The Morning Call
4/23/15
The Market
Technical
The indices
(DJIA 18038, S&P 2107) rallied nicely yesterday. Both remained above their 100 day moving
averages; both below their prior highs---keeping the series of lower highs
intact.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(17015-19812, 1993-2974), intermediate term (17136-22262, 1802-2575 and long
term (5369-18873, 797-2129).
Volume was flat;
breadth improved. The VIX declined, falling below the lower boundary of a (now
in question) developing pennant formation; a close below that boundary will
negate the formation (again). I continue to think that the VIX remains a
reasonably priced hedge.
Here is a
positive breadth indicator (short):
The long
Treasury declined big time, finishing below the lower boundary of the tight very short term trading range and its
100 day moving average. The lower boundary
of its short term downtrend is now at roughly the same level as the lower boundary
of its intermediate term uptrend. If
those trends are violated, it may well spark sales of at least a portion of the
muni bond positions in our ETF Portfolio.
GLD’s dropped
again, continuing to form a head and shoulders pattern and otherwise lousy pin
action.
Oil managed to
lift a little but remained below the former upper boundary of a trading range
(i.e. resistance turned support) which now shifts again from support to
resistance.
Bottom line: both
the indices closed in the narrowing boundaries formed by their very short term downtrends
(upper) and their 100 day moving averages (lower). The spread between these
boundaries is down to 20 points on the S&P, though both of the Averages are
a short hair from challenging the upper boundaries.
On the other
hand, while the 100 day moving averages have offered strong support in the
recent past, the risk/reward between the upper boundaries of the indices long
term uptrends and the upper boundaries of their short term uptrends continues
to favor the risk side.
Longer term, the
trends are solidly up and will be so until the short term uptrends, at the very
least, are negated.
Fundamental
Headlines
Yesterday’s
US economic stats were both housing related and both upbeat: mortgage and
purchase applications were up and March existing home sales were double estimates. Both are great news although with the rest of
the universe blaming weather on numbers shortfall, it is a bit surprising that
one of the most weather sensitive economic datapoints knocked the cover off the
ball.
Overseas,
Japan reported its first trade surplus in three years, though it was heavily
weighted to lower imports versus higher exports. In other words, Abe’s currency
devaluation/beggar thy neighbor policy is working but at the expense of the
Japanese consumer (imported goods are now more expensive but exports aren’t
growing, so neither are wages).
In
Europe, the Greece/troika bail out discussions are going from strained to
hostile. The Greek government announced
that it would not present any fiscal reform proposals mandated by the troika at
tomorrow’s EU financial ministers meeting.
The ECB fired back, lowering the collateral value of Greek bank assets
posted to secure loans. And the EU retaliated
over the Greek/Russia pipeline talks by filing antitrust charges against
Gazprom---apparently dreaming that somehow Putin would put up with that crap.
The
IMF’s big Greek mistake (medium):
***overnight:
(1)
the Bank of Japan said that it may not reach its 2%
inflation goal until 2016 (medium and a must read)
(2)
Chinese April Markit PMI fell below 50 [49.2]
indicating contraction,
(3)
The EU April composite PMI came in below expectations as
did both the manufacturing and service components,
(4)
Deutschebank agreed to pay a $2.1 billion penalty for
fraud in the Libor rice fixing case.
Bottom line: we
finally got a day where the economic news was positive. That is great---I have been concerned that I would
have to lower our outlook from even slower growth to outright recession. Not that two datapoints change everything;
but with any follow through, we can hopefully lower the odds of an economic
decline.
That said, I don’t
view the positive Japanese trade numbers as a plus overall. As I noted above, it likely means nothing to
the Japanese workingman. Further, in a
world where currency devaluation is the accepted policy, that trade data may
prompt additional counter moves from competitors. That is what happens in a war of competitive
devaluations.
In addition, the
Greek/troika faceoff is morphing into a sophomoric game of spite. The troika is determined to discipline the
Greeks, who they have already beaten to a pulp on the grounds of fiscal irresponsibility,
by demanding fiscally suicidal policies which is just as irresponsible. Meanwhile, rather than face up to past
unsound policies and attempt to negotiate a more workable deal from the troika,
the Greeks are doing everything they can to damage the EU and weasel out of
accepting any responsibility for past sins.
I have no clue how this works but I don’t believe those that profess to
do either.
I can’t see how either
of the above is priced into stocks that are now a milli short hair from record high
valuations.
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.
Doug
Kass discusses 12 factors that are weighing on the Market (medium):
Buyback
authorizations reached a high in first quarter 2015 (short):
Asset
inflation and growth (short):
Investing
for Survival
The
great wealth non-equalizer (medium):
Company Highlights
Sherwin Williams
Co. is one of the largest producers of paints, varnishes and application
equipment, much of its sold through 3500+ retail paint and wall covering
stores; in addition, it produces auto coatings which are sold through auto
coatings outlets. The company has grown
profits and dividends at a 12% pace over the last 10 years earning a 20%+
return on equity. The company’s revenues
and profits are negatively impacted by weakness in the construction and housing
markets. However, longer term it should
still grow at an above average pace as a result of:
(1) improving US
and international sales in autos, OEM product finishes and protective and
marine coatings,
(2) improving
nonresidential housing sales,
(3) declining
raw material costs [oil],
(4) refurbishing
[recently acquired] Comex stores are attracting higher grade of painting
contractors.
Negatives
(1) a poor
pricing environment in the consumer segment,
(2) currency
fluctuations.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2005
Ind Ave 1.6 14 39 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
Ind Ave 31 37 NA 7 NA.
Chart
Note:
SHW stock made great progress off its March 2009 low, quickly surpassing the
downtrend off its July 2007 high (straight red line) and the November 2008
trading high (green line). Long term,
the stock is in an uptrend (blue lines).
Intermediate term, it is in an uptrend (purple lines). Short term, it is in an uptrend (brown
line). The wiggly red line is the100 day
moving average. The Dividend Growth
Portfolio owns a 50% in SHW, having Sold Half in mid-2013. The upper boundary of its Buy Value Range is
$101; the lower boundary of its Sell Half Range is $213.
4/15
News on Stocks in Our Portfolios
·
Revenue of $5.04B (+10.5%
Y/Y) beats by $60M.
- Caterpillar (NYSE:CAT):
Q1 EPS of $1.86 beats by $0.51.
- Revenue of $12.7B (-4.1% Y/Y) beats by $320M.
- 3M (NYSE:MMM): Q1 EPS of $1.85 misses by $0.08.
- Revenue of $7.57B (-3.3% Y/Y) misses by $270M.
·
PepsiCo (NYSE:PEP): Q1 EPS of $0.83 beats by $0.04.
·
Revenue of $12.22B (-3.2%
Y/Y) beats by $40M.
·
Procter & Gamble (NYSE:PG): FQ3 EPS of $0.92
in-line.
·
Revenue of $18.14B (-7.6%
Y/Y) misses by $350M.
·
Qualcomm (NASDAQ:QCOM): FQ2 EPS of $1.40 beats by $0.07.
·
Revenue of $6.89B (+8.2%
Y/Y) beats by $60M.
·
Expects FQ3 revenue of
$5.4B-$6.2B and EPS of $0.85-$1.00, below a consensus of $6.5B and $1.14.
·
Expects FY15 (ends Sep.
'15) revenue of $25B-$27B and EPS of $4.60-$5.00 vs. a consensus of $27.22B and
$5.00.
·
233M FQ2 MSM chip
shipments, in-line with guidance of 220M-240M. 210M-230M shipments expected in
FQ3.
- AT&T (NYSE:T): Q1 EPS of $0.63 beats by $0.01.
- Revenue of $32.57B (+0.3% Y/Y) misses by $270M.
Economics
This Week’s Data
March
existing home sales rose 6% versus expectations of up 3%---but wait, what about
the weather?
Weekly
jobless claims rose 1,000 versus forecasts of down 8,000.
Other
Someone
is going to be wrong about the consumer (short):
Draghi’s
QE problem (medium):
Politics
Domestic
Hillary’s
speaking fees (short):
International
Saudi
Arabia resumes bombing Houthis rebels in Yemen after one day pause (medium):
This is the government
that we (US/EU) are supporting in Ukraine (medium):
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