David Moenning's Daily State of the Markets: 6/10
The Little Picket Fence
Stocks closed relatively unchanged for the third straight day on Tuesday, producing what appears to be a little picket fence on the intraday chart of the DJIA. While not an official technical analysis term, the bears argue that the fence will present a barrier to entry in terms of further upside.
From across the street though, the bulls point out that the fence is low enough to easily hurdle once this week’s auctions are out of the way. Speaking of the government’s auctions of treasuries, the topic appears to be creating some angst among traders and is likely the reason the little fence was erected in the first place.
Although the Dow and S&P finished little changed on the session again, the broader market actually enjoyed a decent day with the NASDAQ gaining +0.96%, the Russell was up +0.6%, and the Midcaps enjoyed a pop of +1% even.
Despite the flat close there were some positive inputs yesterday, which led to some upside on an intraday basis. First off, Texas Instruments (TXN) gave tech in general and the semis in particular a boost by increasing their earnings guidance. Texan said that revenues increased in April and May, orders were strong, and perhaps most importantly, visibility for the future had begun to improve. And for those of you keeping score at home, this would qualify as a piece of good news on the economic front.
Another part of the day that is worthy of note was the breakout in the commodities markets. While many analysts argue that the move up in “stuff you can touch” is simply an example of traders worshipping at the altar of price momentum due to the fact that demand for the commodities themselves is not keeping pace with the increases in prices, the bottom line is “stuff” is heading higher. The move is being led by a rally in crude, which closed yesterday above $70 for the first time this year.
If you dig a little deeper into this subject, it becomes clear that part of the move in commodities and materials is indeed tied to the recovery in places like China, where we learned overnight that Industrial Output grew by +8.9% on a year-over-year basis in May, which was much better than the consensus expectations of +7.7%. In addition, the move up in commodities is being helped along by a falling dollar as well as the idea that traders may be moving into oil due to the perception that ‘Texas Tea’ is becoming the world’s new reserve currency.
So, will the picket fence on the charts become a line in the sand the bears can defend or will the little formation be soon trampled by a herd of stampeding bulls? Frankly, the near-term is anybody’s guess, but we’ll bet that today’s auction of $19 billion in 10-year notes might play a role in the outcome.
Turning to this morning, the big news so far is the announcement that Russia will begin to reduce their holdings in US Treasuries and also likes the idea of the Chinese Yuan becoming the new reserve currency.
Running through the rest of the pre-game indicators, the major overseas markets are up strong across the board. Crude futures are moving higher again with the latest quote showing oil trading up $1.17 to $71.18. On the interest rate front, we’ve got the yield on the 10-yr trading at new cycle highs at 3.92%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 70 points; the S&P’s are up about 9 points, while the NASDAQ looks to be about 10 points above fair value at the moment.
Stocks “In Play” This Morning:
Upgrades/Downgrades/Brokerage Research:
XL Capital (XL) – Upgraded at BofA/Merrill
Lukoil (LUK) – Upgraded at BofA/Merrill
SAP (SAP) – Downgraded at BofA/Merrill
Emergency Medical Services (EMS) – Upgraded at Citi
Talbots (TLB) – Downgraded at Friedman Billings Ramsey
Research in Motion (RIMM) – Target increased at Goldman
BP (BP) – Upgraded at ING
Silicon Laboratories (SLAB) – Estimates increased at Jefferies
US Steel (X) – Upgraded at KeyBanc
Olympic Steel (ZEUS) – Upgraded at KeyBanc
Nucor (NUE) – Downgraded at KeyBanc
Reliance Steel (RS) – Downgraded at KeyBanc
Long positions in stocks mentioned: RIMM
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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