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Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 46 years of investment... More
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Investing for Survival
  • The Morning Call--Dow Breaking Down: S&P To Follow?

    The Market

    Technical

    The indices (DJIA 17598, S&P 2098) fell yesterday. The Dow is [a] below its 100 and 200 day moving averages, both of which now represent resistance, [b] below the lower boundary of its short term uptrend for the second day; if it finishes there today, it will re-set to a trading range, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5369-19175}. The S&P closed right on its 100 day moving average and is in uptrends across all timeframes (2093-3072, 1878-2644, 797-2145).

    Volume fell; breadth was negative. The VIX was up, but is still below its 100 day moving average and remains within a short term trading range, an intermediate term downtrend and a long term trading range.

    The long Treasury was up, closing above its 100 day moving average and the upper boundary of its short term downtrend. If it ends there today, the 100 day moving average will revert from resistance to support and the short term downtrend will re-set to a trading range. It remains within a very short term uptrend.

    http://www.thestreet.com/story/13240951/1/why-the-fed-is-losing-control-of-interest-rates.html?kval=dontmiss

    GLD was down, remaining below its 100 day moving average and in downtrends across all timeframes.

    Oil was down 4%, finishing below its 100 day moving average and within short and intermediate term downtrends. The dollar lifted, remaining above its 100 day moving average and within short and intermediate term trading ranges.

    http://blogs.wsj.com/moneybeat/2015/08/03/oils-travails-are-not-equities-only-problem/

    Bottom line: the Averages are now well out of sync which only adds to the questionable technical picture created by the growing divergences within numerous measures of Market strength and breadth. It is still too early to declare that a Market top has been made but clearly there needs to be some reversal of the damage done by recent deterioration or it won't be long till that occurs. For the moment, patience.

    http://fat-pitch.blogspot.com/2015/08/weekly-market-summary.html?spref=tw&curator=thereformedbroker&utm_source=thereformedbroker

    Fundamental

    Headlines

    It was an unusually busy Monday for economic data: June personal income and July light vehicle sales were above consensus; the July ISM manufacturing index and June construction spending were below; and June personal spending and the July Markit PMI were in line. They are all important indicators and in total they were mixed. So nothing to disturb our forecast.

    In addition, Puerto Rico defaulted on another bond issue (medium):

    http://www.reuters.com/article/2015/08/01/usa-puertorico-default-idUSL1N10B1S420150801

    Overseas, the July Markit PMI of the EU was better than estimates while the Chinese PMI was below. In other news, S&P lowered the EU's credit rating; and China suspended stock trading (i.e. selling) privileges of Citadel, a US hedge fund.

    S&P lowers EU credit rating (short):

    http://www.zerohedge.com/news/2015-08-03/sp-dares-go-there-downgrades-european-union-negative-outlook

    ***overnight, the Chinese government imposed additional restrictions on short sellers and July UK construction spending declined.

    Bottom line: the US dataflow continues to reflect an economy struggling to achieve a level of growth that just matches that of the recovery since 2009---which has been weak relative to the secular growth rate of recent decades. While there is no reason to panic over such a development, there is cause to review forecast earnings (the E part of P/E).

    In addition, (1) it is becoming increasingly obvious that the Fed is in an economic box of its own making and with no good policy choices to extract itself, (2) China's bureaucrats are having a tougher time controlling stock selling than investors originally assumed, (3) and that says nothing about the state of that country's economy which, even with the government's management of economic reports, is looking very iffy and (4) the Greek tragedy may have a fourth act.

    I continue to 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.

    Update on valuation (medium):

    http://www.advisorperspectives.com/dshort/updates/Q-Ratio-and-Market-Valuation.php

    http://www.advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php

    Commodity prices and earnings per share (short):

    http://www.zerohedge.com/news/2015-08-03/why-commodity-carnage-matters-1-simple-chart

    Outlook for emerging markets (medium):

    http://markdow.tumblr.com/post/125701757800/why-emerging-markets-wont-crash

    Company Highlights

    Oracle develops, manufactures, markets, distributes and services database and middleware software, applications software and hardware systems (computer server and storage devices). The company has grown earnings at a 20% rate over the last ten years. It has paid a dividend for only six years; and that dividend has grown from $.05 per share to $.51 in 2014. ORCL has consistently earned a 25%+ return on equity. This outstanding performance should continue as a result of:

    (1) its dominant industry position making it a prime beneficiary of above average industry growth,

    (2) successful transition into cloud architecture,

    (3) highly innovative R&D effort,

    Negatives:

    (1) there are substantial integration costs associated with the recent acquisition on Sun Microsystems,

    (2) its numerous acquisitions has led to goodwill and intangible assets equaling 40% of total assets; in addition, integrating these acquisitions are a distraction from its core business,

    (3) intense competition,

    (4) currency fluctuations.

    ORCL is rated A++ by Value Line, has a 39% debt to equity ratio and its stock yields 1.4%.

    Statistical Summary

    Stock Dividend Payout # Increases

    Yield Growth Rate Ratio Since 2009

    ORCL 1.4% 14% 20 5

    Ind Ave 1.8 14* 36 NA

    Debt/ EPS Down Net Value Line

    Equity ROE Since 2005 Margin Rating

    ORCL 39% 25% 1 33% A++

    Ind Ave 18 17 NA 18 NA

    *many companies in ORCL's industry pay no dividend

    Chart

    Note: ORCL stock made great progress off its March 2009 low, quickly surpassing the downtrend off its July 2008 high (straight red line) and the November 2008 trading high (green line). Long term the stock is in a trading range (blue lines), having recently broken its uptrend. The wiggly red line is the 100 day moving average. The Aggressive Growth Portfolio owns an 85% position in ORCL. Until recently, the stock was on the Aggressive Growth Buy List but was Removed when it traded below the lower boundary of its Buy Value Range. The Aggressive Growth Portfolio continues to Hold this stock.

    (click to enlarge)

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

    8/15

    Investing for Survival

    Second level thinking (short):

    http://www.pragcap.com/how-do-you-utilize-2nd-level-thinking

    News on Stocks in Our Portfolios

    · Emerson Electric (NYSE:EMR): FQ3 EPS of $0.84 beats by $0.01.

    · Revenue of $5.5B (-12.8% Y/Y) misses by $130M

    Economics

    This Week's Data

    The June ISM manufacturing index came in at 52.7 versus expectations of 53.7.

    The July Markit PMI was reported at 53.8, in line.

    June construction spending rose 0.1% versus estimates of +0.6%.

    July light vehicle sales were slightly above forecasts.

    http://www.advisorperspectives.com/dshort/updates/Vehicle-Sales-Per-Capita.php

    Other

    Recession indicators (short):

    http://blog.yardeni.com/2015/08/timing-next-bear-market-excerpt.html

    Politics

    Domestic

    The downside to Obama's new energy initiative (medium):

    http://www.zerohedge.com/news/2015-08-03/president-obama-explains-how-his-clean-power-plan-does-not-make-him-nations-greatest

    International

    Americans on the Iran deal (short):

    http://www.powerlineblog.com/archives/2015/08/speaking-of-the-iran-deal-11.php

    Aug 04 8:46 AM | Link | Comment!
  • Monday Morning Chartology

    The Market

    Technical

    Last week, the Dow was unable to recover above (1) its 100 day moving average, re-setting it from support to resistance and (2) the lower boundary of its intermediate term uptrend, re-setting it to a trading range. It also rebounded above the lower boundary of its short term uptrend, voiding the break, and then broke it again on Friday. If it remains there through the close on Tuesday, the short term trend will re-set from up to a trading range.

    (click to enlarge)

    In the meantime, the S&P traded back above the lower boundary of its short term uptrend (negating the break) and its 100 day moving average (leaving it as support versus resistance). Clearly the Averages are out of sync. Their task is now to return to harmony.

    (click to enlarge)

    The TLT finished the week right on its 100 day moving average and a short hair from the upper boundary of its short term downtrend. That pin action suggests that the economy may be weakening.

    (click to enlarge)

    GLD's chart remains a mess. It is now in downtrends in every imaginable timeframe. There is likely a bottom here somewhere; but it would be foolish to try to pick it.

    (click to enlarge)

    The VIX is again near the bottom of a trading range that goes back to August 2014---a level that represents value as portfolio insurance. The Aggressive Growth Portfolio will Buy a 2.5% trading position in VXX at the Market open, with a very short stop.

    (click to enlarge)

    Secular bull and bear markets (medium):

    http://www.advisorperspectives.com/dshort/updates/Secular-Bull-and-Bear-Markets.php

    Fundamental

    Headlines

    Just to summarize last week's events:

    (1) the economic data in volume was negative; primary indicators were balanced,

    (2) the Fed did another of its best impressions of a wimp [dovish],

    (3) Chinese investors frustrated the powers that be by taking their market down despite monetary injections,

    (4) the Greek bailout ran into a snag as the IMF support wobbled and Tsipras is contemplating whether or not to have yet another referendum on the Troika's bail out terms.

    http://www.zerohedge.com/news/2015-08-03/greek-stocks-economy-collapse-suffer-worst-declines-history

    In short, nothing to suggest an improved economic/geopolitical backdrop for stock prices.

    Hilsenrath on the Fed on a September rate hike (medium):

    http://www.zerohedge.com/news/2015-08-03/hilsenrath-fed-doesnt-demand-wage-growth-rate-hike

    ***overnight, the July Markit EU PMI came in above expectations but still below June's reading; the July Chinese PMI was down, in negative territory, for the fifth month in a row; Chinese officials suspended trading by Citadel, a US hedge fund.

    http://www.zerohedge.com/news/2015-08-02/citadel-unit-barred-trading-china-after-regulator-suspects-automated-trading-manipul

    Investing for Survival

    The priceless art of not giving a s**t (medium):

    http://www.fool.com/investing/general/2015/05/15/the-priceless-art-of-not-caring.aspx

    News on Stocks in Our Portfolios

    Chevron EPS of $0.30

    · Chevron (NYSE:CVX): Q2 EPS of $0.30 may not be comparable to consensus of $1.16.

    · Revenue of $40.4B (-30.3% Y/Y) beats by $9.49B.

    Exxon Mobil misses by $0.11, beats on revenue

    · Exxon Mobil (NYSE:XOM): Q2 EPS of $1.00 misses by $0.11.

    · Revenue of $74.1B (-33.4% Y/Y) beats by $1.62B.

    Economics

    This Week's Data

    June personal income rose 0.4% versus expectations of up 0.3%; personal income was up 0.2%, in line.

    Other

    Freight rates from China to Europe down big (medium):

    http://www.zerohedge.com/news/2015-08-02/something-just-snapped-container-freight-rates-asia-europe-crash-23-one-week

    Politics

    Domestic

    International War Against Radical Islam

    Aug 03 8:51 AM | Link | Comment!
  • Subscriber Alert

    Subscriber Alert

    7/28/15

    The stock price of Oracle (ORCL-$38) has traded below the lower boundary of its Buy Value Range. Accordingly, it is being Removed from the Aggressive Growth Buy List. It is above its Stop Loss Price. Hence, the Aggressive Growth Portfolio will continue to Hold ORCL.

    The stock price of Praxair (PX $111) has traded below the lower boundary of its Buy Value Range. Accordingly, it is being Removed from the Dividend Growth Buy List. It is above its Stop Loss Price. Hence, the Dividend Growth Portfolio will continue to Hold PX.

    Jul 27 5:27 PM | Link | Comment!
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