What You Need to Know for April 12, 2016
• Double Reversal: Stocks fade for second straight day
• Dow, S&P 500 and Nasdaq start with a bang, end with a whimper
• Financials had a rare day of strength; Healthcare weak
• OPEC Oil production rose 1.2 million barrels in March
• Crude Prices rise 1.6% on the OPEC news. Can that be right?
• Gold closes at highest level in three weeks.
• Yield on the US 10-Year Note unchanged at 1.73%
• Goldman Sachs settles with the Fed for $5 billion; stock rises
• Another quiet day for economic news, get ready for Wednesday
• Comments on companies we favor: Adeptus Health, Under Armour
The Box Score
| Key Market Measures (Monday’s Close) | |||
| Dow Jones | 17,556 -22 | -0.1% | |
| S&P 500 | 2,042 -6 | -0.3% | |
| Nasdaq | 4,833 -17 | -0.4% | |
| Crude | $40 +1 | +1.6% | |
| Gold | 1,260 +14 | +1.1% | |
Reversal Of Fortune:
Market technicians claim that they are able to see hidden clues in the stock charts that presage changes in market direction. Some technicians take it to the extreme. There is one such practitioner that even relies on astrology. We don’t fully subscribe to this principal in general, but treat technical analysis as another valuable input into the market.
One of the things technicians watch for are fading rallies. All three major indices have had two successive days of intraday reversals. There was precious little news. Yes, Jordan Spieth blew a big lead at the Masters golf tournament on Sunday and Under Armour, (one of his many sponsors) saw its stock fall 5% yesterday. But that is hardly the stuff that puts fear in the hearts of investors.
For the past couple of weeks we have been getting the sense that the market is coming into a period where it is susceptible to a pullback. The message from the last two trading reinforces this notion.
Oil Production: US down, OPEC up
The Baker Hughes weekly rig report Friday showed that the US count at 394 was the lowest since 2009. While the US is cutting, OPEC is still rising. Oil production by OPEC members rose by 40,000 barrels a day in March from a month earlier, to 32 million barrels a day. The increase was blamed on higher output from Iran, which climbed by 110,000 barrels a day to 3.2 million barrels a day. Iraqi output also rose by 30,000 barrels a day to 4.2 million barrels a day, according to the survey. The report was released late yesterday, so this news will have an impact on today’s trading.
BMR Company Comments and Other Thoughts
Goldman Sachs (GS: $152, up 1.3%) The stock was strong yesterday along with other financial stocks. In Shakespeare’s “The Tempest” Antonio famously declares, “what’s past is prologue”. And so it was yesterday when Goldman settled with various US government agencies for errors of omission in dealing with questionable mortgage loans dating back to the 2008 financial crisis. The cost for these errors was a tidy $5 billion. This legal albatross has been hanging around for quite a while. With the announcement came a nice pop in the stock. Once again Antonio was right.
Adeptus Health Inc. (ADPT: $53, down 7%) When we added Adeptus Health last week to our list of Special Opportunities, we knew that there were some exciting things happening with this pioneer in the free-standing Emergency Room business. We also noted how the stock had been hammered, and that 40% of the stock was in the hands of short sellers. In fact, this was one of several endearing features of the stock. What we have learned since then is that we aren’t the only admirers of Adeptus. The same time that our report came out the research firm Zacks Research issued a Strong Buy.
The stock’s volatility in the last week has been something else entirely. Moving up 11% from $54 on Monday to a high of $60 at one point on Friday was totally consistent with a short squeeze. There is nothing wrong with that price action.
The action on Friday and yesterday saw the stock trade in a range of $50-$60. Keep in mind, there was no company event, no outside news item or other relatable cause for this action. There aren’t even any rumors. So in order to adapt to Adeptus, we need to emphasize that volatility is a part of the package. Remember, just last August, the stock traded at $124. Volatility works in both directions.
Under Armour (UA: $41, down 5%) For the second time this year Morgan Stanley came out with a lengthy report knocking the prospects for the company. By lengthy report, we are talking about 50 pages. Those people who actually read the report noted how it is identical to the one released in mid-January just as the stock hit its 2016 low of $32. Can a broken clock be wrong twice? We think so.
Since those lowly days in January the stock has been a home run, up about 30%. We have been talking about a correction in the market for several weeks now and so a correction in this stock is not out of the question. You might even say a correction could be healthy. The fundamentals are exciting and this is a stock that we want to use a pullback to capture an even better price. Go footwear, Go Stephen Curry, Go women’s wear. Go Lauren Cheney, Heather Mills and Lindsey Jacobellis. This is a brand for the next generation.
Good Investing,
Todd Shaver
Editor in Chief