The Morning Call
4/26/16
The
Market
Technical
The indices
(DJIA 17977, S&P 2087) were off yesterday, though they finished well off
the lows of the day. Volume fell, breadth was weaker and the VIX continues to
look like it has found a bottom.
The Dow closed
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] within a short term uptrend {17553-18508}, [c] in an
intermediate term trading range {15842-18295} and [d] in a long term uptrend
{5471-19343}.
The S&P
finished [a] above its 100 day moving average, now support, [b] above its 200
day moving average, now support, [c] within a short term uptrend {2085-2187},
[d] in an intermediate term trading range {1867-2134} and [e] in a long term
uptrend {800-2161}.
The latest from
Bank of America on smart money trading (medium):
The long
Treasury continues to struggle. While
it remains in a short term uptrend, it is approaching its 100 day moving
average. As I noted last week, if this
continues, it could be signaling either higher inflation or a tighter Fed.
GLD rallied back
above the upper boundary of a very short term downtrend and a key Fibonacci
retracement level. It remains in a short
term uptrend and above its 100 day moving average.
Counterpoint:
Bottom
line: the indices continue to digest
recent gains and in a very technically healthy way (i.e. minor losses). My assumptions haven’t changed: stocks are in
heavily congested territory, so the upward progress will be more plodding but I
expect them to challenge their all-time highs and fail.
Updated
chart on stock performance in the eighth year of a presidential cycle (short):
Fundamental
Headlines
This
week got off to another rough start. In
the US, March new home sales were very disappointing and the April Dallas Fed
manufacturing index was below forecast.
Overseas, the April German business climate index fell, China announced
that government debt hit 237% of GDP and the Bank of Japan revealed that it was
among the top ten shareholders of 90% of Japanese companies.
With
respect to the latter, I have noted that both the Bank of Japan and the Fed
meet this week. Japanese officials have
all but guaranteed some form of additional monetary ease. Whether it is more QE or moving negative
rates even lower or some combination of both, we will know soon enough. But it doesn’t matter because it is just
another desperate attempt to disprove Einstein’s definition of insanity.
Hopefully,
the Fed will not follow suit. The good
news is that it doesn’t seem to have the same death wish as the Bank of
Japan. The bad news is that the Fed
still apparently believes in the same clap trap that drives Japanese monetary
policy---i.e. that somehow QE will result in economic growth notwithstanding
that there is no evidence to support that notion.
The
Fed and the ‘wealth effect’ (medium and a must read):
Bottom line: the
economic data remains negative; and the best solution that the global bankers
can come up with is to pursue more of the same ineffective monetary easing
policies that they have been following for the last eight years. Last week, the ECB expanded its asset
purchase program. This week it appears
highly likely that the Bank of Japan will make one or more additional steps to
ease what has been, to date, the globe’s most aggressive monetary easing in the
last decade. And to what end? A near zero growth economy. No matter how much QE; no matter how negative
the interest rates. I remain stumped as
to how central bankers think their actions can be reversed without pain.
My thought for the day is that
in achieving investment success, knowing how to sell is twice as important as
knowing how to buy. Think about it, you
buy a stock and one of three things will happen: the stock price goes up, does nothing
or goes down. What kills your
performance isn’t choices one or two; it is number three. Of course, all investors are going to take
losses but what really destroys your performance is that you let a small loss
grow into a large loss.
That is why a Stop Loss Price is
an integral part of our Price Discipline.
Every stock in our Portfolios has a Stop Loss Price which is set to
avoid taking a big loss. If I can avoid
big losses, (1) I always have chips to stay in the game and (2) even if I can’t
do any better in picking stocks than a monkey throwing darts, my portfolio is
still only going to hold stocks that are up or flat.
To be sure, taking a loss is a
hard psychological barrier to overcome and most investors can think of a
thousand rationalizations for holding a loser.
But it doesn’t change that fact that a loser is still a loser. For me, the safest Discipline is a simple
percentage---never take a loss of greater than 15%. It has the benefit of dismissing all those
rationalizations (it will come back, I was wrong on the timing, etc. etc. etc.)
that could keep me holding on. It is hard
and fast---no if’s and’s or but’s. It absolutely
keeps me from making one performance destroying mistake.
Three
trends that don’t help the outlook for stocks (medium):
Investing for Survival
The
bias of knowing the past.
News on Stocks in Our Portfolios
United Technologies (NYSE:UTX)
declares $0.66/share quarterly dividend, 3.1% increase from prior dividend of $0.64.
Canadian National Railway (NYSE:CNI)
declares C$0.375/share quarterly dividend, in line with previous.
Revenue of C$2.96B
(-4.5% Y/Y) misses by C$120M.
3M (NYSE:MMM): Q1 EPS of
$2.05 beats by $0.13. Adjusted EPS of
$1.95 (excluding $0.10 gains from new FASB accounting standard)
Revenue of $7.41B
(-2.2% Y/Y) beats by $80M.
Revenue of $994.1M
(-3.5% Y/Y) misses by $15.9M.
Revenue of $15.76B
(-6.9% Y/Y) misses by $50M.
Economics
This Week’s Data
March
new home sales fell 1.5% versus estimates of a 1.9% increase.
The
April Dallas Fed manufacturing index came in at -13.9 versus expectations of
-9.0; however, the production index rose.
March
durable goods orders rose 0.8% versus forecasts of up 1.6%; ex transportation,
the number was -0.2% versus projections of +0.5%.
Other
No
more currency wars? (short):
Why
the Saudi’s killed Doha (medium):
The
problem with the US trade deficit (medium and a must read):
Bad
news from the transportation sector (medium):
http://www.zerohedge.com/news/2016-04-25/bad-news-trannies-these-headcount-numbers-arent-encouraging
Rising commodity
prices. A head fake or a sign that the
global economy is improving (medium):
Last
week, we saw the Central States pension plan having to reduce benefits, this
week a UK fund has to follow suit. (medium):
Politics
Domestic
International
Russia
and US keep poking each other in the eye (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
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