The Morning Call
4/21/15
The Market
Technical
The indices
(DJIA 18034, S&P 2100) recovered a big part of Friday’s decline yesterday. Both remain above their 100 day moving
averages but 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
(17003-19800, 1989-2970), intermediate term (17123-22249, 1796-2567 and long
term (5369-18873, 797-2129).
Another
sentiment indicator (short):
Cyclical
top in 2015? (short):
April trading
pattern (short):
Volume fell;
breadth improved. The VIX declined, leaving it right on the lower boundary of a
(now in question) developing pennant formation.
It remained 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 declined, finishing within its very short term and short term trading
ranges, its intermediate and long term uptrends and above its 100 day moving
average.
GLD’s dropped, closing
within its short and intermediate term trading ranges, its long term downtrend
and below its 100 day moving average. A
head and shoulders pattern continues to develop.
Bottom line: Friday’s
pin action created a second lower high for both of the indices, but yesterday
they bounced off their 100 day moving averages once again. One of these two trends must ultimately be
broken; and with only a 40 point spread in the S&P, that should happen
sooner rather than later.
That said, longer
term, the trends are solidly up and will be so until the short term uptrends,
at the very least, are negated.
Fundamental
Headlines
We
started the week with another lousy economic stat: the Chicago National
Activity index was down versus an anticipated increase.
Overseas,
the Bank of China lowered bank reserve requirements. This is a very aggressive easing move and is
another contribution to global QE.
Surprisingly, the Chinese equity markets traded down on this bullish
move---which seems a bit ominous for a stock market that has been smoking to
the upside of late.
***overnight,
China allowed the first state owned company to default on onshore bonds (three
have defaulted on offshore bonds).
The
geopolitical news keeps getting worse with the Greek government confiscating reserves
of municipalities, the CEO of Gazprom visiting Athens and the US sending yet
more naval vessels into the Red Sea. See
below for articles on each.
Bottom line: QE
got yet another boost yesterday as (1) US economic news continues to disappoint---hence
bringing hope of more delay in Fed interest rate increases and (2) the Bank of
China implemented a cut in bank reserve requirement---a policy tool that
historically has been proven to be very effective in producing the results desired
from easing monetary policy.
Somewhat surprisingly,
Chinese investors didn’t get all that jiggy with their government’s more
aggressive move to monetary easing. Although
perhaps, there remains a hangover from last week’s rise in margin
requirement. Or maybe they are just
confused.
On the other
hand, if yesterday’s US pin action is an indication, investors here apparently
continue to be absolutely enthralled ever more QE. I keep wondering about their motivation, though. By that I mean, if rate hikes are getting
pushed out because the economy is weakening, how are investors going to respond
if the economy actually slips into a recession or if corporate margins can’t
hold up in the midst of a global policy of beggar thy neighbor?
My point here is
that while neither may occur, the numbers are telling us that they have a
growing likelihood of happening---which somehow ought to be factored into stock
prices.
And that says
nothing about a Grexit or an escalation of discord in Ukraine or the Middle East
(you can pick the country).
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.
Of the 59 S&P 500 companies that had
reported by last week, 75 percent had topped profit expectations, above the 70
percent average for the last four quarters. However, only 45 percent of
companies beat revenues estimates, compared with 58 percent in the last four quarters.
The
biggest margin call in history? (medium):
Subscriber Alert
In
our periodic review of Altria (MO), the company failed to meet the minimum
financial requirements for inclusion in the High Yield Universe. Accordingly, it is being Removed from that
Universe and will be Sold out of the High Yield Portfolio at the Market open.
Investing
for Survival
Political
bias gets in the way of economic analysis (medium):
Company Highlights
Western Gas Ptrs
LP acquires, owns and operates midstream energy assets in east and west Texas , the Rocky Mountains and the mid-continent. It gathers, treats and transports natural gas
from its parent, Anadarko Petroleum Corp.
While profits have been somewhat erratic 10% over the last five years,
the partnership has grown dividends at a 30%+ rate in the same time period
while earning a 6-10% return on equity.
While the rate of increase in dividends will slow in the future, the
partnership should continue to grow its payout at a sound rate because:
(1) a very secure customer base [i.e. its
parent],
(2) acquisitions.
Negatives:
(1) fluctuations in commodity prices,
(2) demand is subject to seasonal and weather
factors,
(3) potential impact of new energy regulations.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2008
Ind Ave 5.9 4 68 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2008 Margin Rating
Ind Ave 50 14 NA 11 NA
*this
is a percentage of cash flow
Chart
Note:
WES stock made great progress off its October 2008 low, quickly surpassing the
downtrend off its June 2008 high (straight red line) and its November trading
high (green line). It recently broke its
long term uptrend (black lines) and is currently in an intermediate term
trading range (purple lines). The wiggly
red line is the 100 day moving average.
The High Yield Portfolio owns a full position in WES. The upper boundary of its Buy Value Range is
$54; the lower boundary of its Sell Half Range is $105.
4/15
News on Stocks in Our Portfolios
·
Revenue of $3.34B (-6.4%
Y/Y) misses by $130M.
·
Revenue of $4.69B (-4.1%
Y/Y) beats by $80M.
·
Revenue of $14.54B (-1.4%
Y/Y) misses by $350M.
·
Revenue of C$3.1B (+15.2%
Y/Y) beats by C$40M.
Economics
This Week’s Data
Other
LA
port traffic up big following end of labor dispute (short):
Are
rising tax receipts a problem? (medium):
Politics
Domestic
International
The
latest from Yemen (short):
Greek central government
confiscates local government reserves (medium):
Gazprom CEO now
in Athens (medium):
No comments:
Post a Comment