APPLE KEEPS THE BEARS AWAY

We have seen this movie before. Granted, it’s been a while. But, Apple (NASDAQ— AAPL) did something it hasn’t done in ages. It carried the market. It faced the bear and it beat it. If not for Apple, we would not have seen the big up week from the NASDAQ Composite. You can see it with the RSI which leaped ahead for the NASDAQ but only moved up incrementally for the rest of the major indices. What does this mean? Don’t believe the market run.

Today we stand at the halfway point of the month, and the last 2 weeks of the quarter. Judging by some sector and market moves at the end of last week, institutional window dressing is all but complete and major investors are focused on finding GARP stocks that are diamonds in the rough, or stocks that will have a good Q4 and 2017.

Usually at this time of year, especially during a Presidential election year, investors start to gear up for buys of companies that reflect the prospective winner’s policy. Well, a few weeks ago a Clinton Presidency was all but assured. Now that it is in doubt, it has added more uncertainty to the market. So, don’t get caught in that trap, either. The good news is that we are 51 days from the election and as we get closer we will have a better sense of policy as well. Moreover, the near record institutional cash levels may actually be put to use instead of sitting on the sidelines. So, bulls, get ready!

The Stock Market Today

I have often mentioned that I tend to be early on certain situations. This could be one of them. Still, I am sure you will agree that the thesis is sound. We are about 6 weeks away from Halloween and what better way to play (from the small cap perspective) than the Rocky Mountain Chocolate Factory, Inc. (NASDAQ—RMCF—$10.11—NR).

Headquartered in Durango, Colorado, RMCF is an international franchiser of gourmet chocolate, confection and self-serve frozen yogurt stores and a manufacturer of an extensive line of premium chocolates and other confectionery products. As of August 18, 2016 the Company, its subsidiaries and its franchisees operated 573 Rocky Mountain Chocolate Factory and self-serve frozen yogurt stores in 43 states and a number of countries abroad. For the fiscal 2016 year, RMCF recorded $40.5M in sales with $0.73 in EPS. Not too shabby. The 4 most recent quarters generated around $3.5M in operating profit on $39.5M in sales, a roughly 9% margin.  That is healthy for the space, especially considering it included a seasonally weak quarter.

While there are no listed Wall Street analyst forecasts, we believe that the stock could enjoy a 20% gain from current levels, as the stock trades less than 14x last year’s results, and 1.5 sales. The chart looks lousy and the shares appear weak, which we view as a good entry signal, as the stock has a history of big jumps following meaningful declines. RMCF also pays a 4.75% annual dividend, which is a nice bonus. With Halloween ahead, and results to be released before the 31st of October, we believe RMCF can bring investor sweet products and a sweet return.

Say What?

Great info, insights, and hard-hitting stories make up this week’s Say What? feature...

The New York Post

http://nypost.com/2016/09/16/drones-will-soon-dominate-skies-feds-say/

Are you ready for this?

Marketwatch

http://www.marketwatch.com/story/heres-why-defensive-stocks-could-lead-the-next-market-fall-2016-09-13

An example of “late to the party.”  Some of them are buys now.

USA Today

http://www.usatoday.com/story/money/markets/2016/09/17/most-experts-see-oil-below-60-through-2017/90112056/

Looking ahead...

Bloomberg

https://www.bloomberg.com/gadfly/articles/2016-09-16/solarcity-tesla-deal-spread-150-percent-return-no-takers

You will either make a killing or it is a trap. Read and decide.

ZeroHedge:

http://www.zerohedge.com/news/2016-09-16/nassim-taleb-exposes-worlds-intellectual-yet-idiot-class

A fantastic rant.

Notable Numbers

AAII Sentiment Survey (figures rounded)

  Current Last Week Long Term Avg
Bullish 28% 30% 39%
Neutral 36% 42% 31%
Bearish 36% 29% 30%

Boom! And just like that, Bears start to take over, with Neutrals and Bears at the same rate in the AAII survey and the percentage of Bears besting the Bulls in the Ticker Sense poll. That has not happened in a number of weeks. For the AAII survey, it has been almost exactly 90 days since we have seen this level of Bearish respondents. For that matter, I believe that since we began tracking the Investors Intelligence figures a few months ago, the percentage of bulls is under 50% for the first time. Moreover, the Bull/Bear ratio has dropped by 20% in the past 2 weeks alone. It is clear caution will dominate sentiment ahead.