David Moenning's Daily State of the Markets: 3/18

It Appears There Are

In the title of yesterday’s missive, we posed the question “Are there buyers waiting?” Since we are of the mind that the current move is more than “just a bounce,” our thinking has been that we would see the ‘dip buyers’ emerge whenever stocks pulled back – even on an intraday basis. And in case you have something to do besides watching every wiggle and giggle of the stock market, let me assure you that this is indeed the case right now.

For the fourth day in a row, buyers came in on weakness yesterday. And yes, I’m aware of the fact that Monday’s session ended on a down note. But the point is that this “dip” was bought within 15 minutes after yesterday’s open. As was the little pullback at 10:30 am EDT and the snack time reversal attempt between 1:30 pm and 2:30 pm. In fact, over the past six trading days, it has been hard to find a “dip” lasting more than a few hours.

Does this in and of itself signal that it’s up, up, and away from here? Does this mean that we won’t see another scary decline for a while? Of course not. But what it does mean is that, so far at least, this rally is a bit different.

Speaking of things that are different, how about a report on the housing market coming in better than expected? Or how about the retail sector catching an across-the-board upgrade? Or another bank saying that it had a strong first two months of the year? Okay, that last one isn’t terribly different from what we’ve heard recently out of JP Morgan (JPM), Citi (C), and Bank of America (BAC). But honestly, if someone had told you 3 weeks ago that the banks would be making money by the time the first quarter ended, you might have considered them a little loony.

Looking at the session, stocks initially got a boost from a rare upside surprise in the housing market as housing starts jumped 22% in February to an annual rate of 583K, which easily exceeded that expectations for a rate of 450K. In addition, the Permits numbers were above consensus, which marked the first time that these reports saw in increase in the last eight months.

The bulls also got a hand from the bullish call on the Retailers out of Jefferies yesterday before the bell. The group’s 4% rally was underpinned by the upgrade of Home Depot (HD +6.7%), Lowes (LOW +6.2%), Kohls (KSS +6.2%), Target (TGT +5.6%), and Best Buy (BBY +8.9%). Jefferies suggested that it is time to take a look at retail since we are nearing a trough in the economic cycle.
And finally, Standard Chartered became the latest bank to come out and announce that it was having a “strong” first two months of the year. The news helped push the banking index to a gain of +6.11% on the session and back to the recent highs.

Looking ahead, while we’ve made our position quite clear that we think there are good things happening at the moment, we mustn’t lose sight of the fact that the market has become overbought on a short-term basis and that there is significant resistance overhead. As such, those looking to “get longer” may want to exhibit some patience.

Turning to this morning, we’ve got the Fed announcement on tap today at 2:15 pm EDT. But before we get to that, we’ve got the CPI data to review. The government reported that the Consumer Price Index rose by +0.4% in February, which was a tenth hotter than expectations for an increase of +0.3%. When you strip out food and energy, the Core rate came in at +0.2%, which also was a tenth higher than the consensus for an increase of +0.1%.

Running through the rest of the pre-game indicators, with the exception of London, the overseas markets are higher across the board. Crude futures are lower with the latest quote showing oil trading down by $0.47 to $48.69. On the interest rate front, we’ve got the yield on the 10-yr currently at 3.01%, while 3-month LIBOR is at 1.29% and the yield on the 3-month T-Bill is trading at 0.23%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a dip in prices at the open. The Dow futures are currently off by about 60 points; the S&P’s are down by about 6 points, while the NASDAQ looks to be about 7 points below fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Adobe Systems (Nasdaq: ADBE) – Reported $0.45 vs. $0.44
Darden Restaurants (NYSE: DRI) – Reported $0.80 vs. $0.68
MGM Mirage (NYSE: MGM) – Reported $0.10 vs. $0.15

Today’s Earnings Before the Bell:

General Mills (NYSE: GIS) – Reported $0.79 vs. $0.88

Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

Tesoro (NYSE: TSO) – Upgraded at BAC/MER
Frontier Oil (NYSE: FTO) – Downgraded at BAC/MER
Eagle Bulk Shipping (Nasdaq: EGLE) – Downgraded at BAC/MER
Lincoln National (NYSE: LNC) – Downgraded at BAC/MER
MetLife (NYSE: MET) – Upgraded at BAC/MER
StanCorp Financial (NYSE: SFG) – Upgraded at BAC/MER
Lukoil (NYSE: LUK) – Upgraded at BAC/MER
Eli Lilly (NYSE: LLY) – Upgraded at Citi
Royal Dutch (NYSE: RDS.A) – Downgraded at Citi
GlaxoSmithKline (NYSE: GSK) – Downgraded at Goldman
Costco (Nasdaq: COST) – Estimates reduced at Morgan Stanley
Intel (Nasdaq: INTC) – Upgraded at Needham
Zions Bancorp (Nasdaq: ZION) – Downgraded at RBC Capital
Carnival Corp (NYSE: CCL) – Mentioned cautiously at UBS
Sealed Air (NYSE: SEE) – Estimates reduced at UBS

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

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.TopStockPortfolios.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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