8/5/08

Economics

The underlying strength of the US economy is a major reason why we haven’t seen a significant recession; but the recovery will be slow and painful. Here’s why:

http://www.american.com/archive/2008/july-07-08/messages-from-merrill2019s-misfortunes

Politics

Domestic

Obama on economics:

http://www.ibdeditorials.com/IBDArticles.aspx?id=302484020165482

International War Against Radical Islam

The Market

Technical/ Fundamental

Market performance following Fed days:

http://bespokeinvest.typepad.com/bespoke/2008/08/recent-fed-days.html

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From a technical point of view the DJIA (11284) remains above the descending upper boundary of the May 2008 to present downtrend (11238) and also above a very short term uptrend off the July 2008 low (11200)--that’s some good news, the last couple of trading days notwithstanding; the S&P (1249) closed below the descending upper boundary of the May 2008 to present downtrend but still slightly above the very short term uptrend off the July 2008 low (1247)--so that’s OK news.

The internal pin action of the Market had the financial stocks mixed, the recession proof stocks (food, beverages, household products, health care) up nicely while the oil and commodity stocks were beaten like a rented mule. The good news is that our Portfolios had (1) sold a portion of many of the oil/commodity holdings and (2) recently been buying a number of names in the recession proof economic sectors; the bad news is that in the last week, they also started re-building positions in the oil/energy/commodity stocks.

Perhaps coincidentally yesterday many of the oil/energy/commodity stocks traded down to easily identifiable support levels (just as the Averages traded near the lower boundary [support level] of the short term July 2008 to present uptrend). So the next couple of day’s Market action could be instructive as to the future stock price movement.

http://bespokeinvest.typepad.com/bespoke/2008/08/oil-headlines.html

If the July 2008 to present up trends of the indices hold as well as the individual support levels for the oil/energy/commodity stocks, it could be another signal that the Market is in a bottoming phase. On the other hand, if the oil/energy/commodity stocks break their support levels and plunge as the financial stocks have done previously, we may be in for more rocky times.

Subscriber Alert

In the meantime, as always our Price Disciplines ultimately control our actions. As a result at the Market open this morning, in order to protect our profits in ExxonMobil (XOM-$77; Dividend Growth Portfolio) and Smith Int’l (SII-$70; Aggressive Growth Portfolio), their positions will be reduced to one half sized holdings; and because the stock price of XTO Energy (XTO-$44; Aggressive Growth Portfolio) has fallen to near its Stop Loss Price, that position will be cut in half, leaving a one quarter sized holding.

In addition, the stock price of Canon (CAJ-$44) has fallen below its Stop Loss Price. Accordingly, the Dividend Growth Portfolio will Sell its (one quarter) position. The proceeds will be re-invested in the shares of Linear Technology (LLTC-$31).

The Dividend Growth Buy List

Company Close 8/4 Buy Value Range

Aflac $54.58 $49-56

Automatic Data Processing 43.43 41-47

CR Bard 92.84 81-94

Emerson Electric 47.83 47-54

Illinois Tool Works 46.73 45.52

Kimberly Clark 50.94 54-62

Linear Technology 31.11 29-33

Hormel Foods Corp 36.57 31-36

Johnson & Johnson 68.98 60-69

MDU Resources 31.45 29-33

Marathon Oil 45.21 44-51

Nike 59.78 55-63

Paychex 32.66 31-36

T Rowe Price 59.51 55-63

UGI Corp 26.36 24-28

News on Stocks in Our Portfolios

More Cash in Investors’ Hands