David Moenning's Daily State of the Markets: 7/13

Waiting For a Sign

Friday's session did not appear to carry a whole lot of meaning as investors basically spent another day waiting on this week’s crush of earnings reports. Stocks finished mixed and once again failed to wander far from Tuesday’s closing levels. Thus, our take is that with the indices basically sitting at important technical levels, traders are waiting on a sign as to which way to head from here. In short, an upbeat earnings season could easily rescue the bulls while disappointment could lead to the fulfillment of the Dow’s head-and-shoulders top formation.

With a barrage of reports scheduled to hit this week including such big names as Johnson & Johnson (JNJ), JP Morgan Chase (JPM), Google (GOOG), and General Electric (GE), we can’t really fault investors for wanting to get a peek at the numbers before making commitments one way or the other. Thus, it is a safe bet that a large contingent of traders may have been at the beach on Friday.

However, this is not to say that there weren’t items of note on the session as we got another look at consumer sentiment, another drop in the banks, another down day for commodities, and another decline in interest rates.

The report on the University of Michigan’s Index of Consumer Sentiment was a bit of a bummer as the mid-month report suggested that the optimism over the green shoots may be fading a bit. The index fell to 64.6 in July from 70.8 in June, which was the biggest decline since October and the lowest level since March. Not only was the report well below analyst expectations for a reading of 70, but the current conditions gauge fell along with the expectations component, buying conditions, and income expectations.

While not an official part of the UofM Consumer Sentiment report, there was a report from a statistician at University of Michigan who noted that that the President’s stimulus-related withholding tax reductions have had little impact on spending. It appears that the extra money in consumers’ paychecks are being directed to savings and debt reduction instead of the malls.

The sentiment report seemed to follow other less-than robust reports of late, which explains the ongoing decline in oil and interest rates. In short, there appears to be growing concerns that while the recession may be technically coming to an end, any upturn in the economy is going to be rather subdued. Thus, even the most ardent bulls appear to be waiting on a sign that things are going to improve.

Turning to this morning, Timothy Geithner seems to be adding to the economic uncertainty as he said yesterday that while the pace of decline in the US economy has "slowed dramatically… it's going to be awhile before we're going to have a strong sustainable recovery in place."

However, this just in… influential banking analyst Meredith Whitney has improved the mood as she just told CNBC that banks could easily see a move of +15% in the short term. Whitney had good things to say about Goldman Sachs (GS) and Bank of America (BAC).

Running through the rest of the pre-game indicators, with the exception of Hong Kong, the major overseas markets are higher across the board. Crude futures are moving up with the latest quote showing oil trading higher by $0.63 to $60.52. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.30%, 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 ahead by about 25 points; the S&P’s are up by about 4 points, while the NASDAQ looks to be about 5 points above fair value at the moment.


Upgrades/Downgrades/Brokerage Research:

WWW Grainger (NYSE: GWW) – Upgraded at BofA/Merrill
Illinois Tool Works (NYSE: ITW) – Upgraded at BofA/Merrill
Discover Financial (NYSE: DFS) – Added to Buy list at Goldman
Bank of New York Mellon (NYSE: BK) – Removed from Buy list at Goldman
General Electric (NYSE: GE) – Mentioned positively at Goldman
Scientific Games (Nasdaq: SGMS) – Upgraded at JP Morgan
Rockwell Automation (NYSE: ROK) – Upgraded at JP Morgan
Intrepid Potash (NYSE: IPI) – Downgraded at Oppenheimer
Best Buy (NYSE: BBY) – Upgraded at Oppenheimer
Harley Davidson (NYSE: HOG) – Estimates reduced at RBC Capital
SanDisk (Nasdaq: SNDK) – Upgraded at Thomas Weisel
Human Genome (Nasdaq: HGSI) – Downgraded 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.

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