As I'm sure you are aware by now February was a poor month for stock markets and the UK was no different. The larger indices led the way down with the FTSE 100 producing a -2.55% total return. Mid and Small Cap stocks held up slightly better this month again but they also produced negative returns, so there was no place to hide from the down draught. This has brought the main larger and broader indices such as FTSE 100, 350 and All Share below their simple 10 month moving averages by 0.8%., 0.7% & 0.6% respectively. While the Small Cap and Mid Cap indices, having held up slightly better in the sell off remain just above their moving averages by 1% and 0.1% respectively for now.
Thus a mixed picture on these indicators which ordinarily would suggest a note of caution towards the market in the main and could suggest the start of a more bearish trend generally. As discussed here before however, these type of indicators can be vulnerable to whipsawing - where they force you to sell out and then buy back in higher up when they then subsequently turn positive again. Thus I tend to use these as a guide to overall market mood, but I am not following the signals in the short term unless they are confirmed by economic indicators like economic growth generally and in particular the US Unemployment rate, ISM indices and the shape of the yield curve.
Since these other indicators are all currently in positive territory I'm not inclined to take action based on the market timing indicators other than thinking that it might represent a buying opportunity in the short term - perhaps. Having said that though it is worth bearing in mind that the general consensus is that we have entered the late stage of this particular cycle. Now while last year was unusually calm and profitable making many novice investors think that this game is easy and that they investment gods, I suspect this year will be much more testing. Indeed the late stage of the stock market cycle is typified by increased volatility and the market has certainly been taking no prisoners on the hint of any disappointment so far this year.
Now that's not to say that the market can't go higher from here if the earnings and dividend growth that is expected is delivered. It is just that progress from here is likely to be much less serene and will probably be more a case of two steps forward and one step back. We will however of course have to keep an eye on how "events" pan out and see if all the concerns about rising inflation, interest rates, wages, trade tariffs, BREXIT etc. etc. finally prove sufficient to derail economies and stock markets. So given the icy weather and the cooler tone in the market wrap up warm and be careful out there as sliding down hill on snow and in the markets can be painful.
XP Power (XPP) a long standing holding in the Compound Income Scores Portfolio (CISP) has announced final result for the year to December 2017 today. These were good as expected given their previous updates, but did still came in slightly ahead of forecasts at the earnings and dividend lines. While James Peters, the Chairman of XP Power struck a reasonably confident note tinged with some realism when he said: ..."Although we cannot be immune from all external economic shocks resulting from cyclicality in the capital equipment markets we serve, we are optimistic regarding our prospects for 2018.”
Thus they seem set fair for another reasonable year and if you want to read more about the results I suggest you look them up on your favoured news provider. In addition there was a good sponsored brokers note from Edison with an update on the back of the results which included some upgrades from them given the results beat their forecasts and the outlook seems fine. Their forecasts for this year of 158.9p with an 82p dividend may, they suggest , still be conservative with the possibility of upgrades as the year progresses. Nevertheless at the current 3180p price, this does leave them on just under 20x with a 2.6% yield, which looks fairly full but is probably deserved given the quality of their business and the steady delivery they have offered over recent years and their on going growth and investment plans.
On the charts I note a gap the 200 day moving average and a gap on the chart from their previous positive update at around 3000p which could offer a good entry point if they should get down there on any more market weakness or profit taking. I say that because this one does tend to move in fits and starts with strong rises punctuated by some long sideways pauses, as seen a couple of times in the last year. It does however continue to score reasonably well on the Compound Income Scores and will therefore remain in the portfolio.
That's all I have time for today but, weather permitting, I hope to be back tomorrow with a month end update on the CISP and the timing indicators for the UK Market. So hope to see you back here then and mind how you go in the snow and keep warm if you can.