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David Moenning's Daily State of the Markets: 5/20

May 20, 2009 10:08 AM EDT

No Decision

On the day after a blast like Monday’s where the major indices gained +3% or so, everyone is looking for something. The bulls would like to see follow-through buying and an increase in volume to assure them that the move is for real and not just a bounce up to the old highs, while the bears would prefer to see signs that the rally is fading and ready to reverse.

In short, yesterday turned out to be a no decision day for both teams as neither side can really say they got what they were looking for.

To clarify, the follow-through day that the bull camp is seeking is usually defined as an advance of 1% or more on an increase in volume from the day before. This signals to traders that the rally has some support behind it and that it is time to jump on board the train. However, far too many new investors fail to understand that the all-important follow-through day does not have to happen immediately. As long as the move occurs sometime within the next week or so and is not reversed before then, it counts. Thus, if you are bullishly inclined, there is no need to panic just yet.

The bears will try to argue that Tuesday’s lackluster session was bad because the rally didn’t continue. Our furry friends will contend that the fade into the close was a sign of bad things to come. But then again, this is their view on almost any day where stocks fade into the close.

Perhaps the most important aspect of yesterday’s action was the fact that the bears were not able to do much of anything with the report showing a -12.8% decline in housing starts. The Commerce Department data showed that both housing starts and building permits fell to record lows during April, and both numbers were well below analyst expectations.

These reports would seem to run contrary to the idea that the economy in general and housing in particular is stabilizing and will soon begin to turn higher. As such, one might have expected the bears to jump on the data and point a paw or two in an “I told you so” fashion.

Maybe the weak effort by the bears was due the fact that the poor housing starts number was caused by a drop in condos, apartments, and townhomes and that single-family home starts actually showed continued signs of stabilization. Or maybe the fact that the VIX has fallen below 30 for the first time since last September is an indication of complacency in the market. But in any event, we’ll suggest that while the bulls can’t really claim victory, it was a positive that their opponents couldn’t either.

Turning to this morning, we don’t have any economic news to review before the bell although we will get a peek at the minutes from the latest Fed meeting at 2:00pm. We should also keep in mind that with a long holiday weekend on the horizon trading may get a little thin for the rest of the week.

Running through the rest of the pre-game indicators, the major overseas markets are fractionally mixed. Crude futures are moving up again with the latest quote showing oil trading higher by $0.64 at $60.75. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.22%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently about higher by 45 points; the S&P’s are up about 6 points, while the NASDAQ looks to be about even with fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

Ann Taylor (NYSE: ANN) – Reported -$0.04 vs. -$0.11
BJ’s Wholesale Club (NYSE: BJ) – Reported $0.45 vs. $0.43
Deere & Co (NYSE: DE) – Reported $1.11 vs. $1.07
Target (NYSE: TGT) – Reported $0.69 vs. $0.60

Upgrades/Downgrades/Brokerage Research:

China Unicom (NYSE: CHU) – Upgraded at BofA/Merrill


Celgene (Nasdaq: CELG) – Mentioned positively at Barclays
Genzyme (Nasdaq: GENZ) – Mentioned positively at Barclays
Amgen (Nasdaq: AMGN) – Mentioned positively at Barclays


Procter & Gamble (NYSE: PG) – Upgraded at Barclays
Colgate Palmolive (NYSE: CL) – Downgraded at Barclays
Costco (Nasdaq: COST) – Upgraded at Barclays
Analog Devices (NYSE: ADI) – Upgraded at Deutsche Bank
McDonalds (NYSE: MCD) – Upgraded at Deutsche Bank
Nokia (NYSE: NOK) – Upgraded at Deutsche Bank
Home Depot (NYSE: HD) – Downgraded at Friedman Billings Ramsey
Talbot’s (NYSE: TLB) – Downgraded at Friedman Billings Ramsey
Royal Dutch Shell (NYSE: RDS.A) – Upgraded at JP Morgan
Hewlett Packard (NYSE: HPQ) – Target increased at UBS

Long positions in stocks mentioned: JPM, CHU, BJ, COST


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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