Friday, November 8, 2013

McAlvany Weekly Commentary

Bonus Culture is Breaking the Bank (FED)

About this week’s show:
-Can the dollar hold above 79?
-Deficit spending no longer the cure
-Equity margin debt has broken all time highs
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American Campus Communities, Inc. (NYSE: ACC)

American Campus Communities, Inc. is an independent equity real estate investment trust. The firm invests in the real estate markets of the United States. It primarily engages in developing, owning, and managing high-quality student housing communities. The firm diversifies its functions across acquisition, design, financing, development, construction management, leasing and management of student housing properties. American Campus Communities, Inc. was formed in 1993 and is based in Austin, Texas.
To review American's stock, please take a look at the 1-year chart of ACC (American Campus Communities, Inc.) below with my added notations:
1-year chart of ACC (American Campus Communities, Inc.) After a January to September sell-off, ACC has been trading sideways for the last 3 months. Over that period of time, the stock has formed a clear resistance level at $37 (red). In addition, the stock has also created a good level of support at $33 (blue). These two levels combined have ACC stuck within a common chart pattern known as a rectangle, and at some point the stock will have to break one of those levels.

The Tale of the Tape: ACC has created a common rectangle pattern. The possible long positions on the stock would be either on a pullback to $33, or on a breakout above $37. The ideal short opportunities would be on a break below $33 or on a rally up to $37.
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This Is Why I Shorted Microsoft MSFT Today

Trades don’t get easier than this one. I like clean charts with clean entries and well-defined risks. Microsoft has all of those…
To start, here is a weekly chart showing the October 2007 highs at $37.50 before getting crushed. The stock lost 60% of it’s value over the next 15 months or so. After being boring for a while, it finally got a little rally, but only back to the 2007 highs. Now that everyone is excited about it (92% bullish sentiment according to Stocktwits) – I think it’s an obvious fade:
11-7-13 msft short
So now that we know it’s something we want to short, it’s all about the entry and defining the risk. On Wednesday $MSFT was able to temporarily rally above that key $37.50 level from 2007. But as prices inched higher, momentum was already rolling over. Here is a short-term look using 10-min bars. Look at the bearish divergence between price and the Relative Strength Index plotted below.
11-7-13 msft 10 min entry
We have an easy out. I can’t put a new position on unless I have well-defined risk, no matter how much I love the trade. In this case, I think you’ve got options. You can use Wednesday’s highs as a stop or you can wait until we’re below 37.50 and use anything above that as the stop. You can even use the Wednesday morning pop highs in the 37.70s. It really all depends on your risk tolerance and time horizon.
Easy trade. Right or wrong I can hold my head up high knowing that we got a good entry point with an extremely advantageous risk/reward ratio. That’s all I can ask for.
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91 Stocks With Dividend Increases in October

With so many factors triggering market uncertainty — like the timing of the Fed taper and a lackluster earnings season — investors continue to love their dividend stocks.

Especially with so many raising payouts in October…

It’s an interesting time for dividend seekers. According to Fidelity Investments, corporate cash balances sit at some $1.8 trillion — the highest in history.

Yet, payout ratios are still at 50-year lows. That suggests there’s plenty of room for dividends to rise.  (more)

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Fed ‘Backed Into a Corner,’ Low Rates and QE Here To Stay: Belski

Four years and a few trillion dollars later, and the jury is in, so to speak, on the efficacy of what has been called "the greatest experiment" in the history of monetary policy.

Quantitative easing doesn't work.

At least not towards achieving either of the central bank's two core objectives; full employment and price stability. Sure it boosts asset prices, particularly in the stock market, and you bet it helps keep interest rates artificially low, but when it comes to completing that circle, and encouraging companies to hire, it's a hard argument to make.

"Monetary policy, we think, has kind of proven that it does not add jobs," says Brian Belski, chief investment strategist at BMO Capital Markets, in the attached video. "It's really fiscal policy and fundamentals that add jobs," he says, noting that even Ben Bernanke has repeatedly made that clear.  (more)

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