David Moenning's Daily State of the Markets: 6/22

Summer of Discontent?

Stocks were mixed on Friday with most of the indices finishing in the green, save the DJIA. While there was an early bent toward the upside, word that the U.S. Navy might intercept a North Korean ship purportedly carrying nuclear materials and missiles seemed to weigh on the sentiment and kept a lid on any upside potential during much of the day.

However, perhaps the most important aspect of the market recently has been the bulls’ inability to restart the rally – even in the face of good news. While stocks have not really given up much ground, the major indices haven’t been able to net much, if any, progress over the past month and a half either.

Friday was a good example of what appears to be a more cautious stance by traders. Despite the better than expected economic data from Thursday and some upbeat action in tech and health care on Friday, the blue chip indices have been unable to get out of their own way lately. Thus, a consensus seems to be building that stocks may experience a sideways consolidation during the summer months as opposed to a continuation of the blast that took the S&P up nearly 40% from the March 9th lows.

With just about everyone now expecting the economic recovery to be subpar due to a strained consumer etc, it would appear that traders do not want the market to get too far ahead of itself. It is common knowledge that the stock market tends to overshoot in both directions during major moves. So with concerns growing about the drivers of the next leg higher, it is little wonder that we’re seeing a consolidation phase.

However, it is also important to recognize that the bears haven’t exactly been dancing in the street lately. After all, last week’s decline in the indices was only the third time in the last fifteen weeks that stocks finished lower on a weekly basis since March 9th. And other than pullbacks of 3% - 5% lasting no more than a few days, the downside action has been limited.

So while we wouldn’t be surprised to see some additional downside action in the near term, we also can’t get terribly fired up about a major correction at this stage of the game. Thus, we may be in for an up-and-down summer period. But, as we have said a time or two, instead of trying to predict what the market will do, we prefer to stay in line with what the market IS doing. And as such, we don’t intend to take our eyes off the ball any time soon.

Turning to this morning, we don’t’ have any economic data to review before the bell. On the news front, stocks are pulling back after the World Bank cut its forecast for the global economy and sees a more subdued recovery in 2010.

Running through the rest of the pre-game indicators, the major overseas markets are mixed with Asia higher and Europe lower. Crude futures are moving down with the latest quote showing oil trading down by $1.65 to $67.90. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.72%, while the yield on the 3-month T-Bill is trading at 0.16%. 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 90 points; the S&P’s are down about 12 points, while the NASDAQ looks to be about 20 points below fair value at the moment.

Stocks “In Play” This Morning:

Upgrades/Downgrades/Brokerage Research:

Alcatel Lucent (NYSE: ALU) – Downgraded at BofA/Merrill
CarMax (NYSE: KMX) – Downgraded at Deutsche Bank
Progressive Corp (NYSE: PGR) – Downgraded at Freidman Billings Ramsey
NII Holdings (Nasdaq: NIHD) – Downgraded at Goldman
El Paso Pipeline (NYSE: EPB) – Upgraded at Goldman
Spectra Energy Partners (NYSE: SPE) – Upgraded at Goldman
Ameristar Casinos (Nasdaq: ASCA) – Upgraded at JP Morgan
Verisign (Nasdaq: VRSN) – Upgraded at JP Morgan
Altera (Nasdaq: ALTR) – Upgraded at RBC Capital
Waters (NYSE: WAT) – Upgraded at RW Baird
Martin Marietta Materials (NYSE: MLM) – Upgraded at UBS
Vulcan Materials (NYSE: VMC) – Upgraded at UBS

Long positions in stocks mentioned: none

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.

You May Also Be Interested In

• Ancora Sends Important Letter to Fellow Shareholders on Norfolk Southern (NSC) Turnaround Plan
• IBM (IBM) to Acquire HashiCorp (HCP) for $35/sh Cash or $6.4B
• Church & Dwight Co. Inc. (CHD) PT Raised to $112 at Deutsche Bank