Given the way that most of the calls made on the markets, both by myself and my “contemporaries”, are generally very short term indeed, it may be worth stepping back to remember that the function of equities for most normal people is to provide income as well as capital growth. What we know since interest rates were dropped near to zero on deposits in order to save the banks, is that there is very little those sitting on cash can do to increase returns apart from send it to the stock market. Well, apart from asking HSBC. This should mean that stocks, particularly blue-chips, which pay decent dividends that are well covered are in high demand. Actually, even though we are in the immediate aftermath of the FTSE 100 hitting a new all time high, this has not been the case. I would venture to suggest that some of the “spare” cash found its way into the real winner of the post financial crisis period: real estate. Here you can pick up a “dividend” as a buy to let, or buy to leave player, and get “guaranteed” growth. It is to be hoped that the stock market, and especially the FTSE 100 will start to play catch up. This is despite the uncertainty of the May General Election, which does in theory undermine many domestic asset classes.
The greatest standout when looking at the list of the FTSE 100’s highest yielding stocks is the way that in general we are looking at companies which one way or the other have been kicked and punched by own goals or external factors “beyond their control.” Perhaps in the case of Tesco (TSCO) it could be said that the agony has been a combination of two of the aforementioned forces. All of this reminds us that in return for 5% plus of dividend one may not always get a good night’s sleep for worrying about one’s investments.
But at least we have an opportunity to look at the Tesco daily chart configuration of recent months where it can be seen that, as is very often the case, we have a situation where it would have been worth following chart gaps to the downside and then to the upside, which signified the end of the bear run. Indeed, in this case it can be seen how the end of the bear fest here came in the form of one of the major reversal patterns, an Island Bottom. What we have now is the aftermath of a second time lucky clearance of the 200 day moving average at 229p. The next buy trigger for the cautious would be an end of day close back above the August 248.5p gap top. However, given the way that we appear to be in a bull flag consolidation since the clearance of the 200 day line on the 10th of February, those who are already long of the shares may consider that at least while above this feature the target here could be significantly higher than current levels. This would come in the form of an August resistance line projection target as high as 300p over the next 1-2 months, even if the 2015 recovery to date proves to be a false dawn after that.
Shares of Antofagasta (ANTO) have effectively halved since the beginning of 2013, something which clearly goes a long way to explain how they are standing on a mouth watering yield of 7% plus. Obviously, those who go long of this stock for the dividend have to grapple with the trials and tribulations of both the mining sector in general and its high octane volatility, not to mention the copper price with its link to economic growth. What we see here on the daily chart over the post October period is basing towards 650p, with this culminating in the January bear trap probe below 650p, and then the higher low/unfilled gap to the upside to start last month which should be the end of the bear run here. Indeed, while there is no end of day close back below the 200 day moving average, still falling at 749p, one would be looking to a top of October price channel target at 850p over the next 4-6 weeks.