Technical's in effect, are reflection, and quantification of market sentiment. Unlike the occasional divergence between company performance ( the fundamental's ) and stock price, the technical's are directly connected to share price. The challenge, is the accurate interpretation of the technical data. Periodically, almost all technical indicators are clearly aligned, more frequently they are nuanced. The chart of AGNC, like most MRET's, have been compellingly negative from May 2-May 15. As I have previously suggested in my postings, if AGNC holds the $ low $ 28’s support level through the end of this week, I believe the current correction cycle is played out. Full disclosure, I substantially added to my holdings at pre-determined trigger levels since Wednesday, and have additional targets in the mid $ 27's, and high $ 26's respectively, if the MREIT correction continues.
Two updates: One positive, One Potentially Negative
1- FED Chairman today indicated that he favors keeping the accumulated base of MBS's acquired via QE...X, until maturity, rather than selling them off as QE is eventually ended. Selling those assets would have put downward pressure on the value of MBS assets held by MREIT's......more supply in the market necessarily reduces prices. Avoiding an oversupply of MBS in the market is positive for the balance sheets of MREIT's.
2- In two weeks the Financial Stability Oversight Council will decide if REIT's should join large money center banks and be designated as systematically important. If that designation is made then additional regulations, restrictions, and reporting structures will be mandated.
The only certainty is that if additional regulation is mandated, costs go up, and management flexibility is diminished. Less
I hope you're right - but I used to be a chartist and left that behind in favor of the news cycle and fundamentals.
I'm encouraged by our bouncing off of book value rather than dropping through it. This implies at least a neutral outlook by sellers as to the next quarter. If the next quarter's outlook (according to today's sellers) was very dour, they might be willing to sell below book if they believe today's book is higher than next quarter's book. We haven't seen much of that at this time.
I wish I had more insight into MBS values so I could intelligently impute the next quarter's values, but for now, I'm content to wait only for the dividend announcement as a 'news cycle' weather change.
I concur that fundamental's determine the investment prospects of a sector and company. Once that decision is made, technical's are a useful tool for setting entry and exit strategies. The news cycle, or what economists refer to as externalities are a wild card that makes the first two factors imprecise.
The upcoming vote, in two weeks, by the Financial Stability Oversight Council, on designating some firms other than banks that are systemically risky, is an example of an externality that may be negatively affecting today's share price.
The charts are mixed. PPS has not dropped below, May 15 $ 28.14 low for four trading days. This is now a new S/T support level. Weak volume, RSI, and Stochastic's suggest tepid commitment to continuing price decline. If the stock breaks below $ 28.08, all bets are off.
The decision to lock in gains or limit losses depends on ones assessment of future prospects and risk tolerance. No right or wrong answer here.
Today shares closed @ $ 28.98, just above $ 28.93 Net Book Value. The overhang question is “ will the dividend be cut, and if so by how much? “ A ratable cut may be largely priced into shares that have already corrected 12.5% since May 2.
The keys to answering the dividend maintenance question are:
- Management Outlook/Guidance- In the earnings conference call CEO suggested that the worst was over, and articulated tangible visible signs of earnings recovery.
- Hedging- Will it add or subtract from earnings.
- Earnings- Are they realized or unrealized….dividends are paid from realized earnings.
My personal set up plan:
- Ladder addition share purchases, at several different trigger levels….Partially implemented.
-Protect against downside with various hedging/option strategies.
- Liquidate position if fundamental rationale for investing in AGNC changes or is prove wrong.
Medium to LT prospects are very positive. While the major correction from May 2 is largely played out,ST volatility persists. Stock could again test near term support level of $ 28.14 established on May 15 in the next few days.