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  • Market Update April 25 - New Highs For Nasdaq - S & P

    Bulls and bears don't seem to be around anymore as the masses seem to have gone "neutral" on their outlook for the stock market. Nearly 50% surveyed last week by the AAII described themselves that way, the highest level of neutrality in 12 years. However, it appears the remaining bulls had something to say this week as the Nasdaq along with the S & P recorded a new all time high which comes on the heels of the new high posted by the RUT last week. Economic data continued to disappoint but for now, good earnings reports trumped the global economic news.

    With the Nasdaq at new closing highs, we've heard plenty of talk about another "bubble" and the comparisons to yesteryear. With some wizards now touting the purchase of puts and shorting the index. It wont be a straight line up from here, but I believe the Nasdaq is not done in setting new highs for this year.

    This new found 'neutrality" sentiment could be a reflection of the contradictory data of late. Manufacturing is weakening but housing is strengthening (more on housing later), and auto sales are robust but overall retail sales are just so - so. Then there's Greece. The back and forth of "will they", "wont they" work out a deal, putting the "Grexit" issue back on the table.

    But I think the bulls need to keep a watchful eye on what is going on in another part of the world -- China.

    Its annualized real Q1 GDP hit a 6-year low of 7% (just 5.8% nominally before deflation boosted the real rate) and March data was worse. Industrial production, fixed-asset investment and retail sales all hit multiyear lows. Cornerstone Macro thinks China's record plunge in foreign-exchange reserves means it's experiencing significant capital outflows.

    According to HSBC/Markit's Purchasing Managers Index. PMI fell to 49.2 (est. 49.6) in April, beneath the 50-point watermark that separates growth from a contraction.

    Back here in the U.S.

    Revisiting a theme I have laid out in past blog posts. The strength of the RUT and small cap U.S. based companies. Large-cap U.S. companies were one of the best U.S. investments in 2014. In fact, large-cap stocks as measured by the S&P 500 Index returned 8.8% more than small-caps as measured by the Russell 2000 Index in 2014, the best annual relative return for large-cap vs. small-cap since 1998. But a curious trend developed at the end of 2014 and has continued through the first quarter of this year: the return of small company stocks.

    Large-caps reached a peak level of outperformance vs. small-caps on October 1 of last year, at 16.1%. This was almost exactly at the average peak outperformance we have seen over the past twenty-four years. Perhaps not surprisingly, since October 2014 small-cap companies have begun to outperform the S&P.

    To be sure, the RUT, as of last Friday, was up 5.2%

    year-to-date versus the S&P 500's present 2.8% gain.

    More on individual stocks to take advantage of this trend later.

    Economy - Housing

    Housing continues to be a source of strength with MBA Purchase Applications recording their largest weekly gain since 2013 and year-over-year change in the index continuing to accelerate, now up 14.4% versus a year ago.

    March Existing Home Sales from the National Association of Realtors, showed a very, very similar story. While Existing Home Sales total level is still modest at a (SAAR) seasonally adjusted annual rate of 5.19 million , the rate of change is surging, with the number of homes sold going from 0.0% year-over-year in January to +13.5% in March.

    After a blow out report last month, new home sales were much less impressive in March, missing expectations by 34,000 on a seasonally adjusted annual rate (SAAR). That said, year-over-year new home sales are up 19.35% on a seasonally-adjusted basis, 15.38% on a non-seasonally adjusted basis. Supply also remains relatively tight with only 5.3 months available. This current period for homebuilders may be difficult. but I still believe in the story long-term, and suggest investors take a look at a sector that has truly lagged the most since 2009.

    Markit PMI missed estimates on Thursday, following up a simply disappointing Wednesday evening for PMIs around the world.

    The 54.2 reading this month wasn't "weak" in any absolute sense, as it still shows solid expansion. But given the explosive highs last summer, the mid-50s readings of the last few months remain disappointing in the minds of many .

    Amidst all of the so - so global economic news was a bevy of earnings reports this past week.

    Earnings Highlights


    MS Beat EPS forecasts by 6 cents (0.85 vs 0.79) on stronger revenues.

    STI Beat EPS forecasts by 6 cents (0.78 vs 0.72) on inline revenues.

    Other Notable Earnings

    KMB Beat EPS forecasts by 9 cents (1.42 vs 1.33) on stronger revenues; reaffirmed guidance.

    IBM Beat EPS forecasts by 8 cents (2.91 vs 2.83) on weaker revenues; reaffirmed guidance.

    HAL Beat EPS forecasts by 11 cents (0.49 vs 0.38) on inline revenues

    DD Beat EPS forecasts by 3 cents (1.34 vs 1.31) on weaker sales; sees EPS at low end of guidance

    LMT Beat EPS forecasts by 25 cents (2.74 vs 2.49) on weaker revenues; guided inline.

    TRV Beat EPS forecasts by 3 cents (2.53 vs 2.50) on weaker revenues; adds $5B to buyback plan.

    UTX Beat EPS forecasts by 5 cents (1.51 vs 1.46) on weaker revenues; reaffirmed guidance

    VZ Beat EPS forecasts by 7 cents (1.02 vs 0.95) on inline revenues.

    ABT Beat EPS forecasts by 5 cents (0.47 vs 0.42) on stronger revenues; guided inline.

    AMGN Beat EPS forecasts by 37 cents (2.48 vs 2.11) on stronger revenues; raised guidance.

    BIIB Missed EPS forecasts by 9 cents (3.82 vs 3.91) on weaker revenues

    BA Beat EPS forecasts by 16 cents (1.97 vs 1.81) on weaker revenues; reaffirmed guidance

    CAT Beat EPS forecasts by 50 cents (1.86 vs 1.36) on stronger revenues; raised guidance.


    BRCM Beat EPS forecasts by 4 cents (0.64 vs 0.60) on stronger revenues; guided inline.

    EMC Missed EPS forecasts by 5 cents (0.31 vs 0.36) on weaker revenues; lowered guidance.

    LRCX Beat EPS forecasts by 10 cents (1.40 vs 1.30) on inline revenues; raised sales guidance.

    JNPR Beat EPS forecasts by 1 cent (0.32 vs 0.31) on inline revenues; raised guidance.

    VMW Beat EPS forecasts by 2 cents (0.86 vs 0.84) on inline revenues.

    MSFT Beat EPS forecasts by 10 cents (0.61 vs 0.51) on stronger revenues.

    YHOO Missed EPS forecasts by 3 cents (0.15 vs 0.18) on inline revenues

    EBAY Beat EPS forecasts by 7 cents (0.77 vs 0.70) on inline revenues; guided inline.

    FB Beat EPS forecasts by 2 cents (0.42 vs 0.40) on inline revenues.

    GOOG Missed EPS forecasts by 4 cents (6.57 vs 6.61) on weaker revenues

    AMZN Reported loss inline with expectations (-0.12) on stronger revenues; AWS growth 49%.

    QCOM Beat EPS forecasts by 7 cents (1.40 vs 1.33) on inline revenues; lowered guidance.


    MCD Missed EPS forecasts by 5 cents (1.01 vs 1.06) on inline revenues; sees negative global comps.

    KO Beat EPS forecasts by 6 cents (0.48 vs 0.42) on inline revenues.

    YUM Beat EPS forecasts by 9 cents (0.80 vs 0.71) on inline revenues; guided inline.

    DHI Beat EPS forecasts by 2 cents (0.40 vs 0.38) on stronger revenues

    GM Missed EPS forecasts by 10 cents (0.86 vs 0.96) on weaker revenues.

    T Missed EPS forecasts by 3 cents (0.63 vs 0.66) on weaker revenues; churn declined.

    PEP Beat EPS forecasts by 4 cents (0.83 vs 0.79) on inline revenues.

    SBUX Reported inline EPS (0.33) on inline revenues; reaffirmed guidance.

    AAL Beat EPS forecasts by 3 cents (1.73 vs 1.70) on inline revenues.

    Please note the aforementioned results isn't a case of 'cherry picking". The companies listed above are some of the largest players representing a variety of sectors. I believe the results are telling the story as investors are reacting to this data and to date brushing aside some of the economic news. After all, it always comes down to earnings. The worst fears that were put forth about this earnings season don't appear to be coming to fruition.

    Case in point --- amazing how much sentiment can shift with individual stocks. Last quarter MSFT dropped 9% after reporting, this week it's up 8% after reporting a nice quarter.

    From Bespoke:

    At the close of business this week we witnessed big jumps in both bottom and top line beat rates. As of Friday, 66.5% of companies have beaten consensus analyst earnings per share estimates so far this season. This is a huge number so far compared to past quarters over the last four years. The revenue beat rate also ticked up big this week, jumping from 42% to 52.3%. The early read this season was the bottom line numbers were strong but top line numbers were severely lacking. This week's reports generally came in strong on both accounts, and we think it's a big reason why the broad market indices did so well.

    Technically Speaking

    The S & P looks to have now broken out of the "wedge " pattern I mentioned a while ago. It fooled many, including myself as it sure appeared we had a false breakout last week and the S & P would be sent back into the trading range.

    However, I would like to see some "follow thru" next week to cement this break in place.

    The DJ Transports also have firmed up this week, but they still look less steady than the other averages, however in my view, not bearish. The average appears to have settled back in the middle of the trading range and on doing so has put some distance between the recent support lows that many thought might be taken out to the downside.

    We might be witnessing a situation in the transports, where once again, I believe consolidation within a trading range may be what is developing this year.

    After all, The Transports were leaders for much of 2014. Not many mention that the DJ 20 was up a whopping 33% last year and that followed 2013, where the transport average was up 26% . A "pause" certainly wouldn't be out of the question.

    The consolidation scenario rebuffs the argument from some pundits and authors here on SA, that the lethargic transports are "telling us something" about the economy.

    Individual Stock Ideas

    This past week I added LQ La Quinta @ $23.05 on Monday 4/20 and NCLH Norwegian Cruise lines @ $51.45 on Tuesday 4/21.

    The Consumer Discretionary, Health Care and Technology sectors have seen the biggest moves higher within their trading ranges over the last week, and all three look positive to me here. LQ & NCLH fit the bill as they are both in the consumer discretionary space.

    The entire "Stock Idea" list for 2015 was updated this week with details on those two additions and the sale of HAR. There are still some good ideas there that are worthy of a "look".

    One name that is getting interesting again is TOL. It has taken a 'round trip" and is back to a level below where I sold it. I reviewed the reasons why I like the sector for the long run earlier in this missive. That said, I note that summer is typically not kind to homebuilder stocks after a strong spring performance, as the good news for the year is usually fully reflected. Thus, investors may need to become more selective in this sector as the year goes on. In my opinion, it could be time to re-initiate a position in TOL, if the weakness persists in the homebuilders.

    HZO , Marine Max, a name in the small cap arena that I own, reported earnings this past week. This may be a case to look past the "headline" and check under the hood of a company's report.

    The headline :

    • MarineMax : FQ2 EPS of $0.02 misses by $0.11.
    • Revenue of $172.14M (+26.0% Y/Y) misses by $1.11M.

    However, the remarks from the company's CEO on the results paint a different picture.

    We were profitable for the first half of our fiscal year for the first time since 2006, (the first half of their fiscal year is typically their most challenging due to the seasonality of their business) paving the way for a successful 2015.

    The marine industry continues its slow, but steady improvement and based upon our 27% same-store sales growth this quarter, which is on top of 45% improvement we produced in December quarter, the evidence of the recovery is clear. This year our target efforts have resulted in a cleanest and precious inventory we have had since 2006.
    However, our product margins remain near historic levels and we are not seeing any competitive pricing pressure in the marketplace that concerns us.

    The stock was punished after that report dropping 8 % on the day of the announcement. Rather than jettison the stock from my portfolio, I'll go with what I read in the transcript and re-classify this one as a "hold" and wait for the story to play out in the second half of the year.


    The VIX remains low, oil continues to rally, Treasury yields are range bound, and the USD is consolidating.

    Overall this is a pretty good environment for stocks, but their is a deluge of economic data coming next week which will include the much-anticipated Q1 GDP report. (My guesstimate, a tad less than 1%)

    That news and plenty of earnings reports for over 800 publicly traded stocks next week, has the chance to derail the good vibes that the stock market has been working on for the past 2 weeks or perhaps keep the momentum going to the upside.

    Stay Tuned

    Best of Luck to all !

    Apr 25 9:08 AM | Link | 3 Comments
  • Update On The Stock " Ideas" Presented In 2015.

    I made some changes to my stock "Idea" list this week as I added two new names and took profits in another.

    LQ La Quinta @ $23.05 on Monday 4/20 and NCLH Norwegian Cruise lines @ $51.45 on Tuesday 4/21..

    Both of these companies operate in the consumer discretionary space.

    La Quinta Holdings Inc. is an owner, operator and franchisor of select-service hotels primarily serving the midscale and upper-midscale segments under the La Quinta brand. It fits into the theme of this portfolio as it is a small cap growth company that in my view will benefit from a consumer that may start to increase their traveling plans here within the continental U.S. Technically the stock is in a strong uptrend and I expect earnings growth to start ramping up in the 2nd half of 2015 into 2016.

    Norwegian Cruise Line Holdings Ltd. is a diversified cruise operator of global cruise lines spanning market segments from contemporary to luxury under the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. A mid cap name that also will be the beneficiary of the weaker Euro as it should spur more Americans to cruise in Europe this summer. NCLH saw EPS growth of 65.6% last year, and is looking great for this year too. The current growth estimate for this year calls for earnings-per-share growth of 31.4%. Furthermore, the long-term growth rate is currently an impressive 27.5%, suggesting pretty good prospects for the long haul.

    In addition to those "adds", I took some profits on HAR a stock that I mentioned on March 14th. The stock broke out to a new high today and I decided to take what the market is giving me, in this case a quick 13% gain.

    That makes two positions cashed in this year at a nice profit, in a relatively short time period.

    Links to the Blog Posts highlighting each stock selection with Date,time,price.

    March 14

    Feb 28

    Feb 7

    "2 Stocks added for 2015 "

    Going forward, I will be looking closely at HZO as it had a disappointing earnings report today. It has now given up all of its gains and sits in the 'red'.

    A decision will be made on that position after I review the Earnings call transcript.

    Best of Luck to all !!

    Apr 23 5:27 PM | Link | Comment!
  • Call Writing Strategy Part 49 - Sold DAL Calls

    I sold the June 49 calls on DAL today @ $1.32, that trade brings in $914 in income . If called away @ $49 the total income jumps to $1,971 for the position.

    The present portfolio now has 4 open call positions.

    (click to enlarge)

    This is an actual portfolio initiated on June 5 2013, all trades are documented in this blog. Total Income now stands @ 52,671, on the initial $100,000 investment.

    The same 100K investment in the S & P 500 would now be valued @ $130,845.

    Best of Luck to all !!

    Apr 22 1:16 PM | Link | Comment!
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