David Moenning's Daily State of the Markets: 01/05

January 5, 2009 10:04 AM EST

Looking Fine in 09 (So Far)

So far at least, things look just fine in ‘09 as the bulls got the New Year started on the right foot (er, hoof) on Friday. The 258 point rally capped off a strong, albeit quiet holiday week in which the venerable DJIA saw a gain of +6.1%, the NASDAQ popped +6.66%, and the S&P advanced +6.76%.
The impetus for last week’s move appeared to be some better-than expected economic data, some gazing into the future, and most importantly, the fact that the calendar finally ran out of days. You see, with time having run out for sales to settle in accounts for 2008, the window undressing gave way to a little pre-New Year buying. And with everybody and their brother knowing that stocks were “set up” to rally, it didn’t take much to get things moving to the upside.

Yes, yes, we know full well that the volume was exceptionally light. And we’re well aware of the fact that most traders were at home with the family. And yes, we also recognize that the major indices are now in overbought territory as this move has probably gone a little too far, too fast. But, since it’s been a while since we’ve had a chance to talk about a rally lasting more than a couple days, all those in favor of the bulls providing more of the same this week, stand up and say “aye.”

Those seeing the glass as half-full will argue that the major indices broke out of their recent trading ranges on Friday. Thus, if the bulls can hold the line after the requisite downside retest, the chartists argue that there is room to roam on the upside – at least until Dow 9600, anyway.

However, before I get a bunch of nasty emails asking if I’m still imbibing the celebratory bubbly, I guess we should get real. The bottom line here is that while the cats were away, the mice did indeed play. But now that the big cats are back on the prowl, it will be interesting to see if last week’s little jaunt to the upside can hold up.

In reality, after a move of more than 600 points in 6 days, the market finds itself in an overbought condition and due for a pullback. And a cynic might even argue that a “breakout fakeout” may be in order… or that the Dow has at least 300 points of downside that is ripe for the picking.

At the very least, we should be sure to watch those moving averages down below very carefully. With the 50-day, the 25-day, and the 10-day all occupying roughly the same space on the charts at the moment, it would be a positive sign if these lines in the sand can hold up this week. However, it would be just as negative if they were to give way during the next bout of selling. So, for those of you thinking about chasing the current rally, it might be best to employ a wee bit of patience at the present time.

Turning to this morning, we don’t have any economic data to review today, before the bell or otherwise. Looking at the week ahead, we’ll get Factory Orders and the ISM report on Tuesday and then the Big Kahuna, the December Employment report on Friday.

Running through the rest of the pre-game indicators, Asian markets are higher while European bourses are hovering around breakeven. Crude futures are off a bit with the latest quote showing oil futures trading down by $0.21 to $46.13. On the interest rate front, we’ve got the yield on the 10-yr currently spiking to 2.46% as Barron’s told everyone to “get out now,” the yield on the 3-month T-Bill is at 0.07%, and overnight LIBOR is at 0.12%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 90 points; the S&P’s are lower by about 10 points, while the NASDAQ looks to be about 12 points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Walgreens (NYSE: WAG) – December sales comparisons +4.9% vs. 1.0%
Teradyne (NYSE: TER) – Upgraded at Barclays
AT&T (NYSE: T) – Downgraded at Bernstein
Verizon (NYSE: VZ) – Downgraded at Bernstein
Southern Copper (NYSE: PCU) – Downgraded at Citi
McAfee (NYSE: MFE) – Downgraded at Credit Suisse
Novellus (NVLS) – Downgraded at Credit Suisse
CarMax (NYSE: KMX) – Downgraded at Goldman
Bed Bath & Beyond (Nasdaq: BBBY) – Downgraded at Goldman
Barnes and Noble (NYSE: BKS) – Upgraded at Goldman
Biogen IDEC (Nasdaq: BIIB) – Downgraded at JP Morgan
Amazon.com (Nasdaq: AMZN) – Upgraded at JP Morgan
PDL BioPharma (Nasdaq: PDLI) – Upgraded at JP Morgan
Cathay Bancorp (Nasdaq: CATY) – Downgraded at Keefe, Bruyette, Woods
Cullen Frost Bankers (NYSE: CFR) – Downgraded at Keefe, Bruyette, Woods
Varian Medical Systems (NYSE: VAR) – Downgraded at Oppenheimer
Schlumberger (NYSE: SLB) – Downgraded at UBS
Weatherford Intl (NYSE: WFT) – Downgraded at UBS
BJ Services (NYSE: BJS) – Downgraded at UBS
Diamond Offshore (NYSE: DO) – Downgraded at UBS
ENSCO Intl (NYSE: ESV) – Downgraded at UBS
Rowan Companies (NYSE: RDC) – Downgraded at UBS
Halliburton (NYSE: HAL) – Target reduced at UBS
Transocean (NYSE: RIG) – Target reduced at UBS
Altera (Nasdaq: ALTR) – Upgraded at Wachovia
Leap Wireless (Nasdaq: LEAP) – Upgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: VZ

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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