The Madison Letter Weekly Update

The range between the buy and sell points is now above average. As an example, the S&P 500 range was 68 points at the low and is now 91 points. Last week the ranger was 153 so we had a big drop week over week. As volatility rises, this expands. Witness at the October low the range was 169 points.

Also, in tracking the range between the 2 year and 10 year is now 148 basis points. Short term rates are on the rise while long term have fallen. This needs to be watched. There are implications.

There are now two open positions, a buy on TRF and a buy on USO. We added a buy on iShares Core S&P 500 Index Fund ETF (IVV) and took gains on Tuesday 9/2. Recent open and closed ideas are now in the second table.

We began to offer a buy and sell strategy via our Madison Market Timing Indicator at the beginning of April of 2007. There are now 24 open and closed winning trades to 8 closed losing trades with our market timing results. We were left with one long position TRF from our original buys before launching with Uncommon Widsom Daily. This column replaces the Morning Matters on Fridays. 

madison market timing

Foot Locker (FL)

Foot Locker  (FL) by all measures is overvalued. The stock has had a great run but now it needs to pullback and new buyers should wait. Avoid for now.fl

Weekly Charts Updated

We are going to continue making Thursday our chart section in only Superstock. That said, we are changing the format. If you want to follow the S&P 500, then you will need to sign up for www.superstockinvestor.com at the website. Each week in Superstock we track the S&P 500, NASDAQ Composite, Russell 2000, Emerging Markets (EEM), 20 Year Treasury (TLT), U.S. Dollar (UUP), High Yield Bonds (HYG) and Corporate Bonds (LQD). This alone is worth the price of the service as signals on the NASDAQ Composite returned 15.65% versus the index return of 18.93%.

 

This week we focus on the breakdown in the Utility sector via XLU.The slope of the 50 day moving average peaked in late December and is now negative. Avoid for now. 

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Bob Evans (BOBE)

Today we are updating you on our call early Tuesday morning that Bob Evans (BOBE) was overvalued. We told you to “avoid for now”. You were warned and this drop validates paying attention to our free scorecard each day. 

bobe chart

Another Close In The Morning Matters Portfolio

Another name is being closed out of the Morning Matters Portfolio. Red Hat (RHT) will be closed at 9:45 a.m. EST. The stock was added to the Morning Matters Portfolio on September 17, 2013. THe gain coming into this morning is 45.46%.

The cost basis was reduced by buying puts in front of several earnings reports. Over time our cost basis was reduced to $47.89. This technique was used to reduce out cost basis on the winning trades by $3.10 and $4.42. The one time this did not work results in a loss of $2.30.

The net gain on these three option trades was $5.22. After the only loss buying a put, Red Hat finally hit its stride and we no longer needed to hedge the position.

Most important is that the stock has now become a long term capital gain. So far this year we have booked three long term capital gains and two sho0rt term gains.

With this sale, we are now 50% invested. This level invested is the lowest in quite some time and is definitely a market call. Given that we do lots of tracking the “metrics of the market” we feel confident this is the correct decision.

End Body

CTrip Com Int Limited (CTRP)

CTrip Com Int Limited (CTRP) will report earnings after the close. Estimates are $-0.10 versus $0.39. Weak earnings but the cash flow gives it some nice upside action to its price target. 

ctrp

Bob Evans (BOBE)

Bob Evans (BOBE) will report earnings on Tuesday after the close. The stock is fully priced despite what is expected to be a strong quarter of $0.69 versus $0.30. Avoid for now.

 bobe

Morning Matters: Portfolio Update

The S&P 500 stalled out at current levels. The Nasdaq Composite meanwhile has broken above 5000. The portfolio moved to 58% invested long, 0% short and 42% in cash, net long 58% with profits taken last week in Anheuser Busch InBev (BUD). We are now at a value of 1008.37% from 999.12% last Tuesday. We finished the year at a value of 951.10 up 29.86% for the year. Our current value is 1008.37% which puts us up 57.27 or 6.02%.

Below are the year by year results on a cumulative and absolute basis: 

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The Week Ahead

1.Geopolitical and Fiscal Events. Monday sees the latest interest rate announcement from the RBA. Tuesday sees Federal Reserve Chicago President Evans speak at 9:00 a.m. EST and then Federal Reserve Kanasas City President George speaks at 1:00 p.m. EST with Federal Reserve Dallas President Fisher at 7:00 p.m. EST. Wednesday see the latest Federal Reserve Beige Book released. Thursday sees the BOE and ECB out with their latest interest rate decisions.

2.Economic Releases. Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and personal income, ISM Index, construction spending, monthly auto sales, ISM Services, ADP Payroll, Beige Book, Challenger Job Cuts and monthly jobs data.

3.Earnings Releases. Notable releases include MYL ENDP BNS AZO HRB PETM COST KR SPLS FL.

Palo Alto Networks (PANW)

Palo Alto Networks (PANW) a former holding in the Morning Matters Portfolio will report earnings after the close. By any measure to stock is very overvalued.For now we would avoid the name.

 panw