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Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
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  • 2 High Yields For Turbulent Times 1 comment
    Jun 28, 2012 1:12 PM | about stocks: SPY, TLT, GXP, BR

    Finding technically strong stocks with good dividends, like these two, offer an attractive alternative to the low yields and potential negative total returns of the Treasury market.

    Today promises to be another turbulent day in the financial markets, with the expected Supreme Court ruling on health care, the start of the latest two-day meeting on the Euro debt crisis, and the news that JPMorgan Chase's (JPM) loss on its "hedge" is closer now to $9 billion.

    Investors are understandably skeptical that anything meaningful will come out of the Eurozone, and are clearly unsure of what the Supreme Court decision will do to their investments. Obviously, the news from JPMorgan Chase will not help investor confidence.

    For those who want an alternative to the potentially negative return from the Treasury market, there are stocks with attractive yields that also look positive technically. Even the most cautious investors these two stocks could improve the overall yield of their portfolios.

    chart
    Click to Enlarge

    Chart Analysis: The daily chart of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) is still edging higher after spiking to a low last week of $124.09. The sluggish recent action suggests that many are not expecting a sharp decline in longer-term rates.

    • TLT reached a high of $130.38 on June 1
    • The completion of the trading range, lines a and b, still has upside targets in the $133-$134 area
    • The relative performance, or RS analysis did confirm the June highs, and is still holding above its uptrend (line c). This indicates that TLT is still outperforming the S&P 500 or Spyder Trust (SPY)
    • The on-balance volume (OBV) is acting stronger than prices, as it is very close to its June highs and is holding above its rising WMA
    • Initial support now sits at $125.50 and the rising 20-day EMA

    Great Plains Energy (GXP) is a $2.9 billion electric utility that showed up on my volume scan last week. It closed Wednesday above its recent highs (line e) on three times the average daily volume. It fits the criteria that I discussed in "5 Steps for Finding the Next Winning Stock."

    • GXP has next resistance at $21.98, which was the high early in the year
    • From the nice base in the $19.50 area, the breakout has initial upside targets in the $22.80 to $23.20 area
    • The RS line turned higher in early May, starting a new uptrend. It is well above support (line g)
    • The daily OBV broke through three-month resistance (line h) in June, and still looks strong
    • There is minor support now between $21 and $21.20, with further levels in the $20.50 area
    • GXP has a current yield of 4.1%Page 2 of 2)

      chart
      Click to Enlarge

      Broadridge Financial Solutions (BR) is a $2.9 billion information technology company that provides services to the financial services sector. It also closed sharply higher on heavy volume Wednesday, and the chart shows a potential short-term bottom formation (line b). It is down sharply from the February high of $24.94.

      • There is next resistance at $21.12, with the 38.2% Fibonacci retracement resistance at $21.76
      • The more important 50% resistance stands at $22.40
      • The relative performance has just broken its downtrend (line c), but it needs to move above the June highs to start a new uptrend
      • The daily OBV turned positive in early June, as the volume surged and the downtrend (line d) was overcome
      • The one day of high-volume selling on May 31 looks like panic liquidation
      • BR currently yields 3.1%

      What it Means: The major stock-market averages have pulled back to more important support and are lower in early trading Thursday. A close below Monday's lows could set the stage for a deeper decline.

      However, the positive intermediate-term signals from the market internals do indicate that this will be a further buying opportunity.

      Locking in attractive yields in technically positive stocks should give your portfolio a good balance. When Treasury yields move higher later in the year, the total returns are otherwise likely to become even more negative.

      How to Profit: For Great Plains Energy (GXP), go 50% long at $21.14 and 50% long at $20.94, with a stop at $20.17 (risk of approx. 4%)

      For Broadridge Financial Solutions (BR), go 50% long at $20.74 and 50% long at $20.56, with a stop at $19.67 (risk of approx. 4.7%)

      Portfolio Update: Investors are 50% long TLT from May 10 at $117.93. Raise the stop now to $123.74. Half the position was sold at $124.73.

      Aggressive traders as per the June 14 column should be long the iShares Barclays 20+ Year Treasury Bond Fund (TLT) at $125.66 or better. Use a stop now at $123.74, and sell half the position at $129.76 or better.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • The Treasury bond market has just suffered one of the most horrific selloffs in recent memory, taking the yield on ten year paper up from 1.38% to an eye popping 1.83% in weeks, a three month high.

     

    Yields have just risen by an amazing 38%. This has dragged the principal Treasury bond ETF (TLT) down from $132 to $120. Those who were pining to get into this safe haven at a better entry point now have their chance.

     

    Rumors for the plunge have been as numerous as bikinis on an Italian beach. Some have pointed to a suspected unwind of China’s massive $1 trillion in Treasury bond holdings. Others point to the incredibly thin summer market trading conditions. Add to that a relentlessly heavy new issue calendar by the government. After all, they have a $1.4 trillion budget deficit to finance this year. That works out to $4 billion a day.

     

    Long term strategists point to more fundamental reasons. The spread between the ten year yield and the S&P 500 dividend yield is the narrowest in history. Even after the recent slump, equity yields still beat bonds by 20 basis points. This has never happened before. The smarter money began shifting money out of bonds into stocks months ago.

     

    However, I think that an excellent trading opportunity is setting up here for the brave and the nimble. There is a method to my madness. Here are my reasons:

     

    *US corporate earnings are slowing at a dramatic pace. Some 40% of those reporting in Q2 delivered revenues misses. They made up the bottom line by firing more people. This is the worst performance since early 2008. Remember how equity ownership worked out after that?

     

    *The high price of oil is now starting to become a problem and will inflict its own deflationary effects. If we maintain the 24% price hike we have seen in recent months, that will start to present a serious drag on the economy.

     

    *Fiscal Cliff? Has anyone heard about the fiscal cliff? This 4% drag on GDP growth, another name for a recession, is looming large.

     

    *Don’t forget that the rest of the world economy is going to hell in a hand basket. The China slowdown continues unabated, and a hard landing is still on the table. Europe is in the toilet. Japan’s growth is on life support.

     

    *The Chinese aren’t selling. They told me so. They are merely reallocating a larger portion of their monthly cash flow to Europe where yields are a multiple higher. They are doing this because I told them to. This helps support the Euro. Keeping the currency of its largest trading partner strong to preserve exports is in its best interest.

     

    *QE3? Remember QE3? Even if the Federal Reserve doesn’t implement this expansionary monetary policy, Europe will. And the Fed will probably join in 2013 when we head into the next recession.

     

    *Paul Ryan for VP? If elected, his death wish for the Federal Reserve will send asset prices everywhere plummeting, including stocks and bonds. Since Romney’s fumbled announcement, Treasury bond yields have soared by 25 basis points.

     

    There are many ways to play this game. Just pick your poison. The obvious pick here is to buy the (TLT) just over the 200 day moving average at $119. You could buy an October $120-$125 (TLT) call spread in the options market for a quick bounce. If you really want to get clever, you can sell short the $110-$115 call spread, which has a breakeven in terms of the ten year Treasury yield of 2.10%.

     

    The safe haven trade is not gone for good. It’s just enjoying a brief summer vacation.

     

    The Mad Hedge Fund Trader
    20 Aug 2012, 10:06 PM Reply Like
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