David Moenning's Daily State of the Markets: 4/20

April 20, 2009 9:34 AM EDT

Still Going…

Like the Energizer Bunny relentlessly banging that silly drum, the current rally in the stock market is “still going.” Although last week didn’t contain any really explosive moves to the upside, the banking results were good enough to help the bulls put up a sixth straight week of gains. And for those of you keeping score at home, the Dow has now rallied 1,584 points or +24.2% since March 9th while the S&P 500 is up +28.5% and the NASDAQ has tacked on an impressive +31.87%.


Despite the fact that just about everyone is looking for a pullback these days, stocks managed to finish higher again on Friday on the back of solid earnings from Citi (C), GE (GE), BB&T (BBT), and Google (GOOG) as well as a report out of the University of Michigan showing that their consumer sentiment index came in higher than expected.

The UofM/Reuters index of consumer sentiment was definitely a positive surprise and probably the key to the green numbers on the session. Not only was the preliminary April report better than expected, it also marked the second straight month in which the index gained ground. In addition, the reading of 61.9 was the highest since the Lehman bankruptcy last September. Finally, both the current conditions and the expectations indices also came in higher than analysts had projected.

So, with banks such as Goldman Sachs (GS), Citi (C), and JP Morgan Chase (JPM) all coming in with earnings results that were better than expected, economic reports coming in above expectations, and word that the consumer may not be dead after all, the bottom line is the bears were once again unable to get anything going to the downside.

Thus, the question of the day becomes one of just how much longer will our heroes in horns be able to keep their opponents bottled up and stocks heading higher? History and most short-term indicators tell us that the odds favor a decline of some sort to begin any time now. But, so far at least, it hasn’t paid to bet against the rally.

One of the arguments for the market continuing to march merrily higher in the big picture is that institutional investors are underinvested and starting to buy. For example, State Street (STT) said Friday that flows into US equities were close to the highest level in the last twelve years and that it was indeed the institutions doing the buying. The report noted that monthly inflows into stocks were in the 98th percentile, meaning that inflows have only been higher in 2% of the months recorded.

So, if you are looking for a reason why we haven’t seen any kind of a pullback recently, it would appear that the big boys of the money management world are to blame.

Turning to this morning, we don’t have any economic news before the bell but we will get a report on the Index of Leading Economic Indicators at 10:00 am. In the news, we’ve got word that Oracle (ORCL) will pick up where IBM (IBM) left off and buy Sun Microsystems (JAVA).

But the big story as far as the market is concerned, is the talk that the White House wants to convert the loans made to banks into stock. The move would effectively give the government an ownership stake and dilute current shareholders. Thus, it would appear that the bears finally have their reason to take stocks lower.

Running through the rest of the pre-game indicators, the major overseas markets are mixed by region with Asia up and Europe down. Crude futures are moving lower with the latest quote showing oil trading down by $2.52 to $47.81. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.88%, while the yield on the 3-month T-Bill is trading at 0.13%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a down open. The Dow futures are currently off by about 140 points; the S&P’s are down about 17 points, while the NASDAQ looks to be about 29 points below fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

Bank of America (NYSE: BAC) – Reported $0.44 vs. $0.04
Eaton (NYSE: ETN) – Reported -$0.22 vs. -$0.26
Halliburton (NYSE: HAL) – Reported $0.44 vs. $0.41
Hasbro (NYSE: HAS) – Reported $0.14 vs. $0.14
Eli Lilly (NYSE: LLY) – Reported $1.20 vs. $0.99
Weatherford Intl (NYSE: WFT) – Reported $0.27 vs. $0.28

Upgrades/Downgrades/Brokerage Research:

Citi (NYSE: C) – Downgraded at Argus Research
PACCAR (Nasdaq: PCAR) – Downgraded at BAC/MER
Palm Inc (Nasdaq: PALM) – Upgraded at BAC/MER
Amazon.com (Nasdaq: AMZN) – Upgraded at Citi
BMC Software (NYSE: BMC) – Downgraded at Credit Suisse
CA Inc (NYSE: CA) – Downgraded at Credit Suisse
Blue Nile (Nasdaq: NILE) – Downgraded at Deutsche Bank
Weyerhaeuser (NYSE: WY) – Upgraded at Goldman
PF Chang’s Nasdaq: (Nasdaq: PFCB) – Upgraded at Goldman
Keycorp (NYSE: KEY) – Removed from Conviction Buy list at Goldman
Capital One (NYSE: COF) – Downgraded at Goldman
Cheesecake Factory (Nasdaq: CAKE) – Downgraded at Goldman
Reliance Steel (NYSE: RS) – Upgraded at Jefferies
Charles River Labs (NYSE: CRL) – Downgraded at Jefferies
Dynegy (NYSE: DYN) – Downgraded at Jefferies
Transocean (NYSE: RIG) – Downgraded at Jefferies
Saks (NYSE: SKS) – Upgraded at JP Morgan
Las Vegas Sands (NYSE: LVS) – Upgraded at JP Morgan
H&R Block (NYSE: HRB) – Upgraded at Morgan Stanley
Iron Mountain (NYSE: IRM) – Downgraded at Morgan Stanley
Burger King Holdings (NYSE: BKC) – Downgraded at Morgan Stanley
Sonic Corp (Nasdaq: SONC) – Downgraded at Morgan Stanley
Juniper Networks (Nasdaq: JNPR) – Downgraded at Oppenheimer
Energizer (NYSE: ENR) – Downgraded at UBS
King Pharmaceuticals (NYSE: KG) – Upgraded at UBS
Johnson & Johnson (NYSE: JNJ) – Upgraded at Wachovia
Ameriprise Financial (NYSE: AMP) – Upgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: AMZN, BMC, CA

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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