David Moenning's Daily State of the Markets: 6/2
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Okay, let’s see a show of hands; how many really thought the recent trading range was going to break to the upside? How many were mentally bracing for another month or so of the back and forth, directionless market misery? How many thought that the combination of higher oil, GM filing for bankruptcy, and a new cycle high for interest rates would have produced a blast to the upside in the stock market? And how many are still looking for that retest of the lows the bears are so fond of talking about?
Forget that the technical analysis textbooks suggested that what was unfolding in May was a consolidation pattern. Forget the fact that a sideways consolidation usually ends with the index exiting the pattern in the same direction it was heading when it entered. The bottom line is it was hard to get past all the bad news, the worry, the consternation about the economy and the comparisons to the 1930's.
Even with a confirmed bull market (mini or otherwise), the breadth thrusts, and the indicators pointing to the end of the recession happening sooner rather than later, the bottom line is that it is still all too easy for most investors to continue to identify with the bear case.
But with yesterday’s report that the Chinese economy has been moving forward now for three straight months as well as the reports here in the U.S. that were actually better than expected, traders suddenly saw the light. And so, with our heroes in horns pumping their fists (er, hooves) and cheering them on, traders did a little buying. Correction – they did a lot of buying.
While the volume wasn’t much to write home about and the bond market did provide a reason to pause, the indices all broke out of their respective trading range jails and made a run for it. And in the process, the S&P 500 moved above its 200-day moving average, which while it sounds simplistic, does have positive implications for the future.
In fact, the good folks at Ned Davis Research tell us that after the S&P 500 breaks above its declining 200-day moving average, the market is higher than normal one month, three months, six months, and even twelve months later. Sure, we could see a pullback and maybe a break back below the magical line in the sand. And yes, it is true that the Dow has yet to follow suit (the Dow’s 200 day is currently sitting 45 points higher at 8765). But in short, it is important to recognize that the odds favor higher prices from here.
Although this is really nice information to keep in your back pocket, we do still have to deal with the market on a day to day basis. So, if you’re looking to get more invested right now there are a couple ways to play from here. First, you can simply close your eyes and buy right here, right now with the knowledge that stocks should be higher in the long run. And if we get a continuation day (a 1% gain within the next week or so with and increase in volume) this may be the best plan. But, for those that like to buy the dips, you should be on the lookout for what we call the “second chance buy” opportunity. In short, if the market pulls back and retests the breakout area (call it 8500 on the Dow) this would be your signal to do some buying.
Turning to this morning, we don’t have any economic data to review before the bell but we will get a report on pending home sales at 10:00 am.
Running through the rest of the pre-game indicators, the major overseas markets are mixed. Crude futures are moving lower with the latest quote showing oil trading down $0.79 at $67.79. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.63%, while the yield on the 3-month T-Bill is trading at 0.11%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 50 points; the S&P’s are down about 4 points, while the NASDAQ looks to be about 9 points below fair value at the moment.
Stocks “In Play” This Morning
Upgrades/Downgrades/Brokerage Research:
First Energy (NYSE: FE) – Downgraded at BofA/Merrill
Genworth (NYSE: GNW) – Target increased at Barclays
Texas Instruments (NYSE: TXN) – Target increased at Barclays
China Petroleum (NYSE: SNP) – Removed from Conviction Buy list at Goldman
China Mobile (NYSE: CHL) – Removed from Conviction Buy list at Goldman
Continental Airlines (NYSE: CAL) – Upgraded at JP Morgan
JP Morgan (NYSE: JPM) – Estimates increased at Morgan Stanley
Burger King (NYSE: BKC) – Target reduced at UBS
Pepsi Bottling (NYSE: PBG) – Target increased at UBS
Juniper Networks (Nasdaq: JNPR) – Downgraded at UBS
China Unicom (NYSE: CHU) – Upgraded at UBS
Long positions in stocks mentioned: JPM, CHL, CHU
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.
Okay, let’s see a show of hands; how many really thought the recent trading range was going to break to the upside? How many were mentally bracing for another month or so of the back and forth, directionless market misery? How many thought that the combination of higher oil, GM filing for bankruptcy, and a new cycle high for interest rates would have produced a blast to the upside in the stock market? And how many are still looking for that retest of the lows the bears are so fond of talking about?
Forget that the technical analysis textbooks suggested that what was unfolding in May was a consolidation pattern. Forget the fact that a sideways consolidation usually ends with the index exiting the pattern in the same direction it was heading when it entered. The bottom line is it was hard to get past all the bad news, the worry, the consternation about the economy and the comparisons to the 1930's.
Even with a confirmed bull market (mini or otherwise), the breadth thrusts, and the indicators pointing to the end of the recession happening sooner rather than later, the bottom line is that it is still all too easy for most investors to continue to identify with the bear case.
But with yesterday’s report that the Chinese economy has been moving forward now for three straight months as well as the reports here in the U.S. that were actually better than expected, traders suddenly saw the light. And so, with our heroes in horns pumping their fists (er, hooves) and cheering them on, traders did a little buying. Correction – they did a lot of buying.
While the volume wasn’t much to write home about and the bond market did provide a reason to pause, the indices all broke out of their respective trading range jails and made a run for it. And in the process, the S&P 500 moved above its 200-day moving average, which while it sounds simplistic, does have positive implications for the future.
In fact, the good folks at Ned Davis Research tell us that after the S&P 500 breaks above its declining 200-day moving average, the market is higher than normal one month, three months, six months, and even twelve months later. Sure, we could see a pullback and maybe a break back below the magical line in the sand. And yes, it is true that the Dow has yet to follow suit (the Dow’s 200 day is currently sitting 45 points higher at 8765). But in short, it is important to recognize that the odds favor higher prices from here.
Although this is really nice information to keep in your back pocket, we do still have to deal with the market on a day to day basis. So, if you’re looking to get more invested right now there are a couple ways to play from here. First, you can simply close your eyes and buy right here, right now with the knowledge that stocks should be higher in the long run. And if we get a continuation day (a 1% gain within the next week or so with and increase in volume) this may be the best plan. But, for those that like to buy the dips, you should be on the lookout for what we call the “second chance buy” opportunity. In short, if the market pulls back and retests the breakout area (call it 8500 on the Dow) this would be your signal to do some buying.
Turning to this morning, we don’t have any economic data to review before the bell but we will get a report on pending home sales at 10:00 am.
Running through the rest of the pre-game indicators, the major overseas markets are mixed. Crude futures are moving lower with the latest quote showing oil trading down $0.79 at $67.79. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.63%, while the yield on the 3-month T-Bill is trading at 0.11%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 50 points; the S&P’s are down about 4 points, while the NASDAQ looks to be about 9 points below fair value at the moment.
Stocks “In Play” This Morning
Upgrades/Downgrades/Brokerage Research:
First Energy (NYSE: FE) – Downgraded at BofA/Merrill
Genworth (NYSE: GNW) – Target increased at Barclays
Texas Instruments (NYSE: TXN) – Target increased at Barclays
China Petroleum (NYSE: SNP) – Removed from Conviction Buy list at Goldman
China Mobile (NYSE: CHL) – Removed from Conviction Buy list at Goldman
Continental Airlines (NYSE: CAL) – Upgraded at JP Morgan
JP Morgan (NYSE: JPM) – Estimates increased at Morgan Stanley
Burger King (NYSE: BKC) – Target reduced at UBS
Pepsi Bottling (NYSE: PBG) – Target increased at UBS
Juniper Networks (Nasdaq: JNPR) – Downgraded at UBS
China Unicom (NYSE: CHU) – Upgraded at UBS
Long positions in stocks mentioned: JPM, CHL, CHU
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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