The Morning Call
3/24/15
The Market
Technical
The indices
(DJIA 18116, S&P 2104) continued their up day/down day pattern---it was down’s
turn. They remained well within their
uptrends across all timeframes: short term (16820-19591, 1964-2945),
intermediate term (16902-22053, 1779-2533 and long term (5369-18860, 797-2116). Both stayed above their 50 day moving
averages. Yesterday’s drop
notwithstanding, I still think it likely that they will mount another challenge
to the upper boundaries of their long term uptrends but that they will be
unable to break meaningfully above those boundaries.
Volume was down;
breadth was negative. The VIX was up though intraday it bounced off the lower
boundary of a developing pennant formation.
It remained within its short term trading range, its intermediate term
downtrend, its long term trading range, and below its 50 day moving average. I continue to think that, at these prices, it
represents cheap insurance for the trader.
The long
Treasury fell but finished within its short term trading range, intermediate and
long term uptrends, above its 50 day moving average and is developing a very
short term uptrend. Let’s hope that
trend builds.
GLD’s price rose
again, closing within its short and intermediate term trading ranges, its long
term downtrend and below its 50 day moving average. However, it has broken above the upper
boundary of a very short term downtrend.
A finish above that boundary today will confirm a break. This is the first plus sign for the GLD chart
in some time.
Bottom line: amazingly,
the fairly consistent pattern since the first of the month of one day up then
one day down held for another day; though as I observed last week, the most
recent price moves on the up days have been were greater than those on the down
days. I assume that means that momentum
has returned to the upside; and given the Averages’ proximity to the upper
boundaries of their long term uptrends, I would expect a challenge of those
levels. Although I don’t believed that
they will be sustained.
The
latest from The Stock Traders’ Almanac (short):
Fundamental
Headlines
The
trend in US economic data remains negative.
Yesterday the February Chicago National Activity Index was down versus
forecasts of being up and February existing home sales were up but short of
expectations. Investors continue to
believe that bad economic news is good Fed news; but someday, that bad news is
going to become manifest in bad earnings.
It would be extraordinary for that not to impact valuations.
No
economic news overseas; though the Greece bail out talks continue. The Market assumption seems to be that
everything will work out fine in the end.
I won’t argue with that though the odds seem less than 100%.
The
latest on the Greek/Troika standoff (medium):
***overnight,
China’s March flash manufacturing index showed contraction; however, the EU
flash composite PMI was reported at a 46 month high---very positive if there is
any follow through.
The
main narrative in the financial media remains focused on the ‘real’ meaning of
last week’s FOMC message. My opinion
hasn’t changed (1) the Fed recognizes that the economy is slowing, (2) it also
realizes that it has waited too long to tighten; so it probably won’t in this
cycle, (3) this will make the likely decline in both economic and Market
activity ‘less bad’ but (4) that doesn’t mean that equity valuations won’t
experience severe pain.
Mohamed
El Erian: The Fed is just buying time (medium):
The
Market is all about one thing (medium):
Bottom line: the
economic data continues negative as we started this week with more poor
numbers. If the trend holds, this will
be the ninth consecutive week of disappointing stats. Meanwhile, investors are wee weeing in their pants
because the Fed recognizes that economic conditions are not improving and that
means more free money. Sooner or later,
(1) in the US, if the deterioration in the economy continues, corporate
earnings start being impacted and (2) internationally, the currency devaluation
race [not raising rates weakens the dollar] will lead to slower economic growth
and potentially a trade war---neither of which is good for the US economy or corporate
profits.
All this taking
place as equity prices toy with all-time high absolute prices and valuations. Something will give sooner or later.
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
March
madness and picking stocks (medium):
Company Highlight
W.W. Grainger
Inc. is the leading provider of maintenance, repair, supplies and service for
safety, lab, automotive and industrial products to businesses and institutions
to keep their facilities and equipment running.
The company has grown profits and dividends at a 15% rate over the past
10 years earning a 15-20% return on equity.
GWW should continue to record profit growth for the long term by:
(1) expanded
product offerings. The company added
234,000 since 2006. It is also rapidly
growing its private label products,
(2) rapid
penetration of the e-commerce market which is the fastest growing segment of
its business,
(3)
acquisitions,
(4) strong cash
flow which sustains a continuing stock buyback program.
Negatives:
(1) slow global
economic growth,
(2) currency
fluctuations,
(3) margin
pressure due to increasing investment in supply chain.
Statistical Summary
Stock Dividend Payout
# Increases
Yield Growth Rate Ratio
Since 2005
Ind Ave 2.6 9 32 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
Ind Ave 24
15 NA 9
NA
Chart
Note: GWW stock made great progress off its March
2009 low, quickly surpassing the downtrend off its August 2008 high (straight
red line) and the November 2008 high (green line). Long term, the stock is in an uptrend (blue
lines). Intermediate term it is a
trading range (purple lines). The wiggly
red line is the 50 day moving average.
The Dividend Growth Portfolio owns a 50% position in GWW by virtue of
having Sold Half in mid-2012. The upper
boundary of its Buy Value Range is $98; the lower boundary of its Sell Half
Range is $238.
3/15
News on Stocks in Our Portfolios
Economics
This Week’s Data
February
existing home sales rose 1.2% versus estimates of +2.9%.
February CPI came in at
+0.2%, in line; ex food and energy, it was up 0.2% versus expectations of up 0.1%.
Other
Politics
Domestic
International War Against Radical Islam
The
US loses $500 million (of your and my money) in weapons in Yemen (medium):
http://www.zerohedge.com/news/2015-03-23/us-loses-500-million-weapons-given-yemen-now-al-qaeda-hands
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