David Moenning's Daily State of the Markets: 3/27

March 27, 2009 10:17 AM EDT

The T+3 Rally

Despite the reality check provided by the GDP data, which showed that the economy had its worst quarter in 27 years, the bulls were able to put yet another W on the board yesterday. With momentum appearing to build on a daily basis, the market is on pace for its best monthly rally since 1974 as the S&P is currently up +13.3%, the Dow has gained +12.2%, and the NASDAQ has soared an impressive +15.18% so far in the month of March.

There were lots of reasons for the rally yesterday. And once we got past the dismal GDP report, just about everything else could be viewed in a positive light. For example, Timothy Geithner has gone from zero to hero in just two short weeks and his performance this week has been solid. Lest we forget, it was the unveiling of his creative P-PIP’s program that got the week started on an upbeat note.

Next up, earnings reports provided a lift as it turns out that the consumer might not be dead after all. Best Buy (BBY) reported a better than expected quarter and raised guidance for the coming year. In addition, the earnings reports from ConAgra (CAG) and Red Hat (RHT) also provided some firepower for the bulls.

In the category of ‘what a difference a day makes,’ the results from the government’s sale of $24 Billion in 7-year notes showed that the auction was well-bid. This is in stark contrast to Wednesday’s worries that the government might have a tough time selling all the bonds it wants to.

Other items of note that may have lent the bulls a hand yesterday included word that the automakers will get more cash from the administration, solar stocks soaring on developments in China, DRAM prices kept the chip stocks moving, we saw another record low in mortgage rates as the government has started to buy bonds, and with the end of the quarter fast approaching, short covering likely has played a role this week.

On that note, perhaps one of the biggest positives yesterday had to do with the calendar. You see, yesterday was the last day that money managers could buy stocks and still have them show up on client statement due to the ‘trade plus three days’ (T+3) settlement rules. With a boatload of hedge funds having moved to the sidelines over the past six months, research shows that this group is very underinvested at the moment. So, as a manager, if you want to try and look smart at the end of a nice run in the market, you probably were doing a little buying yesterday in an effort to dress up your portfolios.

In any event, even the most ardent bears will admit that the momentum has clearly swung to the bull camp and that this rally has been more than a typical bounce in a bear market. However, let’s keep in mind that stocks have soared +23% in 13 days and in the process have become very overbought on a short-term basis. So, with resistance looming overhead, we wouldn’t be surprised to see, and would actually welcome, a pullback in the near term.

Turning to this morning, it looks like the frantic buyers from yesterday are sleeping in so far. On the economic front, Personal Incomes fell by -0.2% in February while Personal Spending rose by +0.2%; both of which were in line with expectations. And on the inflation front, the PCE Core came in right on target with an increase of +0.2%.

Running through the rest of the pre-game indicators, the overseas markets down a fraction. Crude futures are moving down with the latest quote showing oil trading off $1.24 to $53.10. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.73%, while 3-month LIBOR is at 1.22% and the yield on the 3-month T-Bill is trading down to 0.14%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 100 points; the S&P’s are down by about 11 points, while the NASDAQ looks to be about 25 points below fair value at the moment.

Stocks “In Play” This Morning:

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

CSX Corp (NYSE: CSX) – Upgraded at BAC/MER
United Parcel Svc (NYSE: UPS) – Upgraded at BAC/MER
Werner Enterprises (Nasdaq: WERN) – Upgraded at BAC/MER
Burlington Northern (NYSE: BNI) – Upgraded at BAC/MER
Canadian National Railway (NYSE: CNI) – Upgraded at BAC/MER
JB Hunt Transportation (Nasdaq:JBHT) – Upgraded at BAC/MER
Lam Research (Nasdaq: LRCX) – Downgraded at BAC/MER
BHP Billiton (NYSE: BHP) – Downgraded at Deutsche Bank
Macerich (NYSE: MAC) – Added to Conviction Sell list at Goldman
Best Buy (NYSE: BBY) – Removed from Conviction Buy list at Goldman
Amazon.com (Nasdaq: AMZN) – Removed from Conviction Buy list at Goldman
Chesapeake Energy (NYSE: CHK) – Added to Conviction Buy list at Goldman
ConocoPhillips (NYSE: COP) – Upgraded at Goldman
Duke Realty (NYSE: DRE) – Upgraded at Goldman
Pioneer Natural Resources (NYSE: PXD) – Upgraded at Goldman
Anadarko Petroleum (NYSE: APC) – Upgraded at Goldman
Post Properties (NYSE: PPS) – Downgraded at Goldman
XTO Energy (NYSE: XTO) – Downgraded at Goldman
Choice Hotels (NYSE: CHH) – Downgraded at JP Morgan
Amgen (Nasdaq: AMGN) – Upgraded at JP Morgan
JC Penney (NYSE: JCP) – Upgraded at JP Morgan
Brinker Intl (NYSE: EAT) – Upgraded at Morgan Stanley
Mosaic (NYSE: MOS) – Initiated Buy at UBS
DuPont (NYSE: DD) – Initiated Buy at UBS
Monsanto (NYSE: MON) – Initiated Buy at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: AMGN, MON

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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