Tuesday, April 28, 2015

The Morning Call---An outside reversal

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

ACN          2.4%            9%             40%              7*
Ind Ave      1.8              11               37                NA

                 Debt/                       EPS Down       Net        Value Line
                 Equity       ROE      Since 2004      Margin       Rating

ACN          1%            59%           2                  10%           A++
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
·         C.H. Robinson Worldwide (NASDAQ:CHRW): Q1 EPS of $0.73 misses by $0.01.
·         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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