All American In...'s  Instablog

The Market

Technical

The indices (DJIA 15179, S&P 1639) had one of those see saw days, but ended up on the day. Both finished within all major uptrends: short term (14786-15534, 1632-1711), intermediate uptrends (14175-19175, 1501-2089) and their long term uptrends (4783-17500, 688-1750).

The S&P has now made a higher low (6/12) versus the 6/5 low (the bottom of the decline off the 5/22 high). The key now is, can it make a higher high versus the most recent 6/10 rebound high (1648). If it does, the S&P is probably headed to the upper boundary of its short term uptrend. If not the lower boundary of its short term uptrend as well as the 6/12 higher low are the levels to watch.

Volume picked up; breadth improved. The VIX declined, finishing within its short and intermediate term downtrends.

GLD declined but closed above the recent double bottom and the lower boundary of its long term uptrend. However, short term, it is directionless.

http://advisorperspectives.com/dshort/guest/Ted-Kavadas-130617-Gold.php

Bottom line: volatility persists; and while all major trends remain in tact, the lower boundary of the S&P short term uptrend has been under assault and the sustainability of upside momentum is in question. I am not saying that the current advance is over; but I am saying that it is breathing hard and without another shot of adrenalin, the risk grows that it may be ending.

Any move to the upside that pushes our stocks into their Sell Half Range offers the opportunity to do just that.

Fundamental

Headlines

Only one economic indicator was released yesterday---the NY Fed June manufacturing index which was much stronger than anticipated. That along with an improvement in the Nikkei overnight made for a great first couple of trading hours.

However, in the background there was a lot of chatter about Wednesday's FOMC meeting with the undertone that the Fed wouldn't be tapering anytime soon. Then mid afternoon, an article in the Financial Times suggested that the Fed would indeed be chatting up the likelihood of tapering sometime in the future. That pushed prices down in another big price swing. Then in the last hour, sentiment gyrated back to the 'no tapering' scenario and stocks recovered.

http://www.zerohedge.com/news/2013-06-17/ft-joins-fray-fed-likely-signal-tapering-move

Bottom line: the point of the above is not a blow by blow description of intraday trading but (1) to illustrate the degree and sensitivity of investor schizophrenia over Fed tapering and (2) to suggest that it is a genie that is unlikely to be pushed back into the bottle, no matter what the Fed says Wednesday or any other time.

That said, given the Fed's current stated guidelines on unemployment and inflation, I can't imagine them starting any tapering process any time soon. So I would expect the statement coming out of the Wednesday meeting to be dovish. Nevertheless, it appears that investors are starting to worry about what the end game to the current unprecedented Fed easing looks like. If so, they may at last be checking the history books, figuring the odds of a successful transition from easy to tight money and concluding that they are not high. No one knows if this affair ends in recession or inflation; but they may be realizing that neither will be good for stocks at current valuations.

The latest from JP Morgan (medium and today's must read):

http://www.zerohedge.com/news/2013-06-17/jpmorgan-fed-stimulus-inflated-prices-financial-assets-removal-could-create-tail-eve

The latest from John Hussman (medium):

http://advisorperspectives.com/commentaries/hussman_061713.php

The latest from Lance Roberts (medium):

http://www.zerohedge.com/news/2013-06-17/bonds-versus-stocks-just-ask-japan

The latest from David Stockman (medium):

http://www.zerohedge.com/news/2013-06-17/david-stockmans-non-recovery-part-1-post-2009-faux-prosperity

More on current valuations (short):

http://advisorperspectives.com/dshort/guest/Forecasting-the-Market-Chris-Turner.php

How is this for correlation (short):

http://www.thereformedbroker.com/2013/06/17/chart-o-the-day-hows-this-for-correlation/

What higher interest rates may mean (medium):

http://www.minyanville.com/business-news/markets/articles/Dissecting-the-Jump-in-Real-Interest/6/17/2013/id/50336

Company Highlight

The 3M Company (formerly Minnesota Mining and Manufacturing) is a broadly diversified technology and manufacturer of great brands in industrial, health care, graphic and display, office, communications, transportation, and safety and security products (50,000 products sold in over 65 countries). After a difficult 2008-2009, the company is enjoying a resurgence of growth in sales and profits as it transformed its business strategy. The company earns over a 20%+ return of equity and has generated profit growth of 10% annual rate over the past 10 years. While dividends have not kept pace as the company reinvested cash flow in new businesses, the dividend pay out ratio should increase in the next several years. The pillars of its business plan are:

(1) transform its manufacturing footprint from US oriented to international based and improve its productivity,

(2) invest in strengthening and streamlining its supply chain,

(3) increase its brand building marketing focus on high growth overseas markets, using acquired local or regional brands where it makes sense,

(4) raise its investment in R&D to advance the 3M brands,

Negatives:

(1) its large international business exposes it to currency fluctuation risks,

(2) its businesses are highly competitive,

(3) a majority of its products are economically sensitive.

MMM is rated A++ by Value Line, carries a 22% debt to equity ratio and its stock yields 2.4%

Statistical Summary

Stock Dividend Payout # Increases

Yield Growth Rate Ratio Since 2003

MMM 2.4% 7% 36% 10

Ind Ave *

Debt/ EPS Down Net Value Line

Equity ROE Since 2003 Margin Rating

MMM 22% 23% 2 16% A++

Ind Ave*

*the Diversified Company Industry operates in so many varied products and services, comparable numbers would be of little analytical value.

Chart

Note: 3M stock made good progress off its March 2009 low, quickly surpassing the downtrend off its October 2007 high (red line) and the November 2008 trading high (green line). Long term, 3M is in an uptrend (straight blue line is the lower boundary). Intermediate term it is in an uptrend (purple lines). The wiggly blue line is on balance volume. The Dividend Growth and High Yield Portfolios own full positions in 3M. The upper boundary of its Buy Value Range is $71; the lower boundary of its Sell Half Range is $157.

(click to enlarge)

http://finance.yahoo.com/q?s=MMM

6/13

News on Stocks in Our Portfolios courtesy of Seeking Alpha

FactSet (FDS): FQ3 EPS of $1.15 misses by $0.11. Revenue of $214.6M (+6% Y/Y) misses by $0.34M

AT&T reportedly thwarted in Telefonica bid.AT&T (T) has reportedly been thwarted in a €70B bid to acquire Telefonica (TEF) by Spain's government, which has the power to stop the sale of any company that is deemed strategic. The U.S. carrier told state representatives that it would take on the Spanish operator's €52B of debt as part of any transaction. Telefonica said it hasn't "received any approach or...indication of interest," from AT&T. The Spanish company's shares were +3.1% at midday in Madrid.

Economics

This Week's Data

The May consumer price index rose 0.1% versus expectations of up 0.2%; ex food and energy, it increased 0.2%, in line with estimates.

May housing starts were up 6.7% versus forecasts of up 11.9%; building permits were down 3.1% versus an anticipated decline of 4.3%.

http://www.calculatedriskblog.com/2013/06/housing-starts-increase-in-may-to.html

Other

A closer look at Fridays' industrial production number (medium):

http://scottgrannis.blogspot.com/2013/06/industrial-production-lackluster.html

And (short):

http://pragcap.com/the-u-s-economy-and-peak-capacity-utilization

Current US economic profile (short):

http://www.capitalspectator.com/archives/2013/06/us_economic_pro_4.html#more

Counterpoint (medium):

http://www.zerohedge.com/news/2013-06-17/what-fed-looking

Latest CBO estimates of FY 2013 deficit too low (medium):

http://www.zerohedge.com/news/2013-06-17/failed-projections-or-just-another-government-lie-you-judge

Update on existing home inventories (short):

http://www.calculatedriskblog.com/2013/06/existing-home-inventory-is-up-149-year.html

Politics

Domestic

The more government does, the more certain it is to fail (medium):

http://www.realclearmarkets.com/articles/2013/06/17/the_more_government_does_the_bigger_the_failures_100402.html

International

Another EU bail in slams small depositors (medium):

http://www.zerohedge.com/news/2013-06-17/ft-joins-fray-fed-likely-signal-tapering-move

***over night, Merkel was openly critical of Japanese easy money policy and EU auto sales fell to 20 year low.

Disclosure: I am long MMM.

The Market

Technical

Monday Morning Chartology

The S&P closed right on the lower boundary of its short term uptrend. While it appears to have escaped from the very short term downtrend, it can't generate any momentum to the upside. Amid confusion and volatility, the best thing to do is nothing.

(click to enlarge)

GLD is still holding above its double bottom and the lower boundary of its long term uptrend. Like the S&P, it seems to have successfully challenged the very short term downtrend but can sustain no upward momentum.

http://www.zerohedge.com/news/2013-06-14/stunning-images-china-ten-thousand-people-waiting-line-buy-gold

(click to enlarge)

The VIX continues to battle with the upper boundary of its short term downtrend but can't hold on to any break. However, if it does successfully push through that boundary, it would be a bad sign for stocks.

(click to enlarge)

Update on 'the best stock market indicator ever':

http://advisorperspectives.com/dshort/guest/John-Carlucci-Best-Indicator-Ever-Update.php

Fundamental

The latest from David Rosenberg (medium):

http://www.zerohedge.com/news/2013-06-13/10-nagging-concerns

The latest from Bill Gross (medium):

http://www.zerohedge.com/news/2013-06-14/pimcos-bill-gross-which-way-bonds

Revenue and earnings expectations continue to decline (medium):

http://www.zerohedge.com/news/2013-06-14/stocks-headwinds-are-clear-and-seem-be-strengthening

Update on the big four economic indicators:

http://advisorperspectives.com/dshort/updates/Big-Four-Economic-Indicators.php

Investing for Survival

What a crisis feels like (medium):

http://www.zerohedge.com/news/2013-06-12/guest-post-what-crisis-feels

News on Stocks in Our Portfolios

Economics

This Week's Data

The NY Fed June manufacturing index came in at a surprising 7.84 versus expectations of 0.5.

Other

Politics

Domestic

A potentially damaging disclosure in the NSA phone/email monitoring scandal (medium):

http://www.zerohedge.com/news/2013-06-16/nsa-admits-warrantless-wiretapping-according-house-judiciary-committee-member

International

Spain's debt hits new high (medium):

http://www.zerohedge.com/news/2013-06-14/spains-debt-surges-record-high-accelerating-pace

The Syrian conflict ramps up another notch (medium):

http://www.zerohedge.com/news/2013-06-16/iran-sends-4000-troops-aid-syrias-assad

Note: Tonight my #2 granddaughter (9) and #3 grandson (7) arrive for a weekend of frolicking. Since they move faster and longer than I, I will be fighting to keep up and, hence, won't be writing a Morning Call on Friday or the Closing Bell on Saturday. As always, I will be paying attention to the Market and if action is needed, I will be in touch via a Subscriber Alert.

The Market

Technical

Another lousy day in stock land which served to cloud the technical picture for the indices (DJIA 14995, S&P 1612). The good news is that they closed within their intermediate uptrends (14134-19134, 1500-2088) and their long term uptrends (4783-17500, 688-1750).

The not so good news:

1. the S&P fell below the lower boundary of its short term uptrend [1622-1701]. This re-starts our time and distance discipline; a close below this boundary on Friday, the short term uptrend will be confirmed as broken. However, the Dow remains within its short term uptrend [14741-15452]. So the action of the S&P now puts the Averages out of sync. To confirm a downturn in the Market, the DJIA also has to break its short term uptrend,

1. the S&P also fell back below the upper boundary of the very short term downtrend. That negates the break to the upside and confirms the very short term trend as down,

1. the S&P closed right on its 50 day moving average. It has bounced off this support line four times in the current uptrend; so it clearly represents very strong defense. A break would be very negative for stocks and a bounce quite positive,

http://advisorperspectives.com/dshort/updates/Current-Market-Snapshot.php

1. another technical underpinning went down, to wit, until yesterday there has not been three down days in a row in the DJIA since 1/1/13,

1. worse still, the Market rallied early in the day [buy the dips] and then got crushed. A couple more of those will have the bulls re-thinking their position,

1. the former S&P all time high [1576] is not far away. Like the 50 day moving average, this level provides major support; so it is another critical level to which we must pay attention,

1. suddenly, bad news is not necessarily good news,

1. not helping the bulls, over night the Nikkei was down 6% and the Shanghai Composite joined the rout, down 2.5%---which puts it negative for the year.

Volume remains low; breadth was mixed. The VIX was up 9%, closing above the upper boundary of its short term downtrend. To confirm this break, it must sustain current levels through the close Friday. If that happens, it would be a negative for stocks. Meanwhile, the Market is back to a very heavily oversold condition; so a bounce here is likely.

GLD rose, finishing above the double bottom, the lower boundary of its long term uptrend and the upper boundary of its very short term downtrend---but the chart remains broken.

Bottom line: the technical outlook got a bit more confusing yesterday. The S&P is threatening the break its short term uptrend and its 50 day moving average, has confirmed a very short term downtrend while the VIX is challenging its short term downtrend, the five and a half month streak of no 'three down days in a row' has fallen by the wayside and it turns out the bad news is not always good news. Even if we get a bounce today and the aforementioned breaks are negated, the Market's upward momentum has been curbed. This kind of action is typical of a Market top---though to be clear, it will take a good deal more technical damage before that comes to pass. Nonetheless, a top formation has to start somewhere; and this is as good a start as any.

Any move to the upside that pushes our stocks into their Sell Half Range offers the opportunity to do just that.

Fundamental

Headlines

Yesterday's economic news was interesting: weekly mortgage and purchase applications rebounded even as interest rates are moving up; the May US budget deficit was a blow out number---much bigger than expected; indeed it witnessed the fourth largest month for government spending ever---repeat, ever.

That along with continuing huge gyrations in the Nikkei, the apparent unraveling of the Greek economy (again) and more racket out of the German press on the pending high court ruling on the constitutionality of several ECB programs kept investor anxiety at high levels. Hence, another sloppy day to the downside.

More trouble in Greece (short):

http://www.zerohedge.com/news/2013-06-12/samaras-says-won%E2%80%99t-backdown-greek-broadcaster-closure-coalition-splinters

http://www.zerohedge.com/news/2013-06-12/market-update-easy-come-immediately-go

Bottom line: despite an all American attempt to rally off of Tuesday's decline, the Market kept getting hit with bad news; and as I noted above, at least yesterday, bad news was bad news. However, I think that at this moment, technical factors are probably more important than fundamentals (barring Greece going toes up, the bankruptcy of a major banking institution, etc.) simply because the S&P is at point of confluence of several trends and a move either way will likely bring buyers/sellers out.

So at this point, I think that the best thing to do is nothing---even if you are a bull. Just wait and be sure, there is no break to the downside before doing anymore buying. And if the Market breaks lower and you have followed my lead, then our cash position is going to look mighty good.

Bank of England official warns of 'biggest bond bubble in history' (medium):

http://www.zerohedge.com/news/2013-06-12/bank-englands-haldane-weve-intentionally-blown-biggest-bond-bubble-history

For those who believe that the rise in interest rates reflect better economic conditions (medium):

http://www.zerohedge.com/news/2013-06-12/tapering-currency-wars-interest-rate-wars

S&P revenue and earnings expectations (short):

http://blog.yardeni.com/2013/06/s-500-revenues-earnings-review-excerpt.html

Subscriber Alert

The stock price of CF & Co (CF-$183) has traded below the upper boundary of its Buy Value Range. Accordingly, it is being Added to the Aggressive Growth Buy List. The Aggressive Growth Portfolio owns a full position in CF; so no new shares will be Bought.

Investing for Survival

I continue to do my homework on ETF's including those holding foreign stocks and bonds. Here is a summary of some positive aspects of ETF's containing foreign, dividend paying stocks. (short):

http://advisorperspectives.com/commentaries/isharseblog_061213.php

Company Highlight

Lorillard Inc produces and markets Newport, Kent, True, Maverick and Old Gold cigarettes. The company has grown profits per share from $1.58 in 2006 to $3.05 (est.) in 2012 and dividends per share from $.61 in 2008 to $2.20 in 2013 (est.), earning a 60%+ return on equity. LO should continue to produce above average returns as result of:

(1) increasing market share,

(2) the strength of its Newport brand enables it to raise prices,

(3) investment in tobacco alternatives,

(4) a stock buy back program.

Negatives:

(1) governments around the world are imposing restrictions on tobacco use,

(2) a highly competitive industry,

(3) the industry is not allowed to advertise.

Lorillard is rated A by Value Line, has a 600% debt to equity ratio but is working hard to reduce this figure. Its stock yields 5.3%

Statistical Summary

Stock Dividend Payout # Increases

Yield Growth Rate Ratio Since 2008

LO 5.3% 11% 68% 5

Ind Ave 4.2 9 54 NA

Debt/ EPS Down Net Value Line

Equity ROE Since 2006 Margin Rating

LO 600% NA 0 17 A

Ind Ave 61 48 NA 17 NA

Chart

Note: LO stock made good progress off its March 2009 low, quickly surpassing the downtrend off its January 2007 high (straight red line) and the November 2008 trading high (green line). Long term, LO is in an uptrend (blue lines). Intermediate term, it is a trading range (purple lines). The wiggly red line is the 50 day moving average. The High Yield Portfolio owns a 75% position in LO. It is currently on the High Yield Buy List. The lower boundary of its Sell Half Range is $62.

http://finance.yahoo.com/q?s=LO

6/13

News on Stocks in Our Portfolios

Economics

This Week's Data

Well, so much for the miracle of sequestration and tax hikes. The May Treasury budget deficit came in at $138.7 billion versus expectations of $110.0 billion. Of course, there was much for sequestration et al to overcome; like, say, the fourth largest spending month in US government history; proving once again that the power of the executive branch trumps everything.

http://www.zerohedge.com/news/2013-06-12/government-celebrates-austerity-fourth-largest-spending-month-ever

Weekly jobless claims fell 13,000 versus expectations of a 4,000 increase.

http://advisorperspectives.com/dshort/updates/Weekly-Unemployment-Claims.php

May retail sales rose 0.6% versus estimates of +0.5%; ex autos and gasoline, they were up 0.3%, in line.

http://advisorperspectives.com/dshort/guest/Lance-Roberts-130612-Spending-verus-Retail-Sales.php

Other

Are soaring bond yields good news? (medium):

http://scottgrannis.blogspot.com/2013/06/soaring-real-yields-are-good-news.html

More macro data (short):

http://www.capitalspectator.com/archives/2013/06/macromarkets_ri_6.html#more

Politics

Domestic

More perspective on the NSA/phone records brouhaha (medium):

http://www.nationalreview.com/article/350799/rand-pauls-heres-crime-act-andrew-c-mccarthy

The problems with the immigration bill passed Tuesday by the senate (medium):

http://www.powerlineblog.com/archives/2013/06/the-gangs-immigration-bill-makes-security-worse-not-better.php

One of the major risks to the economy and the Markets that I list in The Closing Bell is a banking system less financially sound and more poorly managed than is the accepted consensus. This article on the trashing of Gary Gensler, head of the CFTC, is perfect example of why---government incompetence and institutional malfeasance combined to derail regulation that would put a stop to the inappropriate assumption of risks backstopped by the US taxpayer (medium):

http://www.nakedcapitalism.com/2013/06/obama-axes-bank-harrassing-gary-gensler-at-cftc-plans-to-install-lightweight-ex-goldmanite.html

International

Disclosure: I am long LO.