The Morning Call
2/24/15
The Market
Technical
The indices
(DJIA 18116, S&P 2109) backed off modestly yesterday, but still ending
within uptrends across all timeframes: short term (16630-19402, 1935-2916),
intermediate term (16689-21843, 1757-2471) and long term (5369-18860, 797-2095). They both closed above their 50 day moving
averages and their mid-December highs. In
addition, S&P closed above the upper boundary of its long term uptrend (confirming
the break of that trend) while the Dow remains well below its comparable boundary. Under our time and distance discipline, the
Averages need to be in sync to validate a change in trend. Our task now will be to re-set that upper
boundary of the S&P’s long term uptrend; but we will just have to wait and
let the index do that for us.
Volume
fell; breadth was weak. The VIX rose,
closing within its short term trading range, its intermediate term downtrend
and below its 50 day moving average.
The
long Treasury was up nicely, finishing back above the lower boundary of its
short term uptrend (negating the potential break), above the upper boundary of
the newly formed very short term downtrend (a close above that boundary today
will confirm the break) and within intermediate and long term uptrends. The only negative was that it remained below
its 50 day moving average.
GLD
traded up, leaving it above the lower boundary of its a short term uptrend, but
not by much. It remained below its 50
day moving average and within an intermediate term trading range and a
developing a very short term downtrend.
Bottom
line: investors piddled yesterday,
probably hesitant to make any big commitments ahead of Yellen’s congressional
testimony that begins today. I don’t view
that as any impairment to the upward momentum of the Market. Nonetheless, the S&P confirmed the break
of the upper boundary of its long term uptrend.
That is a pretty significant event, technically speaking. Barring it being a false flag, the S&P
now needs to re-set that upper boundary---which only it can do.
TLT had a good
day, avoiding a break of its short term uptrend and violating a developing very
short term downtrend---both very good signs that bond prices have found some
stability. GLD also acted a bit
better---‘a bit’ being the operative words.
The
latest from Andrew Thrasher (medium):
More from Humble
Student of the Market (medium):
Fundamental
Headlines
Another
day and more missed expectations: January existing home sales fell much more
than anticipated, the Dallas Fed manufacturing index also declined well in
excess of estimates while the January Chicago National Activity Index rose less
than consensus. This is not making standing firm on our forecast any easier.
There
were no economic numbers from overseas but the wire lines were still busy. I thought that fighting in Ukraine would
taper off after the ‘rebels’ took Debaltseve---which is what I get for
thinking. Regrettably, the violence hasn’t
stopped which keeps the risk of some sort of big power confrontation on the
table. I have never thought that there
was much chance of that because our leaders don’t have the cojones to stare
down Putin. Nonetheless, continuing
turmoil still keeps the odds of some mishap higher than zero.
Ron
Paul on Ukraine (medium):
The
Greeks met the midnight deadline by a short hair and the EU/ECB/IMF appear at
first glance to be happy. I am wondering
about the Greek populous.
Bottom line: the
US economic numbers continue to disappoint, though the Street narrative is that
the economy is improving. It is like the
latest earnings season, profits were less than expected, guidance was worse, no
one is talking about the impact of the longshoremen’s strike or the terrible weather
on first quarter/2015 earnings and the story line is that profits are the ‘mother’s
milk’ of stock prices and they will continue to improve.
The Greek’s made
their first deadline under the Friday agreement with the EU/ECB/IMF, so our ‘muddle
through’ assumption remains in play.
As long as both good
news and bad news are good news in investors’ eye, the only reasonable
assumption is that stock prices will continue to advance. At some point, bad news will return to being
bad news but I clearly am not smart enough to know when that occurs.
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.
US
officials investigating 10 banks for possible rigging of precious metals market
(medium):
Central
bank easing now covers half the globe (medium):
Highest forward
P/E ratio for S&P since 2004 (short):
Investing for Survival
12
lessons from Tren Griffin (medium):
Company Highlights
Canadian
National Railway operates Canada’s largest railroad system spanning the
East/West width of the country plus a North/South axis that runs through the US
mid-West to the Gulf of Mexico. The
railroad has grown its profits and dividends at a 17-22% pace over the past 10
years earning a 14-20%+ return on equity.
Going forward, earnings should increase at an above average pace as
result of:
(1) aggressive productivity
improvement such as the SmartYard technology, precision engineering, shop
consolidation, train length, car velocity, fuel productivity, extended sidings
and yard integration,
(2) cost control
measures.
(3) an ongoing share repurchase program.
Negatives:
(1) intense
competition,
(2) the company
is unionized and therefore subject to strikes, work stoppages, etc.
(3) it is
subject to the volatility in currency and fuel prices.
The company is
rated A by Value Line, has a debt/equity ratio of approximately 35% and its
stock yields 1.3%.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio Since 2005
Ind Ave 1.5 14 26 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
Ind Ave 43 16 NA 17 NA
Chart
Note:
CNI stock made great progress off its March 2009 low, quickly surpassing the downtrend
off its May 2008 high (straight red line) and the November 2008 trading high
(green line). Long term it is in an
uptrend (blue lines). Intermediate term,
it is an uptrend (purple lines). The
wiggly red line is the 50 day moving average.
The Dividend Growth Portfolio owns a 75% position, having Sold Half in mid-2011
and the stock continuing to advance. The
upper boundary of its Buy Value Range is $41; the lower boundary of its Sell
Half Range is $73.
2/15
News on Stocks in Our Portfolios
·
Revenue of $19.16B (+8.2%
Y/Y) beats by $460M.
·
Donaldson (NYSE:DCI): FQ2 EPS of $0.37 in-line.
·
Revenue of $597M (+2.6%
Y/Y) misses by $8.37M.
·
Oneok Partners (NYSE:OKS): Q4 EPS of $0.67 beats by $0.04.
·
Revenue of $2.84B (-17.7%
Y/Y) misses by $780M.
Economics
This Week’s Data
January
existing home sales fell 4.9% versus expectations of a 1.8% decline.
The
February Dallas Fed manufacturing index was reported at -11.2 versus estimates of
-2.8.
Other
A
look at debt to GDP around the world (short):
The
disconnect between the Market and the economy (medium):
Politics
Domestic
International
To
Obama, from Russia with love (short):
To
Iran, from Russia with love (medium):
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