WMC stock is experiencing an uncharacteristically large 1.17% drop today with very high volume confirming the weakness. The stock technical's are deteriorating. 5day EMA has dropped below 13 day, MACD is also tending lower, and the intra-day stock low is below it's 50 day SMA, and very close to breaking lower than the 150 day SMA.
This retrenchment is happening against a backdrop of the overall SPX market increase today of .45%, and short interest of 6.5% approaching high levels. Also worrisome is the expectation, by many, that the market will soon pullback by 5-10% sometime between now and the replay of the Washington DC thriller horror movie " Sequestration " at the end of February. A low beta stock could expect to experience a ratable retrenchment, higher beta issues have exaggerated movements up in good times and down during pullbacks. The previous round of brinksmanship resulted in a drop of WMC stock from a high of $ 20.68 on November 12, to a low of $ 17.36 on November 15. The stock did not exceed the November 12 level until December 3, attaining a decisive upward breakout only on January 3, arguably buoyed by an overall market rally.
This is the basis of my conclusion that $ 19.36-$ 19.90 is a better risk/reward adjusted price to add to my position, until the market passes to the other side of an overdue pullback. The cause of the broader drop may result from either technical market dynamics, or the avoidable pain inflicted by our elected leaders.
Comments and alternative views based on fact or precedent welcome.
You see low prices as flashing yellow I see low prices as a green light. I more than tripled my WMC position size on Friday February 8th and my cost basis is now $21.16. I still pray for the selloffs which you fear, if they happen I will keep the shares I have and gleefully back up the truck on margin to buy more shares and some call options too. I recently returned to trading mREITS and I find it to be so much easier than trading anything else.
The market is often an irrational beast. Sometimes good stocks linger and mediocre ones soar. That isn't the time to bail on a good stock because some tech indicator flashed a signal. When WMC increased the div and added a special on top of it, they told me more than any technical indicator ever could. These guys are as good as the mgmt at AGNC/MTGE; it's our great fortune that the market hasn't recognized it yet.
You see caution, I see opportunity. You can wait on your technical indicators all you want; I'm quite happy to buy quality shares so cheaply.
This reit has a limited operating history and as such I expect those who are unsure of what to expect from 4thQ earnings are bailing. At the same time those who bailed will be unlikely to participate in the dividends and capital appreciation that could occur from a good earnings report. A bad report would vindicate the weak hands.
That said, it's all about management. AGNC has demonstrated good management traits and has had a great yield. NLY, on the otherhand makes no sense to me. As I predicted that reit is spending it's discount on buying assets at a premium. I have faith in the Western management team and hope the insider buying in the 4th along with the declared dividends is an indication of good earnings for the 4th.
Economics/Politics - the sequester. Isn't this just more of the same? The fiscal cliff, the grand bargain, $1 trillion deficits. Demographics and debt/GDP are heading in the direction of Japan. Growth and inflation will be hard to achieve. I expect the government to continue its bi-polar ways. Dems pro revenue and big government. Republicans pro spending cuts and tax neutral. Neither side will promote growth. When you look at the offspring of England - Australia, Canada, New Zealand, and the United States - only one of those countries is not exploiting its natural resources to the fullest. Our president calls it a mandate. I call it mismanagement. Pour in higher taxes for non-government middle class and higher gasoline and probably food prices and it all makes for very low growth environment. The election plume is soon to disappear and looks like Bill Gross has come to terms with a low growth environment. I really think pro democrat financial guys like Roger Altman will end up having egg on their face for having talked up the virtues of the economic abilities of Obama. Once a nation exceeds debt/GDP of greater than 95% growth becomes illusive.
I still believe in a low growth environment and I think fears in the marketplace of things such as reits are healthy. Should I succeed in converting all the weak hands into reit bulls then I will be worried.
In regards to dysfunctional government I saw a bumper sticker that read "If you're not outraged you're not paying attention" and realized that my trading success depends on mostly ignoring DC and focusing on valuation. I don't trade well when outraged.
In late 2011 having made bank on flash crashes I moved to the sidelines waiting for more mREIT flash crashes. Focusing on Europe and other global news I though some would come, but they never did. I let dreams of lucrative sideshows distract my eyes from the the circus. I am humbly now ready to play small ball. I will get off the sidelines, get long and play those $1 moves. I am very grateful for the little sell offs like those of November and December 2012 now. If we do have a nother mREIT flash crash and I happen to be there to see it in real time I will enthusiastically trade it on margin. But in the mean time little sell offs like Friday's will be my bread and butter, and I won't be outraged by DC because I won't be paying attention.
AGNC and MTGE reported very good results for QTR 4. I expect WMC will do well also, BUT I just see WMC drifting lower over the next couple weeks. I'm sitting on 2500 shrs @ $20.86 cost. In an effort to hedge my position, I tried to buy the March 20 puts, but the ask was too rich for me this AM. I did pick up the last dividends, but would prefer not to suffer a capital loss that erases most or all of the earned dividend.
So I guess the bottom line for me is don't fight the tape and sell Monday morn, unless WMC perks up a bit first thing Monday.
I called WMC about earnings release and they told me closer to the end of February. I'm inclined to move to the sidelines until a day or two before the release, and then may buy back in at a price lower than today.
I still think WMC QTR 4 report will be a good one. More in line with MTGE results today
I concur with EYESANDEARS analysis. Additionally some issues and opportunities associated with Mortgage REITS. The Fed has committed to an open ended plan to lower long term mortgage rates by buying US guaranteed paper from FNME, FREDDIE MAC, GNME, and others. Please remember that only the value of the mortgage is protected from default. Premature loan payoff's or refi's at a lower rate are an investor risk. While the intent of QE-3 is to provide assured long term liquidity and low rates for mortgages, it does nothing to affect bank loan qualification standards. Namely if the prospective homeowner is self employed, retired, changed jobs/careers, or is credit impaired, low mortgage rates are only accessible to the subset of applicants who qualify.
The impact on the MREIT's, including WMC, are twofold with one big mitigating factor. The positive: The Fed's QE-3 increases the value of the existing portfolio of these MREIT's since their average interest rate is now higher than market. The negative: By pushing down long term mortgage rates, the Fed is encouraging refi-qualified mortgage holders to payoff existing loans and refi at a lower rate. Consequently, the MREIT's projected redemption rate for their portfolio may accelerate. New securitized mortgages purchased from FNME, et. al. will carry a lower interest than those redeemed. This process will be gradual since refinancing is time consuming, and not all buyers can meet stringent bank qualification criteria. MREIT's make their margin by arbitraging the spread between low cost short term cost of capital (borrowing) with buying long term higher rate mortgages. QE-3 over the longer term can result in spread compression. Mitigating factors: Most MREIT's hedge some or all of their portfolio against accelerated redemption rates. This varies widely from one company to another. Some firms have a very cost and coverage effective series of layered hedges or potentiall, higher margin , investments in commercial mortgage-backed
Price target of $ 19.36-$ 19.90 is reasonable, however stock could revisit November lows of $ 17.36 depending on how protracted the month end Sequester face off lasts
None of us can predict the future until it is history. While you could be right that the stock will rebound early next week and reach higher levels after the March end ex-dividend date, I have shared the rationale behind my conclusions and I welcome having a better understanding of the fact, or precedent based data that caused you to reach a different conclusion.