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They Love ‘Em Higher

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Complacency/Bullishness is at extreme levels, but does it matter?  Not yet, but it will, eventually.  We continue to expect a volatile year ahead which will produce many an opportunity.  

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Yields Continue To Rise

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The TNX(10 Yr. Treasury Yield Index)will close above the 2016/2017 highs today.  At 2.63% the 10’s are at their highest yield since the summer of 2016.  Fixed income investors are expecting stronger economic growth this year. 

Conagra’s Post Earnings Pullback Provides Opportunity

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Back on Dec. 21st shares of Conagra surged following a solid second quarter earnings report.  Unfortunately the early strength didn’t last and by the close that day an ugly spike high was in place.  The stock has struggled since as a healthy pullback developed.  By last week CAG had fallen over 6% and was testing the December lows.  Shares have firmed up since and may now be poised for a fresh rally leg.  We believe the stock is a fairly low risk buy near current levels.  A close back below $36.00 would push CAG back below its 200 day moving average indicating a more drawn out basing pattern is on the way.  Until then CAG is on solid footing with layers of support underneath.  If the stock can continue to hold above $36.50 in the near term a rally back up to the December peak appears likely.

At time of publication we are long CAG in most managed accounts.

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Apple Repatriates

Key bit from CNBC: 

  • Apple says the new tax law will help it contribute $350 billion to the U.S. economy over the next five years.
  • It says it will create 20,000 new jobs and open a new campus.
  • Apple expects to pay about $38 billion in taxes for the horde of cash it plans to bring back to the United States.

(Emphasis mine)

More:  Apple also said it will spend over $30 billion in capital expenditures over the next five years. About $10 billion in capital expenditures will be investments in U.S. data centers, the company said.

Apple added that it will spend $5 billion as part of an innovation fund, up from the $1 billion CEO Tim Cook announced last year on CNBC’s “Mad Money.”

The job creation will include direct employment and also suppliers and its app business, which it had already planned to grow substantially (app developers earned $26.5 billion in 2017.) The new campus will focus on customer support.

This is huge folks, read the whole thing:  www.cnbc.com

Kraft Heinz Setting Up Well For More Upside

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KHC is on the verge of a breakout.  The stock is lifting nicely this week after hitting new January lows on Friday.  Shares are up 2% today and are beginning to pierce a key overhead trend-line that links the July/December highs.  The bottom near the October/November lows is now looking significant.  A powerful rally leg off this area could carry KHC much higher.  Option players are also quite positive.  Here’s a closer look from Bob von Halle:

Active day in upside calls in KHC. With the stock at $80.40  mid morning, a single buyer paid $1.50 for approx. 3,000 April 82.5 calls. That was followed closely by another purchase of 4,500 at $1.80 with the stock around the same level. Over 9,000 contracts in total have traded on the day. Also, a bit over 2,000 of the Feb 82.5 calls have traded with half of them purchased in one trade at $.95. Once we get past the Jan expiration cycle this Friday, the April call activity will create the largest block of open interest in KHC as of this writing. 

Also of note, KHC sports a fairy high short interest ratio(4.9).

Earnings due February 14th.

At time of publication we have no positions in KHC.

U.S. Manufacturing Rises, Again

The details from Bloomberg.com:  U.S. factory production rose for a fourth straight month in December, capping the strongest quarter since 2010 and underscoring a resurgence in manufacturing that’s primed for further advances, Federal Reserve data showed Wednesday.

Highlights of Industrial Production (December)

  • Factory output rose 0.1% (est. 0.3% gain) after rising an upwardly revised 0.3%
  • Total industrial production, which also includes mines and utilities, increased 0.9% (est. 0.5% rise) after a revised 0.1% decrease
  • Capacity utilization, measuring the amount of a plant that is in use, rose to 77.9% (est. 77.4%) from 77.2%

Rollbacks matter…

MCD

MCD

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Doug & Gary