Seeking Alpha

All American In...'s  Instablog

All American Investor
Send Message
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
My company:
Strategic Stock Investments
My blog:
Investing for Survival
  • Another Brief Morning Call

    The Morning Call

    12/18/14

    The Market

    Technical

    Helped along by a more dovish than expected Fed statement, the technically oversold market bounced early in the day and then short covering pushed on the afterburners in the afternoon. Both indices (17356, 2012) closed back above their 50 day moving averages and the Dow finished back above its former high support level---which are quite positive. However, before we can assume that the current downtrend is over, the Averages, at the very least, have to trade back above the upper boundaries of their developing very short term downtrends (circa 17483, 2023).

    ***overnight, the Swiss central bank imposed negative interest rates on foreign capital inflows. For all practical purposes that is an easing move on top of the Fed meeting.

    The main reason for the euphoria over the Fed statement/Yellen news conference was that (1) the Fed weaseled its way out of corner---raising interest rates next year. Not that it won't lift rates next year, it just gave itself more room not to without looking like is changing its policy and (2) Yellen downplayed the decline in the price of oil and its potential impact on the economy and the banking system---which as you know has been a driving force behind the recent Market decline. How you can be so nonchalant about a 50% reduction in the price of one of the primary economic inputs and its impact is frankly a bit unsettling. Her statement is very reminiscent of a similar one by Bernanke in 2008 about how little risk there was in the housing and mortgage markets. Not that all will turn out the same; but the circumstances seem hauntingly familiar.

    Dec 18 9:07 AM | Link | Comment!
  • The Morning Call & Subscriber Alert--A Weak Bounce

    The Market

    Technical

    The indices (DJIA 17596, S&P 2035) bounced back from Wednesday's losses, though much of the advance had been lost by the end of the day. Both remained within uptrends across all timeframes: short term (16197-18943, 1866-2230), intermediate term (16184-21149, 1709-2425) and long term (5360-18860, 782-2071). Both remained above their 50 day moving averages.

    Volume declined; breadth improved. The VIX was up another 8%, closing within a short term trading range, an intermediate term downtrend and above its 50 day moving average.

    Looking at the VIX as a sign for year-end stock performance (short):

    http://jlfmi.tumblr.com/post/104856245410/this-signal-has-perfect-record-of-forecasting

    Update on sentiment (short):

    http://www.bespokeinvest.com/thinkbig/2014/12/11/bullish-sentiment-rises-as-market-declines.html

    The long Treasury was up again. It finished within a very short term uptrend, a short term uptrend, above its 50 day moving average and above the upper boundary of its intermediate term trading range for the second day. If it remains above this boundary through the close next Monday, the intermediate term trend will re-set to up.

    GLD declined fractionally, but ended above the upper boundary of its short term downtrend for the third day. Under our time and distance discipline, that confirms the break of the short term downtrend and re-sets it to a trading range. It also remained above the lower boundary of its former long term trading range for the fourteenth time in the last seventeen days. As a result, I am calling the recent break of this trend a false flag and re-setting it to the former long term trading range. It also finished above its 50 day moving average and within an intermediate term downtrend.

    http://www.ritholtz.com/blog/2014/12/why-gold-oil-are-trading-so-differently/

    Bottom line: after the buy the dippers failed to show up in Wednesday's carnage, they came back strong at yesterday's open and then faded during the day. I think this pen action continued to mirror my call yesterday: 'I assume means that the 'buy the dippers' are at least starting to get a bit fidgety. Not that they are going away, maybe just taking a time out.'

    Further, the price action in bonds (yields falling), gold (breaking negative trends) and the VIX (soaring after a brief break of its short term uptrend) also suggest that investors may be starting to discount something other than an improving US economy and QE forever.

    Global stock markets are still correcting (short):

    http://shortsideoflong.com/2014/12/global-stocks-still-correcting/

    More on the fallout in the oil patch (medium):

    http://www.zerohedge.com/news/2014-12-11/massive-correction-energy-stocks-coming-why-us-wont-bail-out-its-oil-industry

    The latest from Lance Roberts (medium):

    http://www.zerohedge.com/news/2014-12-11/3-things-worth-thinking-about

    Inflation/deflation and stock prices (medium):

    http://www.zerohedge.com/news/2014-12-11/russell-napier-has-never-happened-without-drop-stock-prices

    Fundamental

    Headlines

    More improving US economic news yesterday: weekly jobless claims were down slightly; the November retail sales headline number was very strong though (1) ex autos and gas it was up only marginally and (2) it included the third largest seasonal adjustment ever; finally, October business inventories were up less than anticipated and sales fell. The big number was retail sales (a primary indicator); and while it would have been better if there weren't some ambiguous components, it was still up in a rough global economic environment. And that is a whole lot better than a sharp stick in the eye.

    Meanwhile, down the rabbit hole, the FY2015 budget deal suddenly hit a snag (it passed with two hours to spare) as (1) democrats [led by Elizabeth Warren and Nancy Pelosi] are objecting to the provision freeing banks from having to spin out their derivatives operations and (2) republicans who are pissed that there are a number of pork barrel add ons and that they haven't been given a chance to read the 1600 page bill. Remember all the GOP propaganda against earmarks and the democrats' lack of transparency (we have to read the bill to see what's in it). Is there any doubt that the American people have just substituted one group of self-interested morons for another group of equally self-interested morons? This whole thing is legislative malpractice and they should all be recalled. It also raises the question, will we ever get meaningful spending, regulatory and tax reform?

    http://www.zerohedge.com/news/2014-12-12/presenting-303-trillion-derivatives-us-taxpayers-are-now-hook

    Overseas, well, it was more of the same. I know that this sounds like a broken record; but I am just reporting the news. It doesn't alter, in fact it keeps making worse, the risk that at some point global events could impact the US economy. Anyway, Norway's central bank lowered its main interest rate as fears of an oil related recession mount; the ECB held its second round of bank asset repurchase agreements which was better than the first but still well short of expectations; and Greece remains in a political crisis that could result in a default or it exiting EU.

    There was one bright spot: the Bank of China added to banking reserves. That said, this bank has been giving off some mixed signals of late; and when you couple that with the fact that these guys lie like a rug about their data, it doesn't give me great comfort that China is going to contribute to global QEInfinity in any meaningful way.

    ***overnight, both Chinese and EU industrial production numbers were below expectations.

    However, not to be denied its rightful place in the headlines, oil took another leg down, closing below the $60 a barrel mark. The big question at this point, is it going lower and will it take stocks with it? I am no oil expert; but there has, of course, been an endless stream of 'experts' yakking about the future direction of prices. Most seem to think that there is more downside though opinions vary on the driving factors as well as the magnitude of decline.

    One thing they do agree on---the fracking business was built on credit (much of it subprime) which if not serviced by the terms of the debt, will bankrupt companies. It is the risk that David Stockman so eloquently detailed in the article I linked to yesterday. The risk here is not temporarily lost production or jobs, it is the loss of companies and investment assets.

    Bottom line: this week's economic data so far has provided ammunition for those forecasts of an improving US economy. Yesterday's November retail sales number was particularly encouraging. That said, forces outside the US continue to make our progress ever more difficult. The rest of the world simply can't get a break---the data is deteriorating, concerns are now being raised that the oil price decline may not be as positive as everyone originally thought and the mainstay of investor optimism, QE, even assuming that it works (which it doesn't), is now less assured than it was a month ago.

    Nevertheless, stocks remain priced to near perfection. For the life of me, I can't figure out why anyone wouldn't want to take at least some money off the table in any stock that is selling at historic absolute and relative highs.

    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.

    Subscriber Alert

    The stock price of Chevron (CVX-$106) has fallen below the lower boundary of its Buy Value Range. Hence, it is being Removed from the Dividend Growth Buy List. It remains above its Stop Loss Price and therefore is being retained in the Dividend Growth Portfolio.

    The stock price of ExxonMobil (XOM-$89) has fallen below the upper boundary of its Buy Value Range. Accordingly, it is being Added to the Dividend Growth Buy List. The Dividend Growth Portfolio already owns a full position in XOM. However, even if there was room for additional shares, no shares would be Bought at this time.

    This kind of action, i.e. stocks trading into their Buy Value Range then trading through not only the lower boundaries but also their Stop Loss Prices is not atypical during severe Market declines. The oddity here is that the Market is near highs but energy stocks are falling to bear market levels. The clear question is which one gives? Will the Market follow oil stocks down or will they pull them back to higher levels? In my opinion, it is no time to make a bet on either. Patience.

    Investing for Survival

    Four investment lessons from 2014 (medium):

    http://blog.alliancebernstein.com/index.php/2014/12/10/lessons-learned-in-2014/

    Thoughts on Investing from Crosshairs Trader

    Way back when, long before there were live data trading platforms for mere mortals, before gurus printed weekly newsletters, before Stock Twits and Twitter, even before Cramer and Fast Money, there were the likes of Edwards, McGee, R.W. Schabacker, and Charles Dow, to name a few. These are the guys who invented and developed the standards followed by present day chartists. Wherever technical analysis is employed you will find, my dear reader, the fingerprints of the aforementioned standard bearers.

    It is very interesting to note that the forefathers of technical analysis, unlike many snake oil salesmen of today, while espousing the benefits of technical analysis, went to great lengths to warn future chartists of the many dangers inherent in charting, such as the desire to be right. Schabacker, in his classic Stock Market Profits, published nearly 80 years ago, writes in an eloquent prose few today can match

    No trader can ever expect to be correct in every one of his market transactions. No individual, however well he may be grounded, no matter how much experience he has had in practical market operation, can expect to be infallible.

    There will always be mistakes, some unwise judgments, some erroneous moves, some losses. The extent to which such losses materialize, to which they are allowed to become serious, will almost invariably determine whether the individual is to be successful in his long range investing activities or whether such accumulated losses are finally to wreck him on the shoals of mental despair and financial tragedy.

    It is easy enough to manage those commitments which progress smoothly and successfully to one's anticipated goal. The true test of market success comes when the future movement is not in line with anticipated developments, when the trader is just plain wrong in his calculations, and when his investments begins to show a loss instead of a gain. If such situations are not properly handled, if one or two losing positions are allowed to get out of control, then they can wipe out a score of successful profits and leave the individual with a huge loss on balance.

    It is just as important, nay, even more important, to know when to desert a bad bargain, take one's loss and count it a day, as it is to know when to close out a successful transaction which has brought a profit.

    The staggering catastrophes which ruin investors, mentally, morally, and financially, are not contingent upon the difference between a 5 per cent loss limit and a 20 percent loss limit. They result from not having established any limit at all on the possible loss.

    Any experienced market operator can tell you that his greatest losses have been taken in those, probably rare, instances when he substituted stubbornness for loss limitation, when he bought more of a stock that was going down, instead of selling some of it to lighten his risk, when he allowed pride of personal opinion to replace conservative faith in the cold judgment of the market place.

    It would behoove each of us to remember that cup handles can and will be broken, necklines ignored for a return gaze at the head, flags folded and put away. Triangles do and will turn into rectangles; breakouts into breakdowns. If you do not believe me, the next time you stay in a series of trades, or one over capitalized trade much longer than necessary, remember the immortal words of Edwards and McGee:

    If we can learn from the charts at what points to buy and under what conditions to sell, we have acquired the basic machinery for successful trading. On the other hand, obviously, if your buying and selling are at points which more often than not result in net losses, then it makes no difference how you divide up your capital or apply it to the market, for it will be bound to shrink until, eventually, it has all disappeared.

    News on Stocks in Our Portfolios

    Economics

    This Week's Data

    October business inventories were up 0.2% versus expectations of up 0.3%; sales fell 0.1%.

    November PPI fell 0.2% versus estimates of down 0.1%; ex food and energy, it was flat versus forecasts of +0.1%.

    Other

    Politics

    Domestic

    The shame of a crumbling infrastructure (medium):

    http://www.bloombergview.com/articles/2014-12-11/the-shame-of-americas-rotting-roads

    International

    Michael Hudson on US foreign policy (medium):

    http://www.nakedcapitalism.com/2014/12/michael-hudson-u-s-new-cold-war-policy-backfired.html

    Disclosure: The author is long CVX, XOM.

    Dec 12 8:44 AM | Link | Comment!
  • The Morning Call---But You Said Falling Oil Prices Were An Unmitigated Positive

    The Market

    Technical

    The indices (DJIA 17533, S&P 2026) suffered some major whackage yesterday; and unlike Tuesday, the buy the dip crowd sat on its hands. Nevertheless, both remained within uptrends across all timeframes: short term (16197-18943, 1866-2230), intermediate term (16164-21129, 1709-2425) and long term (5360-18860, 782-2071). Both remained above their 50 day moving averages, though the S&P isn't that far away (circa 2000).

    Volume rose; breadth was awful. The VIX soared 25%, closing within a short term trading range, an intermediate term downtrend and above its 50 day moving average.

    The long Treasury was up again. It finished within a very short term uptrend, a short term uptrend, above its 50 day moving average and above the upper boundary of its intermediate term trading range. If it remains above this boundary through the close next Monday, the intermediate term trend will re-set to up.

    http://gavekal.blogspot.com/2014/12/long-end-of-usyield-curve-flattest.html

    And (short):

    http://sigmundholmes.com/who-you-gonna-believe-me-or-the-bond-market/

    GLD fell slightly, but ended above the upper boundary of its short term downtrend for the second day. If it closes there today, the break of the short term downtrend will be confirmed and the trend will re-set to a trading range. It also finished above the lower boundary of its former long term trading range, having been there for thirteen of its last sixteen trading days. If the break of the short term downtrend is confirmed, I am going to change the long term trend back to a trading range from a downtrend. GLD remained within an intermediate term downtrend and above its 50 day moving average.

    Bottom line: based on the absence of any bounce back during yesterday's severe downturn, I assume means that the 'buy the dippers' are at least starting to get a bit fidgety. Not that they are going away, maybe just taking a time out. On a long term basis, there is no reason to be concerned about stocks given the considerable distance that exists between current price levels and the Averages' lower boundaries of their short and intermediate term uptrends. Shorter term, traders may be concerned that there is no visible support before Dow 17173/S&P 1904.

    What might give traders as well as investors pause, is the pin action in TLT. Having just re-set its very short term trend to up, it is now challenging the upper boundary of its intermediate term trading range. A break of that trend would be a powerful sign that investors are worried about either a recession here or some jolting events overseas. Neither would likely be good for stocks.

    GLD's also appears to be reversing its broad trend. Granted that it hasn't occurred yet and if it does, it won't be as strong a signal as that from TLT. Nonetheless, it would reinforce the notion that investors are seeking a safe haven.

    Fundamental

    Headlines

    Only two secondary US stats were reported yesterday: weekly mortgage and purchase applications were both up while the US November budget deficit was below forecasts. Nothing here.

    On the political front, the good news is that congress will pass a FY2015 funding bill (ex Homeland Security), with the spending level basically flat with FY2014; the bad news is that the GOP, in its first order of business, demonstrated that it was still in the banksters' pocket to the detriment of you and me. Specifically, it attached a provision to the funding bill that would negate a Dodd Frank regulation that forces the big banks to divest their derivatives trading operations---which you and I will pay for if they fuck up (again).

    http://takingnote.blogs.nytimes.com/2014/12/09/will-lawmakers-sneak-a-gift-to-wall-street-into-the-spending-bill/?_r=0

    Overseas, the string of bad economic news just won't stop: Japanese consumer confidence declined, the IMF identified a $15 billion shortfall in Ukraine's current budget which would be on top of the latest projections for a $17 billion loan and Iran forecasted oil would go to $40 a barrel.

    And in a leaked ECB memo, it appears that EU QE has been put on indefinite Hold (medium):

    http://www.zerohedge.com/news/2014-12-10/european-qe-postponed-indefinitely-leaked-eu-draft-shows-lack-political-cover-draghi

    Plus in the political arena, we received two gems: Ukraine invited in Russian 'specialists' to help 'de-escalate' the conflict. What could possibly go wrong in this scenario? (think fox in the henhouse); China CPI was up less than expected, which at least initially, produced the narrative (hope?/prayer?/mirage?/delusion?) that lower inflation meant that the Bank of China had room to pursue a more accommodative monetary policy. We'll see.

    But put all the above aside, because what held investor attention for most to the day was that the price of oil continued to get pummeled---and stocks followed suit. But wait, I though you said the oil price decline was an unmitigated positive. If you didn't read David Stockman's piece on the Fed and oil in yesterday's Morning Call:

    http://www.zerohedge.com/news/2014-12-09/time-same-housing-bubble-fed-ignoring-shale-bubble-plain-sight

    And the rig count (short):

    http://www.zerohedge.com/news/2014-12-10/its-different-time-rig-count-edition

    ***overnight, in another on again, off again move, the Bank of China added to banking reserves; Norway's central bank lowered its main interest rate as fears of recession mount (remember it's economy is closely tied to the oil industry [another unmitigated positive]); the ECB held it second TTLRO (ECB buys bank assets but for only three years) and it was better than the first but still well short of expectations; and Greece inches closer to default/exiting EU.

    http://www.zerohedge.com/news/2014-12-11/greek-stocks-crash-default-risk-spikes-after-pm-grexit-comments

    Bottom line: the problems are starting to mount. Not only are the economic numbers from everywhere on the global except the US for shit; now (1) questions are being raised about QE in two big players [EU and China], the other big printer [Japan] is sinking into an economic abyss and the only question is how long is the electorate going to tolerate it and (3) then we find out that cascading oil prices may be as much to do with weaker demand [slowing economic growth] as it does with rising supply and therefore, are not quite as positive as all those gurus said it was.

    Of course, none of this means diddily as long as investors continue to view life through rose colored glasses; and we are not going to have a good read on that for another 1000 or so Dow points. Unfortunately, another 1000 Dow points would only the beginning of any mean reversion of price to value.

    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.

    The latest from Doug Kass (medium):

    http://www.thestreet.com/story/12978779/1/real-money-pros-doug-kass-on-the-market-back-to-the-future.html

    Subscriber Alert

    Having taken OKS off the High Yield Buy List yesterday following its break below the lower boundary of its Buy Value Range, the stock proceeded to fall an additional 7% in yesterday's trading. That takes it below our Stop Loss Price. Accordingly, the stock will be Sold at the Market open.

    Western Energy (NYSE:WES) has fallen below the lower boundary of its Buy Value Range. Hence, it is being Removed from the High Yield Buy List. The High Yield Portfolio will continue to Hold this stock.

    Investing for Survival

    Markets are always tempting us to make mistakes (medium):

    http://awealthofcommonsense.com/markets-tempt-us-making-mistakes/

    Part two: securities based lending. If you have been tempted into taking out a loan using your 401k or any other portfolio as collateral, this is a must read. If you haven't but like a perfect example of yet another exogenous event that could sink the market, it is a good read.

    http://fortune.com/2014/12/10/securities-based-lending-banks/

    Company Highlights

    Conoco Phillips one of the world's largest exploration and production (E&P) companies. Profits and dividends have grown approximately 9-13% annually over the last 10 years. In the same time frame, COP has earned between a 10-20% return on equity. The company should continue to make progress as a result of:

    (1) its exposure to promising international regions,

    (2) domestically, its capital expenditures will focus the development of Eagle Ford Shale, Permian, Bakken and Barnett fields,

    (3) splitting the exploration and production from the refining and marketing should unlock value for shareholders,

    (4) utilize its strong cash flow to pay down debt, raise dividends and buy back stock.

    Negatives:

    (1) short term, its production will be impacted by the shut down of its Libyan production,

    (2) price fluctuations of oil and natural gas,

    (3) its international operations are subject to political risks.

    Conoco is rated A++ by Value Line, has a 28% debt to equity ratio and its stock yields approximately 4.6%.

    Statistical Summary

    Stock Dividend Payout # Increases

    Yield Growth Rate Ratio Since 2004

    COP 4.6% 10% 41% 9

    Ind Ave 1.0 8 12 NA

    Debt/ EPS Down Net Value Line

    Equity ROE Since 2004 Margin Rating

    COP 28% 18% 3 13% A++

    Ind Ave 44 14 NA 18 NA

    Chart

    Note: COP stock made great progress off its March 2009 low, quickly surpassing the downtrend off its June 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 in a trading range (purple lines). The wiggly red line is the 50 day moving average. The Dividend Growth and High Yield Portfolios own 50% positions in COP, having Sold Half in late 2013. The upper boundary of its Buy Value Range is $32; the lower boundary of its Sell Half Range is $71.

    (click to enlarge)

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

    12/14

    News on Stocks in Our Portfolios

    Economics

    This Week's Data

    The November US budget deficit came in at $56.8 billion versus expectations of $63 billion.

    Weekly jobless claims fell 3,000 versus estimates of down 2,000.

    November retail sales jumped 0.7% versus forecasts of up 0.4%; ex autos and gas, the numbers were up 0.6% versus consensus of up 0.5%.

    Other

    Politics

    Domestic

    Treasury Dept. ordering survival kits for employees. What do they know that we don't? (short):

    http://www.zerohedge.com/news/2014-12-10/why-us-treasury-quietly-ordering-surival-kits-us-bankers

    International

    US tanks roll into Latvia (short):

    http://www.zerohedge.com/news/2014-12-10/us-tanks-are-rolling-across-latvia

    Probability of default by Venezuela at 93% (short):

    http://www.zerohedge.com/news/2014-12-10/venezuela-default-probability-has-never-been-higher-maduro-working-raise-oil-prices

    Disclosure: The author is long COP, OKS, WES.

    Dec 11 9:03 AM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Most Commented
  1. The Closing Bell (1 Comment)
  2. The Closing Bell--12/6/14 (1 Comment)
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.