The Morning Call
3/5/15
The Market
Technical
The indices
(DJIA 18096, S&P 2098) underwent more consolidation yesterday but ended
within uptrends across all timeframes: short term (16708-19479, 1946-2927),
intermediate term (16770-21921, 1765-2479) and long term (5369-18860,
797-???). They both closed above their
50 day moving averages and their mid-December highs. The S&P again finished below the upper
boundary of its former long term uptrend (2112), showing just how hard it is to
break a long term trend. Meanwhile the
Dow remains well below its comparable boundary.
Volume
declined; breadth deteriorated. The VIX
rose, closing within its short term trading range and its intermediate term
downtrend, below its 50 day moving average and below the upper boundary of a
developing very short term downtrend. This
indicator is not acting like something negative is coming stocks’ way.
The
long Treasury was up, but not enough to recapture the lower boundary of its
short term uptrend. Therefore, the short
term trend is resetting to a trading range.
It remains below its 50 day moving average but within its intermediate
and long term uptrends and above its recent low. If TLT trades below that recent low, it will
re-set the short term trend to down.
That would likely bring additional sales of the long bond position in the
ETF Portfolio.
GLD
was down, ending below the lower boundary of its short term uptrend. If it remains below this support level
through the close on Friday, the short term trend will reset to a trading
range. It remained within its
intermediate term trading range, a very short term downtrend and below its 50
day moving average.
Bottom
line: the indices extended what, at the
moment, appears to be a normal consolidation characterized by an absence of
buyers---likely a function of a ‘wait and see’ attitude ahead of today and
tomorrow, both of which are expected to be big news event days. I will be watching how investors receive that
news for signals on future price direction.
Bonds reset their short term trend to a
trading range and are near resetting once again to down. If that occurs, our ETF Portfolio will likely
lighten up this position. GLD remains on
the cusp of a breaking support level. A
failure to hold will prompt the sales of the remaining shares by our
Portfolios.
Fundamental
Headlines
So
we finally got a day in which the economic stats were half way decent: weekly
mortgage applications were up though the more important purchase applications
were down; the ADP private payroll report showed job growth below forecast, but
the January number was revised up substantially; both the February Markit
services PMI and the ISM nonmanufacturing indices were better than anticipated. Finally, the latest Beige Book report was
generally upbeat but sounded way off kilter with the recent dataflow. Nonetheless, let’s hope that we see more of
this. Unfortunately, a positive data day
is now the outlier.
Overseas,
the stats were just the opposite: the Reserve Bank of India dropped interest
rates of the second time in two months, fourth quarter Australian GDP was up
less than expected, the February EU Markit composite PMI was weaker than its
initial reading, the UK services PMI was below estimates, the Japanese services
PMI was awful. The one upbeat note was
the Chinese services PMI which was slightly better than forecast.
In
summary though, I don’t think that a plus day in what may be the sixth week of
poor US numbers is nearly as positive as a lousy day in a three week period of
mixed reports is negative.
***overnight,
China lowered its 2015 GDP growth estimate, the ECB left interest rates
unchanged, German factory orders were down big and EU retail sales were up less
than forecast.
Bottom line:
yesterday was quiet ahead of today’s ECB meeting and the results of the US bank
stress test and tomorrow’s nonfarm payroll number---any of which could impact
near term Market direction. Longer term
though, stocks are extraordinarily overvalued in the face of poor US economic
data, flattish (at best) global economic activity and a spike in interest rates
that threatens to go even higher---none of which historically have been great
for corporate profits or P/E’s.
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.
More
on valuation (short):
Mark
Cuban on the Market (medium):
Company Highlights
Chevron is the
world’s fourth largest oil company based on proven reserves. The company has grown its profits at a 20%+
annual rate over the last 10 years while earning an 11-20% return on
equity. The dividend growth rate has not
kept pace with profits; but the gap in the rate of increase has been
closing. CVX prospects are bright based
on:
(1) one of the most promising development
project pipeline in the industry has a number of very promising exploration
projects that will grow its reserves.
They include deep water production in the Gulf of
Mexico as well as fields in western
Australia , Angola , Nigeria and the Gulf of Thailand
(2) increasing
focus on alternative energy sources.
Negatives:
(1) exposure to fluctuating oil and gas prices,
(2) its extensive international operations
subjects it to currency fluctuations and political risk,
(3) its large capital expenditure budget will
increase its balance sheet leverage,
(4) excess capacity is putting pressure on
refining margins.
Chevron is rated
A++ by Value Line, has a low 13% debt to equity ratio and its stock yields
approximately 3.6%.
Statistical Summary
Stock
Dividend Payout # Increases
Yield Growth Rate Ratio Since 2005
CVX 3.6% 7% 40% 10
Ind Ave 3.0 10 35 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
CVX 13% 13% 3 10%
A++
Ind Ave 23 12 NA 6 NA
Chart
Note:
CVX stock made great progress off its October 2008 low, quickly surpassing the downtrend
off its May 2008 high (straight red line) and the November 2008 trading high
(green line). However, it has stumbled
of late due to lower oil prices. Long
term, the stock is in a trading range (blue lines). Intermediate term, it is in a trading range
(purple lines). Short term, it is in a
downtrend (brown line). The wiggly red
line is the 50 day moving average. The
Dividend Growth Portfolio owns a 90% position in CVX and the stock is on the
Dividend Growth Buy List. However, if
intermediate term trend resets from a trading range to a downtrend (which is
close), the stock will be Removed from the Buy List; but the holding will be
retained. The upper boundary of its Buy
Value Range is $111; the lower boundary of its Sell Half Range is $180.
3/15
Investing for Survival
Ten
steps to financial independence (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
February Markit services PMI came in at 57.1 versus expectations of 56.8.
The
ISM nonmanufacturing index was reported at 56.9 versus estimates of 56.5.
The
Fed issued its latest Beige Book Report which remained upbeat in tone. Key observations: economic activity up in all
regions, job gains in a broad range of sectors, construction spending up.
Weekly
jobless claims rose 7,000 versus forecasts of a 13,000 decline.
Fourth
quarter nonfarm productivity dropped 2.3% in line; however, the third quarter
reading was revised from -1.8% to +3.3%.
Unit labor costs were up 4.0% versus consensus of +3.3%.
Other
How
to end the world’s addiction to debt (medium):
The
dollar as an indicator of global economic activity (medium):
More
on dynamic scoring (short):
For
all those ‘lower oil prices are an unmitigated positive’ adherents (medium):
Politics
Domestic
On the funding
of the Department of Homeland Security (medium):
International
NATO
sanctions against Russia not having desired effect (medium):
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