets],
(4) acquisitions
[Black Sand Technology plus 1400 patents from Hewlett Packard.
Negatives:
(1)
the current global economic malaise could impact
demand,
(2)
it is in a highly competitive industry,
(3)
it is facing anti-trust problems in China, regulatory
investigations in the US and Europe and several patent infringement suits.
The company is
rated A++ by Value Line, has no debt but a huge cash position and its stock
yields 2.3%.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2005
Ind Ave 2.2 7** 37 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
Ind Ave 25 14 NA 11 NA
**most companies in QCOM industry do not pay a dividend
Chart
Note:
QCOM stock made good progress off its November 2008 low, quickly surpassing the
downtrend off its August 2008 high (straight red line) and the November 2008
trading high (green line). Long term it
is in a trading range (blue lines).
Intermediate term, it is in an uptrend (purple lines). Short term it is in a downtrend (brown
line). The wiggly red line is the 50 day
moving average. The Dividend Growth
Portfolio owns an 80% position and the Aggressive Growth Portfolio owns a 100%
position in QCOM. The upper boundary of
its Buy Value Range is $30. The lower boundary of its Sell Half Range is $123.
1/15
News on Stocks in Our Portfolios
·
Revenue of $2.57B (+4.5%
Y/Y) misses by $30M.
·
Occidental Petroleum (NYSE:OXY): Q4 EPS of $0.72 beats by $0.04.
·
Revenue of $4.31B (-15.3%
Y/Y) in-line.
·
Colgate-Palmolive (NYSE:CL): Q4 EPS of $0.76 beats by $0.02.
·
Revenue of $4.22B (-3.2%
Y/Y) misses by $10M.
·
ConocoPhillips (NYSE:COP): Q4 EPS of $0.60 beats by $0.01.
·
Qualcomm (NASDAQ:QCOM): FQ1 EPS of $1.34 beats by $0.09.
·
Revenue of $7.1B (+7.3%
Y/Y) beats by $160M.
·
Expects FQ2 revenue of
$6.5B-$7.1B and EPS of $1.28-$1.40 vs. a consensus of $6.74B and $1.28.
·
Expects FY15 revenue of
$26B-$28B and EPS of $4.75-$5.05 vs. a consensus of $27.81B and $5.21.
·
270M FQ1 MSM chip
shipments, at the high end of guidance of 250M-270M. 220M-240M expected in FQ2.
Economics
This Week’s Data
Weekly
jobless claims fell 43,000 versus expectations of down 7,000.
A
closer look at the employment data (medium and today’s must read):
The
FOMC finished its January meeting yesterday afternoon: (1) the policy language wasn’t
adjusted at all---so the Fed will ‘remain patient’ as it looks toward rate
modification, however, (2) it did raise its qualitative assessment of virtually
every sector (wages, consumer spending, fixed investment, inflation) of the
economy except housing and (3) added its concern about the international
economy.
Other
QE is not the solution (medium):
The 1% updated (short):
China,
the next Japan? (short):
Politics
Domestic
International War Against Radical Islam
Former
DOD chief of intel blasts Obama policy (medium):
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