The Morning Call
1/27/15
The Market
Technical
Finally, a
relative calm day---and this following the Greek elections. The indices (DJIA 17678, S&P 2057) closed
within uptrends across all timeframes: short term (16457-19229, 1911-2892),
intermediate term (16493-21648, 1737-2451) and long term (5369-18860,
783-2083).
Volume
was fell; breadth improved. The VIX declined
7%, finishing within a short term trading range, an intermediate term downtrend
and below its 50 day moving average.
The
long Treasury dropped, closing back below the lower boundary of its very short
term uptrend (a finish below this boundary today will confirm the break), above
the upper boundary of its short term uptrend, within its intermediate term uptrend
and above its 50 day moving average.
GLD
was lower, but is still in a 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 appears GLD is
now in a consolidation. I am watching
where it finds support.
Bottom
line: there was enough bad news (see
below) to push stocks down yesterday, but they managed to advance. And they did so with considerably less
volatility than we have become accustomed to of late. I would score that a positive. On the other hand, the Averages have still
made two lower highs and that is not so good.
My focus is on the uptrends as well as the most recent discernable
support (the mid December lows) and resistance (the former all-time closing
highs) levels.
GLD is now in
the consolidation that I have been awaiting.
If it holds trend, then our Portfolios will likely start to nibble.
Seventh
and pre-election year seasonal charts (short):
Fundamental
Headlines
One
datapoint was reported yesterday: the January Dallas Fed manufacturing index
was negative versus an anticipated increase.
Not good; but this is a secondary indicator. So nothing upsetting.
The
disappointing trend in earnings reports/guidance continues with MCD and UTX
coming up short of investor expectations.
***overnight,
there was a bevy of poor reports (see below).
Overseas,
S&P lowered Russia’s credit rating to junk and the fighting continued in
Ukraine. The latter we already knew and
the former was not a particular surprise. However, as I am sure you know, the focus was
on the Greek election results and the somewhat larger block of seats gained by
the anti-austerity party. The rhetoric
immediately following was surprisingly calm both from the leadership of the new
government and the powers that be in the EU.
I am sure that had a settling effect on investor emotion. To be sure, there is a considerable distance
between the stated positions of the two parties and that is not likely to be
closed absent a game of high stakes poker.
On the other hand, the EU politicians always seem to come up with a ‘muddle
through’ solution. I will continue to
plead ignorance on how this situation resolves itself; but until we know who
blinks and what the consequences are, there remains the risk of significant
disruptions in the financial markets.
How
much success will Greece have in ending austerity? (medium):
Or
is it a disaster? (medium)
***overnight,
Chinese industrial profits fell 8% year over year.
Bottom
line: between the residual giddiness
over the new ECB (Canadian, Danish and Turkish) QE and the fact that the
winning party in the Greek elections didn’t start out with guns a’blazing,
investors seemed relatively sanguine yesterday.
Nevertheless, the list of potential risks to US economic progress and by
extension the growth in corporate profits is extensive. And the ongoing trend in earnings/guidance
disappointments speaks directly to that risk.
So if the upbeat scenario that is seemingly priced into stocks are
current levels were to begin to unravel, the risk on the downside to prices is significant
if our Valuation Model is even remotely close to being accurate.
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.
Stephen
Roach on ECB QE (medium):
Investing for Survival
Ease
into retirement (short):
ETF Highlight
Van Kampen Municipal Opportunity
Trust is a closed-end management investment company. Its investment objective is to provide a high
level of current income exempt from federal income tax, consistent with the
preservation of capital.
The fund invests approximately
98% of its assets in bonds and may be considered for investors seeking a Municipal
- National strategy. The Invesco
Municipal Opportunity has returned an annual rate of 6.26% since inception.
More recently, the fund has generated a total return of 5.69% in the last five
years, 2.40% in the last three years, and 17.79% in the last year. On a year to date basis, VMO has returned 13.54%.
Downside risk has been below average, has a three year standard deviation of
11.8% and fund has had moderate volatility in its monthly performance over the
last 36 months. As VMO is a closed end fund, it has no front end or back end
load. The ETF Portfolio owns a full
position in VMO.
News on Stocks in Our Portfolios
Note
the increasing amount of red in these reports
·
Revenue of $3.5B (-1.4%
Y/Y) misses by $90M.
·
Caterpillar (NYSE:CAT): Q4 EPS of $1.35 misses by $0.20.
·
Revenue of $14.24B (-1.1%
Y/Y) beats by $60M.
·
3M (NYSE:MMM): Q4 EPS of $1.81 beats by $0.01.
·
Revenue of $7.72B (+2.0%
Y/Y) misses by $50M.
·
Procter & Gamble (NYSE:PG): FQ2 EPS of $1.06 misses by $0.07.
·
Revenue of $20.16B (-4.4%
Y/Y) misses by $460M.
·
Microsoft (NASDAQ:MSFT): FQ2 EPS of $0.71 in-line.
·
Revenue of $26.47B (+8.0%
Y/Y) beats by $140M.
·
United Technologies (NYSE:UTX): Q4 EPS of $1.62
in-line.
·
Revenue of $17B (+1.4% Y/Y) misses by $140M.
Economics
This Week’s Data
The
January Dallas Fed manufacturing index fell to -4.4 versus expectations of
+4.0.
December durable goods
orders fell 3.4% versus estimates of +0.7%; ex transportation, they dropped
0.8% versus forecasts of an increase of 0.8%.
Other
Real
median household income rose in December (short):
Politics
Domestic
Quote of the day
(short):
International War Against Radical Islam
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