The Morning Call
4/28/15
The Market
Technical
The indices
(DJIA 18037, S&P 2108) gave up some recent gains on Monday. The S&P remained above its 100 day moving
average but fell back below its former lower high. It traded above that high last Friday; but
needed to close above it yesterday in order to negate the trend. Yesterday’s decline thus voids Friday’s
break, leaving the S&P in a trend of lower highs. The pin action also constituted an outside
reversal (traded above prior day’s high and closed below prior day’s low) which
typically is a negative on a short term trading basis. The S&P was joined in this outside
reversal by the NASDAQ and the Russell but not by the Dow. It continued to trade above its 100 day
moving average but below its prior high.
This, like the S&P, it remains in a trend of lower highs.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(17047-19844, 1997-2978), intermediate term (17168-22294, 1802-2575 and long
term (5369-18873, 797-2129).
The latest from
Andrew Thrasher (medium):
Volume was flat;
breadth was lousy. The VIX rose, but
finished below its 100 day moving average and the lower boundary of a former
pennant formation---both being positive indicators for stock prices. I continue to think that the VIX remains a
reasonably priced hedge.
The long
Treasury was unchanged, ending over its 100 day moving average and the lower
boundary of the very short term trading range that was negated on Thursday but regained
on Friday. The issue remains, will it push higher, making the two day break an
outlier or head lower again and challenge the lower boundaries of its short
term trading range and its intermediate term uptrend?
GLD actually had
an up day but closed well within a developing head and shoulders pattern, a completion
of which would set it up for a challenge of its long term trading range.
Are commodities
bottoming? (short):
Bottom line: the
bulls took a rest yesterday, leaving both Averages within their trend of lower
highs that began in late February. Short
term, I continue to think that the risk (lower boundaries of their short term
uptrends)/reward (upper boundaries of their long term uptrends) equation is
weighed to 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.
The
long Treasury chart still has some work to do to establish a stable low off the
recent uptrend; and the GLD is fighting to just stay on the chart.
Fundamental
Headlines
Another
day of disappointing news, whether economic or geopolitical, US or abroad. Here, we got two stats: the April Market
service flash PMI and the April Dallas Fed manufacturing index. Both were below estimates. Both were among the first April
datapoints---which were supposed to reflect improvement from the poor March weather
related numbers.
Overseas,
(1) Fitch
lowered Japan’s credit rating from A+ to A,
(2) China hinted
that it was ready to go full Monty on QEInfinity,
***overnight,
the Bank of China denied it would implement QE, but the WSJ reported that there
was a credit easing program coming.
The fate of a
debt addicted world (medium):
(3) the Greek
bail out talks deteriorated further,
Greece
continues to slide toward default (medium):
And
the folks aren’t too happy about having their money confiscated (medium):
***Greece
overnight:
***overnight,
the UK reported first quarter GDP up 0.3% versus estimates of up 0.5%; and
Japan reported April retail sales down 9.7% versus expectations of down 7.3%.
Bottom line: the
news flow remains negative but the bulls continue to reign in stock land. Apparently the thought of China pursuing a QE
policy as vigorously as the US, Japan and more recently the ECB was simply too
alluring to permit thoughts about valuation.
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.
Corporate
buybacks loot the future (medium):
The
timeless nature of the herd mentality (medium):
The
most overbought/over leveraged Market in history (medium):
Company Highlight
Accenture Ltd is
a global leader in management and technology consulting services and
outsourcing solutions with 200 offices in 56 countries. The company has generated an impressive 50%+
return on equity over the last five years while growing earnings per share and
dividends 13-15% annually. ACN should be able to continue this trend as a
result:
(1) demand
outsourcing services are rising rapidly,
(2) Accenture’s
strong financial condition will allow it to continue its aggressive stock
buyback program,
(3) new services.
Negatives:
(1) its large international business subjects
it to the risk of currency fluctuations,
(2) the global slowdown is impacting its
consulting services,
(3) highly competitive industry.
The company has
virtually no debt, is rated A++ by Value Line and pays a dividend providing a
2.4% yield.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2006
Ind Ave 1.8 11 37 NA
Debt/ EPS Down Net Value Line
Equity ROE
Since 2004 Margin Rating
Ind Ave 20 20 NA 11 NA
*ACN
has paid a dividend for 8 years.
Chart
Note:
ACN stock made great progress off its September 2008 low, quickly surpassing
the downtrend off its September 2008 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 an uptrend (purple lines). The Aggressive Growth Portfolio owns a full
position in ACN. The upper boundary of
its Buy Value Range is $58; the lower boundary of its Sell Half Range is $101.
4/15
Investing
for Survival
Things
change; so should you (medium):
News on Stocks in Our Portfolios
o
United Parcel Service (NYSE:UPS):
Q1 EPS of $1.12 beats by $0.03.
o
Revenue of $13.98B (+1.5% Y/Y) misses
by $290M
- Cummins (NYSE:CMI):
Q1 EPS of $2.14 in-line.
- Revenue of $4.7B (+6.6% Y/Y) beats by $160M
·
Revenue of
$3.3B (+5.1% Y/Y) misses by $150M
- Apple (NASDAQ:AAPL):
FQ2 EPS of $2.33 beats by $0.17.
- Revenue of $58.01B (+27.1% Y/Y) beats by $1.95B.
- 61.2M iPhones (above expectations), 12.6M iPads (below
expectations), 4.6M Macs (near expectations).
- Expects FQ3 revenue of $46B-$48B vs. $47.06B consensus.
- Dividend increased
by 11%, buyback authorization increased by $50B to $140B.
Economics
This Week’s Data
The
April Markit flash services PMI came in at 57.8 versus expectations of 59.5.
The
April Dallas Fed manufacturing index was reported at -16.0 versus estimates of
-12.0.
Other
Greg
Mankiw on the pending trade deal (medium):
More
on the ‘unmitigated positive’ of lower oil prices (medium):
Politics
Domestic
International War Against Radical Islam
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