Daily State of the Markets: Why the Dive?


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October 22, 2009 9:29 AM EDT

Good morning. Long time readers of Daily State of the Markets know that I am a firm believer in the idea that the indices don’t move a hundred points or so in a matter of minutes just for the heck of it. No, my feeling is that if you dig hard enough, you will discover that there is a reason behind every big move in the market. The reason may not always be logical, but if we can understand why the market moved the way it did, it can help us understand what is driving the action.

So… in light of the fact that the DJIA was up 30 points or so with less than an hour to go in the session yesterday and then dove to finish with a loss of -92, well, from where I sit, there has to be a reason. Or in this case, a number of reasons.

The popular press cited a downgrade of Wells Fargo (WFC) by influential banking analyst Dick Bove as the reason for the dive to the downside. And in looking at the time stamp of the Bove release, this does make some sense as the announcement did come right as the market started to decline in earnest.

However, this was the type of action that we saw last winter when any hint of bad news about any big name financial institution would send the bulls running for the hills and the bears to the sell button. But since March 9th, this type of single-stock story has been largely M.I.A. So, again, while it may be just my opinion, I think there was more to it than just Wells Fargo.

In fact, it may have been a miniature perfect storm from a short-term perspective that sent traders scurrying for cover. And it doesn’t hurt my theory much that the rest of the factors all came together within a matter of minutes of the big dive.

The rest of the story includes a stunning headline out of the Obama Administration relating to its view of the role of government, oil prices pushing to new highs and closing over $81, and the fact that Wal-Mart, a company that the bulls have depended on for quite some time now, broke with tradition and didn’t have anything good to say at the close of their analyst day. Now stir in the big downgrade by Bove and voila, you’ve got the recipe for a big bout of selling.

While we have absolutely no backup for our opinion, we can’t help but feel that the NY Times report that Kenneth Feinberg – aka the Pay Czar – had been instructed to slash executive pay at company’s owing the government money by up to 90% took some people by surprise. While I don’t want to get political, the bottom line is this is really an astonishing story.

So, given that any trader who has been around a while knows how parabolic moves to the upside usually end (here’s a hint: not well), it is little wonder that anybody thinking about taking profits did so yesterday afternoon.

Turning to this morning, the earning parade is in full swing, so be sure to check up on your favorite holdings. On the economic front, weekly Jobless claims for the week ended October 17th were reported up 11,000 to 531K, which was a little more than the consensus estimate for 515K. Continuing claims unemployment insurance for week ended October 10th were 5.92M, which was a bit below the consensus for 5.970M.

Running through the rest of the pre-game indicators, the foreign markets are down across the board with European Bourses off by more than 1%. Crude futures are pulling back with the latest quote showing oil trading off by $0.71 to $80.66. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.44%, while the yield on the 3-month T-Bill is currently at 0.06%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a mixed open. The Dow futures are currently ahead by about 23 points; the S&P’s are down about flat, while the NASDAQ looks to be about 3 points below fair value at the moment.

Yesterday's Earnings After The Bell

Americredit ACF $0.19 $0.06
Amgen AMGN $1.49 $1.27
Ameriprise Financial AMP $1.03 $0.64
CR Bard BCR $1.31 $1.28
Citrix Systems CTXS $0.43 $0.42
eBay EBAY $0.38 $0.37
Equifax EFX $0.57 $0.45
Fidelity National Information FIS $0.46 $0.47
Lam Research LRCX $0.03 -$0.07
Novellus NVLS -$0.03 -$0.04
Pactiv Corp PTV $0.54 $0.51
Qlogic QLGC $0.21 $0.18
Robert Half RHI $0.06 $0.04
Skechers USA SKX $0.52 $0.35
Terex TEX -$0.95 -$0.31
Triquint Semiconductor TQNT $0.10 $0.10

Today's Earnings Before The Bell

Black & Decker BDK $0.91 $0.77
Bristol-Myers BMY $0.52 $0.51
Celgene CELG $0.56 $0.54
Check Point Software CHKP $0.52 $0.48
Danaher DHR $0.89 $0.87
Diamond Offshore DO $2.62 $2.29
Dow Chemical DOW $0.24 $0.09
EMC EMC $0.23 $0.21
Ensco ESV $1.05 $1.03
Fifth Third FITB -$0.20 -$0.21
Goodrich GR $1.14 $1.03
Huntington Bancshares HBAN -$0.33 -$0.27
Starwood Hotels HOT $0.14 $0.10
Hershey HSY $0.73 $0.67
Janus Capital JNS $0.05 $0.14
Kimberly Clark KMB $1.40 $1.16
Legg Mason LM $0.30 $0.20
McDonald's MCD $1.15 $1.11
3M MMM $1.37 $1.17
Merck MRK $0.90 $0.82
New York Times NYT $0.16 -$0.01
Occidental Petroleum OXY $ 1.14 $1.09
Philip Morris PM $0.93 $0.91
PNC Bank PNC $1.00 $0.29
Ryder Systems R $0.50 $0.45
Reynolds American RAI $1.24 $1.15
Raytheon RTN $1.25 $1.15
Sigma-Aldrich SIAL $0.70 $0.67
SunTrust Banks STI -$0.60 -$0.64
AT&T T $0.54 $0.50
The Travelers Co TRV $1.61 $1.31
Union Pacific UNP $1.02 $1.02
UPS UPS $0.55 $0.52
Xerox XRX $0.14 $0.12
Zimmer Holdings ZMH $0.88 $0.86

Upgrades:
- Freeport McMoRan (FCX) – Target increased at Canaccord Adams, Deutsche Bank
- F5 Networks (FFIV) – Upgraded at Canaccord Adams
- TNS Inc (TNS) – Upgraded at JP Morgan
- Quanta Services (PWR) – Initiated overweight at JP Morgan
- AMB Property (SMB) – Upgraded at JP Morgan
- Harvest Energy Trust – Upgraded at RBC Capital
- Motorola (MOT) – Upgraded at Thomas Weisel
- Kellogg (K) – Target increased at UBS
- Southern Union (SUG) – Upgraded at Wells Fargo

Downgrades:
-SAP (SAP) – Upgraded at BofA/Merrill
- Overseas Shipholding (OSG) – Upgraded at Cantor Fitzgerald
- Tsakos Energy (TNP) – Upgraded at Cantor Fitzgerald
- Forward Air (FWRD) – Upgraded at KeyBanc
- Barry Petroleum (BRY) – Upgraded at KeyBanc
- FLIR Systems (FLIR) – Upgraded at Morgan Joseph
- Tractor Supply (TSCO) – Upgraded at Piper Jaffray
- EOG Resources (EOG) – Upgraded at UBS
- Chesapeake Energy (CHK) – Upgraded at UBS

Long positions in stocks mentioned: GS, ACF, SUG, DO, MMM, OXY

Remember to think positive 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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