In July last year, we highlighted one of our preferred US equity short signals on the blog. Target was triggered by the Algo Engine as a short signal on the 26/07/2016 at $77.
Target is now trading $57.
Walmart has recently been triggered as a short from $72.80.
After consolidating from mid-December to mid-February, we’re now seeing US financials breakout again to the upside.
Using Goldman Sachs as a leading indicator to US financials, we form a view that it’s best to stay with the upside momentum until we see a downturn in price which takes-out the recent minor higher low at $245.
Whilst we struggle to see the EPS support for US equity valuations, momentum remains very strong. March quarter earnings to be announced in 4 weeks may provide a reason for investor’s buying enthusiasm to pause.
On the 8/2/17 our Algo Engine generated a short signal in NCM at $23.95. The stock is now trading $21.50 and the short term momentum indicators continue to track lower.
Following the sell-off in both AMC and BXB , we now are looking for buying support at or near the current levels. Our short-term momentum indicators have not yet turned positive but we’re likely getting close to valuation support, where increased buying will occur.
We see value in AMC at $14.00.
We see value in BXB at $9.25
The XJO is now off 158 points from the 16/02/17 high of 5833. The resource sector has been the main drag, in particular, BHP and RIO.
Chart – BHP
Origin Energy looks like it will find buying support in the $6.25 to $6.50 range.
Woolworths trading back to $25.50 looks like reasonable value. We’re buyers on a dip in the share price at or $25.50. We see scope for 5% underlying EPS growth and when complimented with a covered call option, we’re generating 10%+ in annualized cash flow from the dividend and the call option income.
CCL is another name that we’ve been buying the stock at or near $10.00 and selling tight covered call options to generate 10 – 12% annualized cash flow .
We’ve been buying MPL and selling at-the-money covered call options to deliver an annualized cash flow of 10%+
There’s limited revenue growth, limited profit growth and a 4% dividend yield. However, we see the stock as a defensive income contributor to client portfolios.
In addition to the 10% cash flow from the dividend and option income, we’re allowing for a small capital gain over the next 4 months.
Domestic yield sensitive stocks are looking well supported as global yields in G7 economies retreat from recent highs. The bond market seems to be losing some of the optimism in the”reflation” trade.
Evidence of the retreat in yields can be seen in the US 10-YR treasuries where the yields are now trading down from 2.61% to 2.31%.
The impact of this is: money is now flowing back to REIT’s, infrastructure, consumer staples and telecommunication stocks.
We’ve been promoting the selling of resources and buying of defensive yield names, for the past few weeks. We continue to see defensive yield names complimented with tight covered call options as the best way to deliver 10-12% cash flow whilst protecting capital.
Chart – SCG
Our Algo Engine generated a short signal in AMP at or near the January high of $5.37. The stock is now trading down 10% at $4.83
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