Where Fundamentals Meet Technicals: Calamos Dynamic Convertible And Income - Yield 7.2%

Summary

• CCD is one of the top-performing Convertible Bond CEFs.
• Reap the benefit of monthly distributions.
• Price has formed a very bullish technical setup suggesting future price appreciation in addition to the income.
• I do much more than just articles at Stock Waves: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Produced by Jason Appel of StockWaves, along with Rida Morwa of High Dividend Opportunities

This series of articles is intended to provide Elliott Wave and Fibonacci Pinball Analysis as an accompaniment to Rida Morwa's High Dividend Opportunities (HDO) Service. Our goal is to provide greater context as to where price is within the trend for the opportunities being presented by Rida's High Dividend Opportunities group. This will include support regions for potential entries and target regions for the bigger trend.

In his recent article comparing four of the best monthly-pay convertible bond Closed-End Funds posted on Feb. 28, here, Rida noted the addition of NASDAQ:CCD - the Calamos Dynamic Convertible And Income - to the Core Portfolio.

Rida makes a strong fundamental case for investment in CCD:

CCD offers one of the highest current yields, the second highest total price return (shown in the orange/salmon-colored line in the chart below) of the group in the last five years and the highest Total Price Return in the last year.

Graph source: Rida Morwa via YCharts

From the Feb. 28 article, Rida adds further justification:

"The two best picks are CCD (yield 7.2%) and ACV (yield 5.7%):

1. Historically, both have strongly outperformed providing solid returns for investors.

2. These are the most actively managed based on the turnover of their portfolios.

3. They have the best asset mix with exposure to sectors that are set to outperform in this current market cycle: Consumer discretionary, healthcare, and technology.

4. They both offer monthly-pay distributions, a great feature for those looking for a regular paycheck.”

CCD closed on Thursday, March 4, at $30.81, up 9.37% year-to-date.

As a convertible bond CEF, CCD shares some characteristics with equities in their upside movements but with some of the downside protection of bonds. Like much of the market, CCD skyrocketed off of the March 2020 lows, reaching a high in 2020 of $28.89 in December, which was up 300%. So far, the rally has shown continued strength in 2021.

From a technical perspective, CCD appears to be forming a 5-wave structure off the March 2020 lows. In the February high, we have 3 waves up, which reached the target region for wave (3) above the 1.382 Fibonacci extension. Within this set of extensions, derived by measuring the length of wave (1) and projecting those measurements up from the wave (2) low, we look for wave (3) to target between the 1.382 and 1.618 levels for a standard extension before getting a pullback in wave (4). As you can see in the accompanying chart, CCD is following the expected pattern quite nicely.

From here, our standard support level is in the 1.0 region. Should price come all the way down to $25.29, we would see that as an excellent buying opportunity. However, markets inside of strong trends often do not pull back as expected and so given the monthly income that CCD pays, any prospective weakness could be viewed as an opportunity to buy or add to holdings.

Though we do not expect such a deep pullback, our must-hold support level is $19.42. So long as price remains above there, we consider a move upwards of $40-$45 reasonably likely. Below $19.42 would not invalidate such bullish potential but it would compromise the likelihood of such a bullish prospect.

As you can see, the goal of the relationship between StockWaves and HDO is to provide greater context for the opportunities being presented by HDO. We continue to feel this relationship will benefit both StockWaves and HDO members going forward.

Analyst’s Disclosure: I am/we are long CCD.