Wednesday, July 14, 2010

NLY Watch

"Surprise! Surprise!", says Annaly Capital Management (NLY), the real estate investment trust that, after hours yesterday, announced a public offering of 60 million shares of common stock. That's nearly 11% of total shares outstanding.
NLY $17.53

NLY says they'll use the money to buy more mortgage-backed securities for its investment portfolio, a sure sign that the company sees continued and accelerating recovery ahead.

Still, dilutions of shares are never good for prices, no matter how well managed the business. In the case of NLY, it's like pouring water into the glass of $30 wine. It may help keep a sober outlook, but it certainly impairs the flavour, not the mention the bouquet.

(I do water my wine, actually, but only the $3.99 variety from my discount grocer.)

NLY at this hour is trading 4% below yesterday's close. The decline raises the 68¢ quarterly dividend from 14.9% to 15.5%, annualized. Certainly a better deal than the 12.1% now being paid by former-dividend-powerhouse Alpine Total Dynamic Dividend fund (AOD).

Today's decline came with a huge volume spike, to levels last equaled on the May 4 Flash Crash that caused 15 minutes of total fright in the markets.

I hold NLY, and it's a long-term dividend play for me, with a chance of capital gains (because I also expect the recovery to keep limping forward).

I intend to hold, and here's my argument for doing so:
  • Today's opening gap failed to piece the top of a trading range set in late June. This tells me the decline lacks legs.
  • Although the gap brought prices below the 20-day simple moving average, today's high tested that level, and although the price pulled back, it is still net up intra-day (and is nearly certain to close the day with a very small change, open to close).
  • The high volume means that those who wanted to get out of Dodge have, mainly, done so. This lessens the pressure for a further sell-off of great significance.
  • On the short-term 133-tick chart, the decline happened entirely in off-hours trading. During the regular hours today, the price has traded sideways in a narrow range, maingly between $17.50 and $17.60.

All in all, I see an adjustment to reality, not a blind panic. The company plans to use the $1.1 billion raised by the issue to grow its business, and if they're reading of continued recovery is correct, that can only cause prices to go up in the mid- and long-term.

Reversal Levels
  • $18.37, +4.8%
  • $17.53 <== You are here.
  • $17.35, -1.0%
  • $16.94, -3.4%

The Great Reflation: How Investors Can Profit From the New World of Money
OK. The credit bubble burst. Housing, burst. Shockwaves reverberated. Markets collapsed. What lies ahead as we reemerge from the wreckage.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
  • psar - Parabolic Stop and Reverse
  • adx - Average Directional Index
  • pps - Person's Proprietary Signal
  • ma20 - 20-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic
About the glance: The colors indicate the state of each signal.
  • trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
  • adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
  • psar, pps, macd: green for bull mode, red for bear
  • sto: green for overbought, red for oversold, yellow for the neutral zone.

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