Apple could be a $150 stock

CP Rail scraps Norfolk Southern takeover
The chase by Frances Horodelski:

The world was “spiethless” watching the Masters. As my husband said Jordan “looked like me there for a few moments.” – Danny Willett wins the green jacket.
BNN
Canadian Pacific Railway is walking away from its pursuit of U.S. railway Norfolk Southern about six months after launching the US$28-billion bid. And it’s the second time in less than two years that CP is abandoning a major takeover attempt. BNN will have tons of reaction to the news. Another focus today will be on housing as Bill Morneau told BNN “the government won’t shy away from taking action again.” We’ll follow up Amber Kanwar’s story from Friday with respect to Pacific Exploration (which has now postponed its board meeting); we’ll follow TransCanada (and its Keystone leak) and Pembina Pipeline which holds its investors day today; we’ll look at the charts with JC Parets (who favours Canada over the U.S., technology over financials and Twitter over Facebook); we’ll preview the rails (where the companies have seen 1-2 per cent per month headcount reductions since June 2015); we’ll take a look at the earnings calendar; and generally keep you on track. It will be busy.
Calendar
Lots to wait for. The start of earnings week (Alcoa today, big rail, CSX tomorrow and big banks – JP Morgan on Wednesday and Bank of America and Wells Fargo on Thursday). Many Fed heads talking (again) including Dudley today, Williams and Lacker on Tuesday, Beige Book on Wednesday, Powell and Lockhart on Thursday and Charles Evan on Friday. Of those, only Powell and Dudley are voting members. The IMF is also on the docket with its World Economic Outlook tomorrow ahead of Spring meetings of the IMF and the World Bank that start Friday. On April 17^th, the world awaits the OPEC/Non-OPEC meeting and the potential for an oil production freeze. In Canada, the big story will be the Bank of Canada on Wednesday where recent economic data points to no change and potentially an even more optimistic tone on the Canadian economic outlook. April 18^th is the IRS tax filing date (three more days than usual).
Barron’s
Apple could be a $150 stock; Toll Bros has 40% upside; rates must rise (Bill Gross); commodities are the cheapest asset class and widely under owned (Jim Paulsen); insiders are again bearish with sales showing up at Apple, Gilead, Facebook, Tiffany, Ford, Coke, Amaya and General Mills.; bond investors are very bullish (81% by Market Vane’s calculation); Venezuela on the verge of financial collapse; Argentina begins a roadshow to sell about $12 billion in debt, the first offering since 2001.
Earnings
With Q1 kicking off today, there will be lots of discussion on the U.S. profits recession. Depending upon who you read, earnings have either been flat or in actual decline for four quarters in a row (including Q1 2016) and revenue down for five quarters. This quarter will be weighed down by the losses in the energy space and the declines in materials (-23%), financials (-11%) and industrials (-9%). With the exception of healthcare and discretionary, in the U.S. all sectors will show year over year declines. During the earnings calls watch 1) earnings relative to very low expectations; 2) outlooks; 3) GAAP vs non-GAAP (how big is the spread); 4) tax rates and buyback benefits.
Weekend chart watching
My conclusions from most of the chart watcher reading is that their conclusions are largest on the short side, although some admit the evidence isn’t conclusive. Here’s just one comment: “The risk vs reward is very much in favour of the bears here.” – JC Parets, allstarcharts.com.
Canadian dollar
In the last many weeks, the shorts on the Canadian dollar have plummeted to now being flat as, not surprisingly, the CAD has rallied, they have covered and are modestly net long for the first time since May 2015. Its further improvement will depend upon Mr. Poloz, the Fed and Doha. As CIBC’s Jeremy Stretch noted, “it seems unlikely that the BoC will signal excessive displeasure in relation to the CAD’s valuation, at least just yet.” And with GDP looking to have virtually stood still in Q1 in the U.S. (and a calendar problem for a Fed increase in June due to Brexit), economic relief for the U.S. dollar seems far away (although I wouldn’t be surprised for a surprise on the U.S. buck). Sunday’s Doha meeting – anyone’s guess.
Stuff
Yahoo to be in early talks with UK’s The Daily Mail; Boss beats Batman at the box office; Street forecasts for Canadian dollar by quarter looks for the currency to hang around these levels (76 cents) while oil is expected to rise to $45 by Q1 2017. The Japanese yen is hanging around 108 while the Nikkei closed down. Markets generally around the world are higher though with oil flat and gold up as the street awaits a reason to break out of the range.
Analysts
RBC upgrades Restaurant Brands to outperform ($48 new target up from $38); Alphabet is a new buy at Pivotal Research: Goldcorp downgraded at RBC to underweight with a higher $16.50 target; Toromont cut to hold at TD. The most loved stocks on the TSX right now are Milestone apartment REIT, Kinaxis, Intertape Polymer, DH Corp., Prometic Life, Algonquin Power, Mitel, Torc Oil, Secure Energy, New Flyer, Intertain Group, Enghouse, Brookfield Properties, Western Forest, Element Financial, Quebecor, Alaris Royalty, Seven Generations and Tricon – where every analyst that follows these companies rates them a BUY.

It's a Yellen kind of day

The chase by Frances Horodelski:

According to Music History, on this day in 1980, Pink Floyd’s album The Dark Side of the Moon spent its 303^rd week on the U.S. album chart. It went on to stay on that list for a total of 741 weeks – and combined with other charts is was listed for a total of 1500 weeks from 1973 through 2006.

Today is a Yellen kind of day. After various members of the Federal Open Mouth Committee (Barron’s frequently uses this description) spoke hawkishly last week, many expect Janet Yellenwho is speaking at the Economic Club of New York to be her usual dovish self. Note that the futures curve shows a 6 percent probability of a hike in April and just 38 percent probability for June. Watchers suggest that there is zero chance that the Fed will make a decision in the face of a Brexit vote (scheduled for June 23 while the Fed decision in June 15). A July move is a coin toss. There are two other FOMC members speaking today, including John Williams from San Francisco, who is already on the tape discussing gradual and thoughtful increases as warranted by the data. However, Yellen’s comments will be most watched, and “inflation expectations” will be a key to understanding what she is thinking.

There are also earnings from companies such as Lennar, and 3M has an investor day. In Canada, Finance Minister Morneau will be in Quebec marketing his budget. Economically, we have the Case Shiller housing data and March consumer confidence in the U.S. and industrial product pricing in Canada.

In corporate news, we’ll follow up on the FBI’s ability to unlock a terrorist’s iPhone as it relates generally to security and cyber issues, and how it might impact Blackberry (which reports on Friday). Currently there are 41 buy ratings on Apple, six holds and just two sells.

Francis says...Dow To Rise Today

My inbox is a mess. It is currently getting completely unglued with gold bullion bulls. It is also all confused about where energy is going. I’ve seen a technical note that XLE should be shorted (the energy ETF) given its extreme overbought condition (maybe not today or tomorrow, but very soon). At the same time, the bulls are focused on the decline in U.S. oil production (what everyone has been waiting for although I should note it hasn’t dropped yet below nine million boe/day using EIA data), optimism about the possibility of Russia, OPEC and non-OPEC players meeting later in the month and three weeks in a row of gasoline inventory withdrawals (still just 3 per cent off of all time high levels). Of course, bulls are being energized by the price up 35%+ from the lows. Gold bulls too.
Stock-wise, one of my favourite analysts is hugely bullish on Apple but the stock is underperforming the market year to date and from the February lows. I’m seeing companies miss earnings but raise dividends (Gildan a few weeks ago and TransContinental yesterday afternoon). And companies in the oil patch slash and suspend dividends and the stocks soar (off, of course, extremely depressed levels). S&P 500 earnings for 2015 have a WIDE gap between adjusted and reported earnings – what number to use? For 2015, Thomson Reuters carries an operating earnings number of $118.13 while S&P’s operating numbers are $100.44 and reported earnings are $86.53 – according to Yardeni Research. Yikes (most use a number similar to Thomson Reuters). Meanwhile, based on new earnings and ebitda expectations, Scotia slashes its target on Performance Sports from $12.50 to $3.50(!). Meanwhile, the analyst says that Adidas went through a similar tough time in 2014 and he’s using Adidas valuation decline that year to value PSG. Adidas did have a nasty 2014 when the stock dropped 40% that year to the October 2014 low but has more than doubled since.
And for all of Donald J. Trump’s bluster about the Chinese currency manipulation, he might be a little confused. Certainly the yuan has been weak recently (down 7 per cent from its peak) but the currency has strengthened 23 per cent over the past 10 years – making goods from China more expensive. Interestingly, yesterday, Reuters reported that two out of every three positions taken out by hedge funds expecting a devaluation of the yuan have been taken off.
And what’s a birthday party if you’re actually dead? That’s what some are saying about the bull market celebrations. Did the bull actually die May 21 2015 (its high of this cycle). Only time will tell. We’ll discuss this morning, plus the market’s relationship with recessions and just how cheap are U.S. healthcare stocks with Julian Emmanuel from UBS. For reference, 300 of the S&P 500 companies are up 20%+ from their 52-week lows while 461 components are up 10%+. Short seller Carson Block calls the rally a dead cat bounce. There are only 13 stocks negative versus the Feb. 11 lows.
So after all that mess, here’s what’s happening today. Mario Draghi is holding a press conference after the members of the ECB cut rates by 10 basis points (further into negative territory), raised the buyback to 80 billion euro per month and also is now adding corporate bonds into the mix (a surprise given the relatively illiquidity in that market).
We’ll be watching Washington post the meeting between President Obama and Prime Minister Trudeau. In corporate news, we’ll analyze the earnings from companies like Empire having a challenging time integrating Safeway (for which they paid $5.8 billion and today announced a $1.59 billion good will write-down) but also Dorel, AG Growth, Canadian Solar, PennWest, Bankers, Transat and Intertape Polymer. We’ll talk with more companies from the FirstEnergy conference (Calfrac, Secure Energy, Kelt Exploration, Tourmaline and Painted Pony), we’ll find out about the VIX death cross, and about the auto parts business with Linda Hasenfratz from Linamar. And if you’re interested in what the former CEO of Biovail Eugene Melnyk is thinking about Valeant Pharmaceuticals (including his comment that Bill Ackman is “a piece of work”),the full interview is available on bnn.ca.
Markets are getting a further lift from the ECB news with the Dow futures up more than 100 points now. Mr. Draghi has said there is “no limit” to what he will do – and he didn’t hold back today. Be watchful and careful. The “smart money” is in full-blown bull market stampede. That’s good as price has a tendency to follow. But watch what you own and if you felt the quality of your portfolio as poor in early February (when the markets were collapsing), now is a good time to high-grade

Bull Market Is Old At 7 Years

Miners meet at Toronto's PDAC convention 
The chase by Frances Horodelski:

“This is the first time you lied to me since you stopped lying to me.” – Tom Yates to Claire Underwood. Season 4 House of Cards done.

I’ll try not to lie to you this morning.

First, get ready for the celebration. This Wednesday marks the seventh year of this bull market if you count from the March 9, 2009 low. Some might count from August 2011 (when the S&P 500 dropped just slightly less than 20%). But on the seven-year basis (and the market closingFriday at 1,999.98722585876 according to the keeper of the data Howard Silverblatt at S&P/Dow Jones Indices), the market is up 195.62% (just under 17% per annum and 19.3% with dividends). Consumer discretionary is the best performing sector and maybe not surprisingly, energy is the worst. The average bull market lasts under 59 months – this one at 84 seems old but is only the third longest.

So what happens with this one? A couple of cautious items from traders. Russell Rhoads from the CBOE noted this week a VIX death cross (he’s looking at one year versus five year trend lines) – something similar happened in November 2007. The percentage of stocks trading above their respective 50 day moving averages has recently soared to just under 74% (the last time we saw it this high was November 2015). CNN’s fear/greed index is at 71. And there are lots of questions about the sustainability of the commodities rally, although this is my favourite quote from weekend reading on markets: “I've never in my career heard someone call an early rally off the bottom sustainable.” Trend & Cycle’s technical analyst at RBC notes that markets are “still early in an upturn” and that they “expect pullbacks will be relatively short-lived and shallow.” The S&P 500 is now just 6% off its all-time high – but 190 names (from Best Buy to Southwestern Energy) are down 20%+ from 52-week highs.

Meanwhile, the price of hops has more than doubled over the past seven years (doing better than stocks) – putting pressure on craft brewers according to the Financial Times. Now that’s a story.

This week’s action will focus on central banks (Bank of Japan, European Central Bank and the Bank of Canada). For Canada, the odds of another rate cut are low (less than 10%) but with the Canadian dollar’s big recent bounce, the workload shifts back to the bank (and of course, fiscal policy). With a budget coming down March 22^nd, unlikely the bank would move in front of that. For the ECB, traders suggest another cut deeper into negative territory (10 basis points to -40 bp) plus an increase in asset purchases by 10-20 billion euros (versus 60 billion currently) and an extension to March 2017. There is a 100% probability according to the tea leave reading of Eurozone OIS (overnight index swaps) of a cut. We’ll also hear from Mark Carneytomorrow on the consequences of Britain’s exit from the EU (he’s speaking to Parliament). Today, Fed governor Lael Brainard and Vice Chair Stanley Fischer give speeches – the last as the Fed’s quiet period starts before next week’s meeting (92% probability the Fed stays pat at current rate levels).

In things closer to home, the mining world will focus on Toronto and the Prospectors and Developers Association of Canada (PDAC) meeting. Andrew Bell will be bringing reports all day today and tomorrow. Later in the week, FirstEnergy’s East Coast Energy conference will shift our attention to oil and gas companies will a series of CEO interviews.

Earnings wise watch names like Square (Wednesday) and laggard retailers (Urban Outfitters today and Dick’s Sporting goods tomorrow but also a number of investor days including NCR, Chevron, American Express, United Technologies, General Electric Healthcare. Today, Canadian earnings calendar focuses on CargoJet and Pizza Pizza. There is little economic data today (Germany factory orders came in better than expectations although negative) but we’ll build to Friday’s jobs numbers in Canada (10,000 jobs expected). Tomorrow, Magna has an investor day. Iron ore jumps 19%, the biggest one day bounce on record. Torque.

Markets this morning are light of news and weak of price with the exception of Chinese equities which have bounced post-the People’s National Congress where 6.5-7% GDP growth forecasts were entrenched in the next five-year plan, the first time in 20 years that a range of growth has been targeted.

I’m sure there will be lot more to say as the week unfolds. From Research, RBC adds Agrium and Enbridge to their technical best ideas list. CIBC highlights the benefits of buybacks and notes that names such as Metro, Canadian Tire, Thomson Reuters, Agrium and CN Rail fit its positive stance (and these names are on the recommended list). Barclays has upgraded Power Financial (PWF) to overweight while downgrading Power Corp. (POW) to neutral—a popular institutional trade. SunLife has come off the restricted list and is again a buy.

And the day begins.

Every morning Business Day Host Frances Horodelski writes a "chase note" to BNN's editorial staff listing the stories and events that will be in the spotlight that day