David Moenning's Daily State of the Markets: 3/20
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Picture Perfect
The headlines announced that the rally faded yesterday as investors worried about the dollar, the unintended consequences of the Fed action, as well as the lag time before the economy improves. But from where we sit, the negativity toward yesterday’s market action was rather surprising after the recent 17%+ move in a week and a half.
Perhaps investors are worried that the move went too far, too fast and as such is nothing more than the same type of short-term bounce we’ve seen over the past six months. Perhaps traders are worried that the market has run out of near-term catalysts – especially in the banking sector. Perhaps there were jitters over today’s options expiration event. Or maybe, the major news outlets were right; perhaps investors did indeed have a change of heart over the Fed’s latest actions.
To which, we’d like to reply, “nonsense.” It is our humble opinion that yesterday’s action was a picture-perfect pullback within a rally from an overbought condition. Stocks had shot straight up for 7 days and as we’ve mentioned, were due for a rest. Granted, we would have said the same thing if the Dow had fallen 250 points. And in honesty, we’d love to see another couple hundred points come off the Dow here to put some fear in the market and to allow us to put more money to work at lower prices.
So, let’s see what we’ve got here. After the Dow had gained more than 1,000 points in 7 sessions, we saw a pullback of 86 points. A pullback in which declining issues outnumbered advancers not by 3 to 1, not by 2 to 1, but by 29 issues (Declines: 1555, Advances: 1526). We got a slight pullback in volume. And finally, down volume beat up volume by just 1.5 to 1. In short, all of the above means that we did not see a dramatic uptick in selling pressure – just a pullback in an uptrend.
Lest we be accused of being overly optimistic, I will admit that stocks are likely to pull back further from here. However, as we’ve been mentioning daily for more than a week now, we see the current rally as something more than just a bounce due to the fundamental trigger that accompanied the bottom – the fact that banks are making money right now.
Does this mean that we should declare that the bear has ended and that everything will be hunky dory from here? Of course not. We are simply of the mind that we have seen the worst of the crisis in the banking system, and as such, we’ve likely seen the worst of the bear market decline.
After this pullback and perhaps some further upside exploration, stock traders are likely to demand some confirmation that the economy has turned the corner before getting truly optimistic. But, as we’ve been saying, we feel that this environment demands a change of strategy. Instead of selling the rallies to raise cash, investors might want to start looking at buying the dips instead.
Turning to this morning, we don’t have any economic news before the bell, but we will get a report on Existing Home Sales at 10:00 am on this options expiration Friday.
Running through the rest of the pre-game indicators, with the exception of Japan, which was closed overnight, the overseas markets are down a smidge. Crude futures are moving down with the latest quote showing oil trading off $0.96 to $50.65. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.59%, while 3-month LIBOR is at 1.22% and the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing a just bit higher. The Dow futures are currently ahead by about 25 points; the S&P’s are up by about 2 points, while the NASDAQ looks to be about a point above fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Blockbuster (NYSE: BBI) – Reported $0.40 vs. $0.25
3 Com (Nasdaq: COMS) – Reported $0.13 vs. $0.10
Palm Inc (Nasdaq: PALM) – Reported -$0.86 vs. -$0.61
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Expedia (Nasdaq: EXPE) – Upgraded at Citi
Celanese (NYSE: CE) – Upgraded at Citi
General Electric (NYSE: GE) – Estimates reduced at Citi
Urban Outfitters (Nasdaq: URBN) – Downgraded at Cowen
Deutsche Telekom (NYSE: DT) – Downgraded at Credit Suisse
Lukoil (NYSE: LUK) – Upgraded at Credit Suisse
Best Buy (NYSE: BBY) – Target increased at Credit Suisse
Ericsson (Nasdaq: ERIC) – Downgraded at RBS
Citrix Systems (Nasdaq: CTXS) – Downgraded at Thomas Weisel
Accenture (NYSE: A.CN) – Estimates reduced at UBS
Ford (NYSE: F) – Initiated Buy at UBS
Borg Warner (NYSE: BWA) – Initiated Neural at UBS
General Motors (NYSE: GM) – Initiated Sell at UBS
Autonation (NYSE: AN) – Initiated Sell at UBS
Johnson & Johnson (NYSE: JNJ) – Upgraded at UBS
Diana Shipping (NYSE: DSX) – Downgraded at Wachovia
Eagle Bulk Shipping (Nasdaq: EGLE) – Downgraded at Wachovia
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.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.
The headlines announced that the rally faded yesterday as investors worried about the dollar, the unintended consequences of the Fed action, as well as the lag time before the economy improves. But from where we sit, the negativity toward yesterday’s market action was rather surprising after the recent 17%+ move in a week and a half.
Perhaps investors are worried that the move went too far, too fast and as such is nothing more than the same type of short-term bounce we’ve seen over the past six months. Perhaps traders are worried that the market has run out of near-term catalysts – especially in the banking sector. Perhaps there were jitters over today’s options expiration event. Or maybe, the major news outlets were right; perhaps investors did indeed have a change of heart over the Fed’s latest actions.
To which, we’d like to reply, “nonsense.” It is our humble opinion that yesterday’s action was a picture-perfect pullback within a rally from an overbought condition. Stocks had shot straight up for 7 days and as we’ve mentioned, were due for a rest. Granted, we would have said the same thing if the Dow had fallen 250 points. And in honesty, we’d love to see another couple hundred points come off the Dow here to put some fear in the market and to allow us to put more money to work at lower prices.
So, let’s see what we’ve got here. After the Dow had gained more than 1,000 points in 7 sessions, we saw a pullback of 86 points. A pullback in which declining issues outnumbered advancers not by 3 to 1, not by 2 to 1, but by 29 issues (Declines: 1555, Advances: 1526). We got a slight pullback in volume. And finally, down volume beat up volume by just 1.5 to 1. In short, all of the above means that we did not see a dramatic uptick in selling pressure – just a pullback in an uptrend.
Lest we be accused of being overly optimistic, I will admit that stocks are likely to pull back further from here. However, as we’ve been mentioning daily for more than a week now, we see the current rally as something more than just a bounce due to the fundamental trigger that accompanied the bottom – the fact that banks are making money right now.
Does this mean that we should declare that the bear has ended and that everything will be hunky dory from here? Of course not. We are simply of the mind that we have seen the worst of the crisis in the banking system, and as such, we’ve likely seen the worst of the bear market decline.
After this pullback and perhaps some further upside exploration, stock traders are likely to demand some confirmation that the economy has turned the corner before getting truly optimistic. But, as we’ve been saying, we feel that this environment demands a change of strategy. Instead of selling the rallies to raise cash, investors might want to start looking at buying the dips instead.
Turning to this morning, we don’t have any economic news before the bell, but we will get a report on Existing Home Sales at 10:00 am on this options expiration Friday.
Running through the rest of the pre-game indicators, with the exception of Japan, which was closed overnight, the overseas markets are down a smidge. Crude futures are moving down with the latest quote showing oil trading off $0.96 to $50.65. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.59%, while 3-month LIBOR is at 1.22% and the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing a just bit higher. The Dow futures are currently ahead by about 25 points; the S&P’s are up by about 2 points, while the NASDAQ looks to be about a point above fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Blockbuster (NYSE: BBI) – Reported $0.40 vs. $0.25
3 Com (Nasdaq: COMS) – Reported $0.13 vs. $0.10
Palm Inc (Nasdaq: PALM) – Reported -$0.86 vs. -$0.61
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Expedia (Nasdaq: EXPE) – Upgraded at Citi
Celanese (NYSE: CE) – Upgraded at Citi
General Electric (NYSE: GE) – Estimates reduced at Citi
Urban Outfitters (Nasdaq: URBN) – Downgraded at Cowen
Deutsche Telekom (NYSE: DT) – Downgraded at Credit Suisse
Lukoil (NYSE: LUK) – Upgraded at Credit Suisse
Best Buy (NYSE: BBY) – Target increased at Credit Suisse
Ericsson (Nasdaq: ERIC) – Downgraded at RBS
Citrix Systems (Nasdaq: CTXS) – Downgraded at Thomas Weisel
Accenture (NYSE: A.CN) – Estimates reduced at UBS
Ford (NYSE: F) – Initiated Buy at UBS
Borg Warner (NYSE: BWA) – Initiated Neural at UBS
General Motors (NYSE: GM) – Initiated Sell at UBS
Autonation (NYSE: AN) – Initiated Sell at UBS
Johnson & Johnson (NYSE: JNJ) – Upgraded at UBS
Diana Shipping (NYSE: DSX) – Downgraded at Wachovia
Eagle Bulk Shipping (Nasdaq: EGLE) – Downgraded at Wachovia
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.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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