David Moenning's Daily State of the Markets: 1/07

January 7, 2009 9:40 AM EST

Can Hope Spring Eternal?

Stocks once again managed to brush off a batch of pretty crummy economic news yesterday as hope for the future appeared to be the focus – at least for the time being.

With stocks sitting at the very tip top of the recent trading range, both teams are looking for some sort of a trigger to give them the edge in the new game. On the one hand, the bears have a steady stream of surprisingly discouraging economic news to lean on. Yet on the other hand, our heroes in horns have been able to put the “old news” label on just about every piece of data these days and hold their ground.

In the early going, it looked like the recent rally would continue yesterday. However, with trading desks now fully staffed, it wasn’t long before the warm and fuzzy feelings gave way to a bout of acrophobia tied to a larger-than expected decline in factory orders.

But, in keeping with the seesaw nature of the session, talk of the Obama stimulus package and word that the Fed wasn’t wasting any time in starting to buy mortgage-backed securities seemed to provide some support. And just after lunch, the bulls were feeling pretty good about themselves as the Dow found itself with a triple-digit gain and above 9000 once again.

Unfortunately however, the move ran smack into the minutes from the latest Fed meeting, which talked about the economy being much worse for much longer than had been expected. After the requisite dive and recovery, the bulls then fell victim to the headline that Bank of America (BAC) expects results to come in below expectations.

Although this particular headline wouldn’t normally be a market mover, the bottom line is that analysts, traders, and investors don’t really know what to expect from the upcoming earnings season. It is safe to say that expectations are pretty low for the fourth quarter results. However, since this game is always about reality versus consensus, the worry is that analysts have not set the bar low enough. So, it will suffice to say that all eyes will be on the earnings parade when it begins next week.

But until then, the bulls will hold out hope that all the bad news has been priced in and that it’s time to focus on the future.

Turning to this morning, the news after the close yesterday that Alcoa is going to cut jobs and reduce production has put a damper on the mood. And speaking of job cuts, ADP just reported that payrolls fell by a whopping 693,000 in December, which was well below the estimates for a drop of -495k. The November figures were also revised lower to -472k from -250k. So in doing the math, it would appear that Corporate America lost more than 1.16 million jobs in the last two months of the year.

Running through the rest of the pre-game indicators, Asian markets are mixed while European bourses are trading to the downside. Crude futures are lower with the latest quote showing oil futures trading down by $0.45 to $48.13. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.48%, the yield on the 3-month T-Bill is at 0.12%, and overnight LIBOR is at 0.11%. 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 145 points; the S&P’s are down by about 15 points, while the NASDAQ looks to be about 23 points below fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

Family Dollar (NYSE: FDO) – Reported $0.42 vs. $0.40
Constellation Brands (NYSE: STZ) – Reported $0.60 vs. $0.59
Monsanto (NYSE: MON) – Reported $1.00 vs. $0.59
Supervalu (NYSE: SVU) – Reported $0.62 vs. $0.60

News, Upgrades/Downgrades/Brokerage Research:

Morgan Stanley (NYSE: MS) – Estimates reduced at Bernstein
Goldman Sachs (NYSE: GS) – Estimates reduced at Bernstein
Quicksilver Resources (NYSE: KWK) – Added to Top Picks Live list at Citi
Pride Intl (NYSE: PDE) – Downgraded at Citi
Hercules Offshore (Nasdaq:HERO) – Downgraded at Citi
Las Vegas Sands (NYSE: LVS) – Downgraded at Deutsche Bank
Aetna (NYSE: AET) – Added to Conviction Sell list at Goldman
AK Steel (NYSE: AKS) – Upgraded, added to Conviction Buy list at Goldman
Northern Trust (NTRS) – Upgraded at Goldman
Nucor (NYSE: NUE) – Removed from Conviction Buy list at Goldman
Mylan Labs (NYSE: MYL) – Added to Conviction Buy list at Goldman
TiVo (Nasdaq: TIVO) – Initiated Buy at Janney Montgomery Scott
Banco Bilbao Argentina (NYSE: BBV) – Downgraded at Keefe Bruyette Woods
Aeropostale (NYSE: ARO) – Initiated Buy at KeyBanc
Urban Outfitters (URBN) – Initiated Buy at KeyBanc
AutoZone (NYSE: AZO) – Downgraded at Merrill Lynch
Lazard (NYSE: LAZ) – Downgraded at Merrill Lynch
Lockheed Martin (NYSE: LMT) – Estimates reduced at Oppenheimer
Northrop Grumman (NYSE: NOC) – Estimates reduced at Oppenheimer
Raytheon (NYSE: RTN) – Estimates reduced at Oppenheimer
Humana (NYSE: HUM) – Mentioned positively at Oppenheimer
Micron Technology (NYSE: MU) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: None

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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