The Morning Call
4/14/15
The Market
Technical
The indices
(DJIA 17977, S&P 2092) fell yesterday.
They closed above their 100 day moving averages and bounced down off very
short term downtrends---which is one of the barriers the Averages need to
successfully challenge in order to get to the upper boundaries of their long
term uptrends. The other is the late February highs.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(16950-19727, 1982-2963), intermediate term (17062-22198, 1793-2565 and long
term (5369-18873, 797-2129).
Volume rose;
breadth fell. The VIX rebounded 11%, ending
back above the lower boundary of the developing pennant formation---thereby
negating Friday’s break. Still it finished
within its short term trading range, its intermediate term downtrend, its long
term trading range and below its 100 day moving average. I
continue to think that the VIX remains a reasonably priced hedge.
The long
Treasury was up again. It closed within
its short term trading range, intermediate and long term uptrends and above its
100 day moving average, remaining within a very short term trading range dating
back to mid-March.
GLD’s price dropped,
closing back below the lower boundary of a very short term uptrend for a second
time. A close below that boundary today
will negate that trend. It remains within
its short and intermediate term trading ranges, its long term downtrend and
below its 100 day moving average. GLD continues
to struggle just to stay flat.
Bottom line: short
term, the Averages touched their very short term downtrends and retreated; and did
so on a Monday which has been a positive performance day of late. Those downtrends are one of the two
resistance levels the indices must overcome to firmly establish upside momentum.
Longer term, the
trends are solidly up and will be so until the short term uptrends, at the very
least, are negated.
Fundamental
Headlines
The
US March budget deficit was a disappointment, not what we want to see but still
not a primary indicator. The real news
came from overseas. March Chinese trade
numbers were awful---exports down 15% and imports off 12.5%
***overnight,
a Japanese government official suggested that the current exchange rate for the
yen was too high, i.e. it needs to be devalued more; and UK March CPI was below
expectations.
In
addition, the Greeks once again failed to provide the specificity in its policy
proposals to gain approval for bailout funds. Time is running out on these
clowns. Everyone now appears to be
accepting a Grexit as a reasonable possibility.
However, I don’t believe that anyone has a handle on the magnitude of
the unintended consequences---not that they will of necessity be negative, we
just don’t know.
Bottom line: yesterday’s
dataflow both here and abroad did nothing to improve the economic outlook. If Chinese trade is falling precipitously,
that won’t be good for anyone. A Grexit
may not have a big impact on the EU economy initially; but its effect on the financial
system may be another matter especially if the fallout from the Austrian bank
bankruptcy continues to get worse.
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.
The
latest from John Hussman (medium):
The
latest from David Einhorn (medium):
More
on valuation (medium and a must read):
Company Highlights
United
Technologies is an industrial conglomerate which manufacturers and services
aircraft engines (Pratt & Whitney), manufacturers heating, ventilating and
air conditioning equipment (Carrier), manufacturers and services elevators
(Otis), builds helicopters (Sikorsky), manufacturers aerospace and industrial
products (UTC Aerospace) and provides security and fire protection services
(UTC Fire and Security). The company has
earned an 18-20% return on equity over the last ten years while growing profits
and dividends at a 10-15% rate. While UTX ’s businesses are impacted by the global
economic activity, the company has grown fairly consistently returned because:
(1) its main businesses possess a large parts and
service component which adds stability to earnings,
(2) the
diversity of its product line allows for consistency in revenue and earnings
performance,
(3) its strong
cash flow allows for further acquisitions and product innovation.
Negatives:
(1) a
significant portion of its business is subject to government funding,
(2) its
international operations are subject changes in foreign economies growth rates
as well as currency fluctuations and government regulations,
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2005
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin
Rating
*Because the
market segments in which these companies operate are so diverse, comparable
data would be meaningless.
Chart
Note:
UTX stock made great progress off its March 2009 low, surpassing the downtrend
off its October 2007 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 an uptrend (purple lines). The
wiggly red line is the 100 day moving average.
The Dividend Growth Portfolio owns a full position in UTX. The upper boundary of its Buy Value Range is
$83; the lower boundary of its Sell Half Range is $147.
4/15
News on Stocks in Our Portfolios
·
Revenue of $17.37B (-4.1%
Y/Y) beats by $60M.
·
Fastenal (NASDAQ:FAST): FQ1 EPS of $0.43 beats by $0.02.
·
Revenue of $953.32M (+8.8%
Y/Y) misses by $1.87M.
Economics
This Week’s Data
The
March US budget deficit was $52.9 billion versus estimates of $43.4 billion.
March
retail sales rose 0.9% versus expectations of up 1.1%; ex food and gas, they
were up 0.5% versus forecasts of up 0.4%.
March
PPI increased 0.2% versus February’s report of +0.4%
Other
Is
the dollar going still higher (medium):
Ackman
says student loans are biggest risk to financial system (short):
Have
profit margins peaked (mean reversion?) (short):
March
consumer credit declined and the index of rejection of credit applications
soared.
Politics
Domestic
Quote of the day
(short):
International War Against Radical Islam
No comments:
Post a Comment