Trading Diary: Stocks toppy on Thursday. Time to cut back?

Gold reverses, oil, financials recover (a bit). It's probably time to take a few profits in our individual portfolios. Safety first!

NYSE trading floor in 2008, just before the roof fell in on Wall Street and the banking industry. Are we going to be staring at this abyss again? (Image via Wikipedia)

WASHINGTON, February 9, 2017 – After an initial flurry in January in anticipation of the new, (presumably) more business friendly Trump presidency, stocks and market averages have been backing and filling, first setting new records, then backing off as if fearful of traders’ and investors’ irrational exuberance.

Read also: Trump promises ‘big league’ tax announcement, stocks soar

That said, Thursday market action has lit a fire again under the ongoing Trump rally, anticipating, it is said, more positive action on the tax front from the administration over the next few weeks, even as key cabinet appointments chronically stall in the Senate due to Democrats who simply refuse to allow Republicans to take the reins of government, as they have often done over at least the last 25 years.

This makes it tough to call projected stock earnings as well as which sectors of the economy might initially get a boost since, without the leadership of Trump’s new cabinet appointees, the existing Obama-era holdovers are likely to continue with the bureaucracy’s favorite game any time a Republican occupies the White House—stall ball, or what used to be called the “four-corner offense” in college basketball, before that tactic was outlawed in the sport.

In other words, you keep holding the ball, keeping it away from your opponent as long as you can in order to freeze the action. That’s what happens every time when the largely Democrat Washington bureaucracy gets a Republican for its boss, and it’s starting to happen now. Obama holdovers, the Federal bureaucracy, and all their enthusiastic Democrat enablers in Congress—not to mention the appallingly ignorant and arrogant 9th District U.S. Court of Appeals—have started to blunt Trump’s fast start, splashing cold water for now on Wall Street’s hope for real and immediate economic stimulus.

For that reason, we’ve decided to cut back on our buying spree for now and start raising a bit of cash where it seems to make sense.

Trading diary

The star of our portfolios’ show, finally, has been our outsized position in Allergan Convertible Preferred A shares (symbol: AGN/PRA, your broker’s symbol may vary). After wallowing in the Slough of Despond since roughly last October when parent company, drug-maker Allergan (AGN) reported ghastly losses (mostly due to acquisition activities) AGN/PRA began sinking fast, bottoming at roughly -$200 per share at its lowest ebb, plummeting from a summer high of around $866 per share to a close near $700 per share in the November-December 2016 time frame.

But after the turn of the year, the stock first stopped sinking, then started going on a tear some 7-10 trading days ago, clearly anticipating a return to the company’s generally superior earnings record in its most recent report. As of 1 p.m. ET Thursday, AGN/PRA is up sharply again, up a whopping $18.74 per share (+2.25 percent) on the day thus far.

Some of this run up is likely due to investors wanting to capture the upcoming dividend before it goes ex- on February 13. Currently paying out the equivalent of 6.4 percent per annum, that means a dividend of $13.75 per share, payable on March 1 to holders of record: nothing to sneeze at. After it goes ex- on the 13th, the shares are likely to back off somewhat and stabilize before making another run.

The shares, as we’ve noted here many times before, will actually be redeemed at par ($1,000 per share) slightly more than a year from now, giving these underpriced shares a capital gains kicker on top of that handsome yield, even if new investors buy in around here.

For this reason, AGN/PRA is one stock we’re inclined to hold onto until it’s redeemed, no matter what happens between now and then.

As for some of our other holdings, we’re inclined to start trimming positions right now, anticipating a market pullback in the fairly near term.

Candidates include Apple (AAPL), which itself has had a good run since reporting stellar and likely-to-improve earnings in its most recent quarter; Alpine Global (AWP), an international real estate investing firm; Independence Realty (IRT), a multifamily REIT; the Guggenheim S&P 500 Equal Weight ETF (RSP); and Zoetis (ZTS). All are profitable, but, for various reasons, all are vulnerable here, so we may trim a few of these holdings.

We are currently unhappy with our positions in Marathon Oil (MRO), U.S. Sprint (S), and UK telecom giant Vodafone (VOD). But they still show promise longer term, so we’ll hold onto these for now, although we lightening our position in MRO last week for a small loss.

This is a market where we’ll all have to keep our eyes open. Most decent intermediate term portfolios like ours should be currently profitable due to the unexpected and still ongoing (more or less) rally we’ve experienced since the morning of November 9, 2016. But nothing lasts forever. And all President Trump needs is a few more setbacks like the one he’s experiencing in the out-of-control 9th circuit court, and nasty things could happen to this rally. And happen fast.

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