The Morning Call
3/26/15
The Market
Technical
The indices
(DJIA 17718, S&P 2061) continued their downtrend, though they remained well
within their uptrends across all timeframes: short term (16838-19615, 1966-2947),
intermediate term (16933-22084, 1781-2539 and long term (5369-18860,
797-2116). However, on a very short term
basis, there was a lot turmoil:
(1)
both closed below their 50 day moving averages; however, the S&P ended
above its 100 day moving average while the Dow finished below [the chart below
is the S&P with its 100 day moving average.
I printed this chart before to illustrate the strength of resistance its
100 day moving average. I will be
watching how both of the Averages perform around this moving average],
(2)
the Dow ended above the lower boundary of a very short
term uptrend, while the S&P closed below its similar trend line. Here again, I will be watching how the
indices handle this trend line.
(3)
the current three day downtrend has set last Friday’s
high as a lower high versus the late February high for both the Averages. It will be important whether or they can move
above last Friday’s level; that is will the next rebound move higher than last
Friday’s high or form a second lower high?
None of the
above suggests that prices are moving lower.
Indeed, until the short term uptrends are successfully challenged, it is
foolish to assume that the Market is in for a major correction. That said, all corrections start somewhere;
so follow through below the 100 day moving average and the lower boundary of
the very short term uptrends and the strength of any rebound will important
signs of the odds of a larger sell off.
Pay attention to
warning signs (medium):
Volume was up;
breadth was negative. The VIX was up, remaining within its short term trading
range, its intermediate term downtrend, its long term trading range, below its
50 day moving average and within a developing pennant formation.
The long
Treasury sold off, finishing right on the lower boundary of a developing very
short term uptrend, within its short term trading range, intermediate and long
term uptrends and above its 50 day moving average.
GLD’s price rose
again, closing within its short and intermediate term trading ranges, its long
term downtrend and below its 50 day moving average.
Bottom line: the
Averages reversed the recent uptrend, setting a lower high versus February’s
high. More important, the very short
term technical picture is a confusing mix of challenges to several support
levels. We really need several more days
of pin action before anything firm can be said about near term direction. Most important, until the short term uptrends
have been successfully challenged, the assumption has to be that stocks will continue
to move higher.
Fundamental
Headlines
It
looks like Tuesday’s datapoints were indeed outliers. Yesterday, February durable goods orders fell
versus expectations of an increase. True,
weekly mortgage and purchase applications were up---but these are secondary
stats and of much less importance than the durable goods number.
In addition, the
Atlanta Fed lowered its first quarter GDP estimate again---now +0.2%.
No
overseas economic data, the Greeks were quiet seemingly working on a new
improved reform plan (yeah, right), while the saber rattling in Ukraine
continues and Yemen seems to be turning into another proxy war (Saudi Arabia
and Iran).
And:
Ukraine
and Russia at loggerheads over debt repayment (medium):
Bottom line: sorry,
Charlie, Tuesday’s better economic stats at now yesterday’s story; and to make
matters worse, the Atlanta Fed basically confirmed that all the recent rotten
data in fact reflect a serious slowdown and S&P lowered its first quarter
earnings estimate to near flat. None of
this is likely to generate investor enthusiasm; and indeed, recession and
declining corporate profits have historically anticipated Market declines.
The question is,
if the above comes to pass, what will the Fed do (more QE) and how will Markets
react? Given recent history, the odds
would have to be on QEIV and a wildly enthusiastic Market. Although I will repeat that I believe that
sooner or later QE and its handmaiden, misallocation of capital/mispricing of
assets will come to a rough end.
All this taking
place as equity prices toy with all-time high absolute prices and
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.
Stockman
on Fed policy (medium):
The
biggest mistake investors are making today (medium):
Investing
for Survival
Have
an investment approach and stick with it (4 minute video):
Company Highlight
Occidental
Petroleum produces and markets crude oil and natural gas, manufactures
industrial chemicals, plastics and fertilizer and transports natural gas
through pipelines. The company has grown profits and dividends at a 16% over
the last ten years. OXY’s return on equity has been in the 11-20% range. The
company should continue to grow dividends and earnings as a result of:
(1) rising
production from new properties,
(2) divesting
non-core assets,
(3)
acquisitions,
(4)
stock buyback program.
Negatives:
(1) OXY earnings are very levered to the price of crude
oil,
(2) political
instability remains a major threat to earnings,
(3) highly
competitive industry,
(4) cost
overruns due to delays in drilling.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2005
Ind Ave 3.0 10 35 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
Ind Ave 23 12 NA 6 NA
Chart
Note:
OXY stock made initial good progress off its September 2008 low, quickly
surpassing the downtrend off its May 2008 high (straight red line) and the
November 2008 trading high (green line).
Long term, it is in a trading range (blue lines). Intermediate term, it is in a downtrend
(purple lines). The wiggly red line is
the 50 day moving average. The Dividend
Growth Portfolio owns a 75% position in OXY.
The upper boundary of its Buy Value Range is $66; the lower boundary of
its Sell Half Range is $128.
4/15
News on Stocks in Our Portfolios
·
Revenue of $7.5B (+5.2%
Y/Y) beats by $120M.
·
Paychex (NASDAQ:PAYX): FQ3 EPS of $0.46 in-line.
·
Revenue of $704.3M (+8.3%
Y/Y) beats by $3.14M.
Economics
This Week’s Data
Weekly
jobless claims fell 9,000 versus expectations of a 2,000 rise.
Other
Update
on big four economic indicators (medium):
Politics
Domestic
The make up of income
inequality (short):
International
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