The Morning Call
2/5/15
The Market
Technical
More
volatility. Yesterday the indices (DJIA
17673, S&P 2041) traded up all day (110+ points on the Dow) then collapsed
in the last hour. They ended within
uptrends across all timeframes: short term (16514-19290, 1919-2900),
intermediate term (16550-21705, 1749-2463) and long term (5369-18860,
783-2083). The S&P finished below
its 50 day moving average, while the Dow closed right on its average. Both penetrated the downtrends off their December
highs on the upside, then closed below that boundary. Depending on the follow through, they have
potentially established a third lower high.
Volume
declined; breadth deteriorated. The VIX rose
6%, ending within a short term trading range, an intermediate term downtrend
and above its 50 day moving average.
The
long Treasury bounced back, but not enough to recover the lower boundary of its
very short term uptrend---hence the break is confirmed. It remained within short term, intermediate
term and long term uptrends and above its 50 day moving average.
GLD
was up, ending within its short term uptrend, an intermediate term trading
range and above its 50 day moving average.
Bottom
line: the technical evidence remains
weighted to the positive. However, the
indices made an attempt to break above the downtrends off their December highs,
but failed. Any follow through to the
downside will create a third lower high for both Averages and would increase
the strength of those resistance lines. I
continue to believe that the best place to be is the sidelines.
GLD bounced
meekly but our Portfolios did nothing.
Fundamental
Headlines
The
US economic stats yesterday were mixed: weekly mortgage applications were up
but the more important, purchase applications were down, the January ADP
private payroll reports was below expectations and the January Markit PMI and
the January ISM service index were slightly ahead of estimates.
No
big earnings disappointment, again.
Clearly, the longer we go with no additional misses on profits or lousy
guidance from major players, the less negative those first ten trading days of
this earnings season become.
Oil
got whacked---for the moment saving the gurus the need to comment on whether
higher oil prices are good or bad for the economy.
We
got more mixed economic data from overseas.
The January Chinese and Canadian service PMI’s were below forecasts
while Germany, Italy and Spain all recorded better than anticipated service PMI’s. The Bank of China eased monetary policy via a
reduction in reserve requirements.
***overnight,
German industrial orders soared 4.2% and the EU raised its 2015 growth
prospects.
Yesterday
started with more of the hand holding and nicey, nice talk about the prospects
of the new Greek government and the ECB/IMF working out an agreement to keep
Greece in the euro and not default. I
said in Wednesday’s Morning Call that I thought that the measures that had been
proposed were the equivalent of trading an option on the growth of buggy whips
for the current outstanding debt.
Someone in the ECB apparently agreed because yesterday afternoon, it was
announced that it wouldn’t allow Greek banks to use its government’s debt as collateral
to fund themselves (short):
Of
course, that was likely just rhetoric designed to tighten the Greeks’
sphincters. The point here is that the
tough negotiations haven’t even started yet and getting jiggy or depressed over
the latest comment from some bureaucrat probably isn’t a good use of time or
money.
***overnight,
‘we didn’t even agree to disagree’ (short):
Here
is another great summary of the situation in Greece from Yves Smith (medium and
a must read):
Bottom
line: the ECB statement on the value of
Greek debt as collateral put a hitch in investors’ ‘gitty up’ yesterday. That is likely not even close to the last
time it will happen before this problem is resolved. So until we really know something concrete
about the outcome, investors may be in for an emotional roller coaster
ride.
China inched its
way into the easy money race to the bottom.
That is the last of the big central banks to commit. What is amazing is the seeming addict
mentality of the central bankers---knowing that this can’t end well but unable
to stop doing it. If the analogy is
right, then it won’t end well; and the worse the addiction, the more painful
the detox.
Oil ripped the
lungs out of any recently converted bulls.
Here again I am amazed. In this
case, at the disconnect between the gurus and the Markets. Oil goes down in price (the ‘unmitigated
positive’) and stocks get whacked. The only
good news (at least for the gurus) from yesterday’s whackage is that they don’t
have to explain why rising oil prices isn’t a disaster.
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.
For
the optimists (medium):
Counterpoint
(medium):
The
hedge funds’ most crowded trades (short):
Japanese
bond yields pushing higher---not good for Mr. Abe and his QE (short):
Company Highlights
(1) a huge
inventory of drilling opportunities [Eagle Ford, Bakken],
(2) growing
emphasis on crude oil production, now growing at a 30-50% annually rate,
(3) management’s
focus on rationalizing operations,
(4) technological
competence.
Negatives:
(1) geopolitical
risks,
(2) fluctuations
in energy prices,
(3) unsuccessful
drilling and cost overruns,
(4) intense
competition.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2005
Ind Ave 3.2 4 15 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
Ind Ave 37 10 NA 13 NA
Chart
Note: EOG stock made great progress off
its March 2009 low, quickly surpassing the downtrend off its June 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 in a trading ranges
(purple lines). The wiggly red line is
the 50 day moving average. The
aggressive Growth Portfolio owns a full position in EOG. The upper boundary of its Buy Value Range is
$69; the lower boundary of its Sell Half Range is $166.
01/15
Investing for Survival
Setting
realistic expectations (short):
News on Stocks in Our Portfolios
·
Revenue of $5.1B (+11.1%
Y/Y) beats by $80M.
- Teva Pharmaceutical (NYSE:TEVA): Q4 EPS of
$1.31 in-line.
- Revenue of $5.17B (-4.8% Y/Y) beats by $10M
·
Revenue of $2.05B (+1.5%
Y/Y) beats by $40M.
·
AmeriGas Partners (NYSE:APU): FQ1 EPS of -$0.49 may not be comparable
to consensus of $1.39.
·
Revenue of $888.8M (-15.4%
Y/Y) misses by $81.17M.
Economics
This Week’s Data
The
January Markit services PMI came in at 54.2 versus expectations of 54.1.
The
January ISM nonmanufacturing index was reported at 56.7 versus estimates of
56.5.
The December US trade
deficit was $46.6 billion versus forecasts of $37.9 billion.
Weekly
jobless claims rose 11,000 versus consensus of up 25,000.
Fourth
quarter nonfarm productivity fell 1.8% versus expectations of up 0.2%; unit
labor costs increased 2.7% versus an anticipated advance of 1.2%.
Other
Dollar
strength and earnings/revenue expectations (medium):
Ignoring
the yield curve (medium):
Politics
Domestic
International War Against Radical Islam
Presented
without comment (short):
The US moves ‘search and rescue
assets’ into northern Iraq (medium):
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