Daily State of the Markets: They're Baaaack!


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October 23, 2009 9:56 AM EDT

Good morning. One of the lessons I've learned over the past 20+ years is Ms. Market really hates it when you make a statement – especially a public statement – suggesting that you just might have a decent understanding of how HER game works. For example, just about the time I had completed yesterday morning's lecture about how there is always a reason behind big moves in the market, the market reversed course and marched higher – to the tune of 132 points – for, yep, you guessed it; no apparent reason.

Stocks opened to the downside and in my daily technical work I made note of the fact that with stocks lower on the session, the major indices had broken below their respective 10-day moving averages and appeared to be on their way to a third consecutive down day. But silly me; what was I thinking? Three straight down days? That's the kind of stuff that only happens in bear markets. And everybody knows that this is a fairly virulent bull strain we’ve got going here.

In light of the fact that the S&P has only spent something like eight days below its 10-day moving average since the middle of July, the bull camp must have sent up the bat-signal at that very moment because it wasn’t long before the indices were back to doing what they’ve been doing best lately: movin’ on up.

The reason for the reversal of fortunes, you ask? Well, let's see... there wasn’t any economic data released around the time of the change of direction. The earnings reports had been issued prior to the opening bell. And since Bove has sworn off doing the fast money style earnings analysis, we didn’t have any analyst catalyst to goose the indices either.

So, here's my story and I'm sticking to it. And yes, Regis, this is indeed my final answer: It was the dip buyers.

To be sure, there were some positive inputs to be found. There was a big batch of economic data out of China, which showed why it is China and not the U.S. that is leading this economic advance. There were a handful of earnings reports that once again beat the exceptionally low bar of analyst expectations. There were some upbeat comments about the state of the consumer from the likes of J Crew (JCG), Wal-Mart (WMT) and McDonald's (MCD). And there was an economic report that pointed to sustained growth here in the U.S.

But the bottom line is that none of the above would normally be enough to turn the markets around and hand the ball back to the bulls. So, if we start with some dip buying, toss in the ongoing performance anxiety, and add in a little short-covering, I guess we've got our “reason.” And while I'm not terribly satisfied with that answer, the dip-buyers have been relentless for some time now, so it isn’t too terribly surprising they showed up again yesterday.

Turning to this morning, we do not have any economic data to review before the bell. However, we will get existing home sales at 10:00am. In addition, we do have Ben Bernanke speaking at the Boston Fed this morning and Microsoft (MSFT) has just come in with a pretty good report.

Running through the rest of the pre-game indicators, the foreign markets are up nicely across the board with most Bourses higher by more than 1%. Crude futures are moving up with the latest quote showing oil trading higher by $0.30 to $81.49. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.42%, while the yield on the 3-month T-Bill is currently at 0.05%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 30 points; the S&P’s are up by about 5 points, while the NASDAQ looks to be about 11 points above fair value at the moment.

Yesterday's Earnings After The Bell

Amazon.com AMZN $0.45 $0.33
American Experess AXP $0.44 $0.38
Burlington Northern BNI $1.36 $1.28
Broadcom BRCM $0.16 $0.33
Bucyrus BUCY $1.21 $0.86
CA Inc CA $0.42 $0.40
Chubb CB $1.56 $1.28
Capital One COF $1.03 $0.16
Compuware CPWR $0.12 $0.09
Eastman Chemical EMN $1.38 $1.13
Federated Investors FII $0.56 $0.51
Juniper Networks JNPR $0.23 $0.21
Leggett & Platt LEG $0.34 $0.28
Netflix NFLX $0.52 $0.45
PMC-Sierra PMCS $0.15 $0.14
SunPower SPWRA $0.42 $0.39
Western Digital WDC $1.25 $0.93
MEMC Electronic Materials WFR -$0.29 -$0.05

Dover Corp DOV $0.58 $0.48
Exelon EXC $0.96 $0.96
Fortune Brands FO $0.77 $0.60
HOneywell HON $0.80 $0.72
Ingersoll-Rand IR $0.70 $0.61
Microsoft MSFT $0.40 $0.32
Schlumberger SLB $0.65 $0.63
T.Rowe Price TROW $0.50 $0.46
Whirlpool WHR $1.15 $0.77

Upgrades:
# NII Holdings (NIHD) – at BofA/Merrill
# Amazon.com (AMZN) – at Barclays, FBR Capital, Janney Montgomery Scott, Jefferies
# Valero (VLO) – at Barclays
# Tenneco (TEN) – at Credit Suisse
# Legg Mason (LM) – at Credit Suisse
# Verizon (VA) – Initiated outperform at Credit Suisse
# Banco de Chile (BCH) – at Goldman
# LM Ericsson (ERIC) – at Goldman
# Alcatel-Lucent (ALU) – at Goldman
# Martha Stewart (MSO) – at JP Morgan
# PNC Bank (PNC) – at Wells Fargo

Downgrades:
# Riverbed Technologies (RVBD) – at AURIGA
# Chubb (CB) – at BofA/Merrill
# Precision Drilling (PDS) – at Canaccord Adams
# Potash (POT) – at CIBC World Markets
# Barnes & Noble (BKS) – at Goldman
# Banco Bradesco (BBD) – at Goldman
# GlaxoSmithKline (GSK) – at Jefferies
# SunPower (SPWRA) – at RBC Capital
# Charles River Labs (CRL) – at RW Baird
# Affiliated Computer (ACS) – at Susquehanna

Long positions in stocks mentioned: GS, AMZN, WDC, JCG, MSFT

Enjoy your Friday, have a pleasant weekend, and until next time, “may the bulls be with you!”

David D. Moenning
Founder TopStockPortfolios.com

For more "top stock" portfolios and research, visit www.TopStockPortfolios.com

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