Thursday, January 15, 2015

The Morning Call & Subscriber Alert---More disappointing earnings reports

The Morning Call

1/15/15

The Market
           
    Technical

And the beat (volatility) goes on.  Stocks opened down huge, fell lower but managed to rally late in the day to cut losses.   Still, the indices (DJIA 17427, S&P 2011)  closed within uptrends across all timeframes: short term (16387-19157, 1894-2286), intermediate term (16405-21570, 1729-2443) and long term (5369-18860, 783-2083); although they remained below their 50 day moving average. 

Initial trading pushed the Averages below the lower boundaries of the developing pennant patterns that we have been watching.  However, after the late day move up, they closed right on those lower boundaries.  Hence, these pennant formations are still intact.  On the other hand, the follow through to the downside was in line with expectations pursuant to Tuesday’s outside down day.

            Volume was up slightly; breadth was negative, though not nearly as much as I would have expected.  The VIX rose again, trading intraday above the upper boundaries of both its short term trading range and its intermediate term downtrend.   Nevertheless, it finished above its 50 day moving average and within its short term trading range and intermediate term downtrend. 
           
            The long Treasury moved higher, ending right on the upper boundary of its short term uptrend, above the upper boundary of its intermediate term uptrend, within its long term uptrend and above its 50 day moving average.
           
            GLD rose, trading intraday above the upper boundary of its intermediate term downtrend and then falling back for the second time in as many days.  It closed within its very short term uptrend, its short term trading range and slightly below the upper boundary of its intermediate term downtrend. 

Bottom line: yesterday morning broke to the downside out of their developing pennant formations, then recovered late in the day to remain within them.  In effect, that makes a third higher low and leaves those pennant patterns intact.  So despite the down close in prices, that intraday recovery could be viewed positively.  On the other hand, the follow through on Tuesday’s outside down day is a negative.  In short, this pin action is just more of the same schizophrenic behavior with which we have been suffering since the first of the year.  I remain directionally clueless.

            Five charts for the fully invested (medium):

    Fundamental
   
            Yesterday’s US economic indicators presented some pretty surprising results: weekly mortgage and purchase applications soared largely on the recent decline in interest rates; December retail sales were quite negative though the media trooped all manner of pundits before the public poo pooing the numbers and providing endless reasons why they should be ignored; November business inventories were below estimates and sales were even worse; finally the latest Beige Book was released and served the usual gruel of modest and to moderate growth; but (perhaps not) surprisingly lower oil prices were referred to 45 times and not in particularly positive ways.  The big stat was retail sales and I am not buying the apologists arguments.

Overseas, the ECJ advocate general ruled that EU QE was compatible with EU law (good luck, Mario); Russia announced a 10% budget cut, while the World Bank estimated its GDP would contract 2.9% in 2015 (not helping the global economic outlook); Abe announced his biggest budget ever but with less borrowing (good luck with that); and copper plunged to a 5 year low.  My take is that we got good news that only Dreamweaver’s could love and bad news.

            ***overnight, the central bank of India joined the easy money crowd and lowered interest rates; the Swiss National Bank pushed its already central bank rate further into negative territory (-0.75%); BofA missed revenue and earnings estimates; and the clincher, Russia cut all gas deliveries through Ukraine (to six EU countries).

            The last nail in yesterday’s Market’s coffin was a disappointing earnings report from our ‘fortress’ bank---JP Morgan.

            And, of course, Jamie Dimon pissed and moaned and made excuses (short):

            Bottom line:  on top of some confusing news both here and abroad, for a third day in a row, investors got unexpectedly smacked with a severe case of cognitive dissonance (disappointing earnings) that even higher oil prices couldn’t overcome.  How long this can go on (on the assumption that it does go on) before it is acknowledged as a pattern, is the $64,000 question.

            A check on S&P forward earnings estimate (short):

       Investing for Survival

            The price to book ratio (medium):

        Subscriber Alert

            The stock price of Nucor (NUE) has fallen below its Stop Loss Price.  Hence the Dividend Growth Portfolio will Sell its position at the Market open.

      ETF Highlights

Blackrock Investment Quality Muni Trust (BKN) is a perpetual closed-end municipal bond fund. BKN commenced operations in February 1993 with the investment objective to provide high current income, exempt from regular Federal income tax, consistent with the preservation of capital. All of the securities in the portfolio are rated at least investment grade or determined by the Adviser to be of equivalent credit quality at time of purchase.  Its expense ratio is 1.54% and its yield is 6.1%.  The ETF Portfolio owns a full position in BKN.



    News on Stocks in Our Portfolios
o    Alongside BlackRock's (NYSE:BLK) Q4 results, the company boosts the quarterly dividend by 13% to $2.18 per share (2.5% annualized yield) and approves the repurchase of another 6M shares under the existing buyback program.
o    Total AUM of $4.652T up 8% Y/Y. Adjusted operating margin of 43.6% up 90 basis points. Share count of 170.4M down from 173M. Adjusted EPS of $4.82 down a dime from a year ago.
o    Retail: Q4 net inflows of $22.954B; Dec. 31 AUM of $534B, 12% of total.
o    iShares: Q4 net inflows of $44.189B; Dec. 31 AUM of $1.024T, 24% of total.
o    Institutional: Q4 net inflows of $20.672B; Dec. 31 AUM of $2.775T, 64% of total.
o    Conference call at 8:30 ET
o    Previously: BlackRock beats by $0.12, misses on revenue (Jan. 15 
|7:46 AM|
·         Fastenal (NASDAQ:FAST): Q4 EPS of $0.40 beats by $0.01.
·         Revenue of $926.25M (+13.8% Y/Y) misses by $9.59M.

Economics

   This Week’s Data

            November business inventories rose 0.2% versus expectations of +0.3%; unfortunately, sales fell 0.2%.

            The Fed released its latest Beige Book.  It contained the usual diet of modest to moderate growth for various geographic areas; though it mentioned oil prices 45 times (and they didn’t suggest lower prices were an unmitigated positive).

            Weekly jobless claims rose 17,000 versus estimates of up 1,000.

            The future of jobs (short):

            December PPI came in at -0.3% versus forecasts of -0.4%; ex food and energy, it was +0.3% versus consensus of +0.1%.

            The January NY Fed manufacturing index was reported at 9.95 versus expectations of 5.0.

   Other

            Why Draghi will disappoint (medium):

Politics

  Domestic

Three ways Congress screws the American people (medium):

  International War Against Radical Islam







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