David Moenning's Daily State of the Markets: 7/14

July 14, 2009 9:42 AM EDT

Merbear Now Leaning Long

Although the timing of the comments and the stock market’s corresponding pop to the upside wasn’t exactly in sync, it was widely reported that yesterday’s more than 2% rally was sponsored by Wall Street’s rock star banking analyst Meredith Whitney. Yes, it is true that in a CNBC interview before the opening bell, Ms. Whitney did take a break from the dark side and say that banks in general and Goldman Sachs (GS) in particular could rally. And speaking of timing, it is a bit conspicuous that a banking analyst can get away with bulling Goldman Sachs AFTER the stock has run more than 140% in the last five months.

Regardless of the timing of the call though, investors appeared to latch on to the idea of a rather prolific bear having a change of heart. For more than a couple of years now, Ms. Whitney has held one of the more pessimistic views of the banking industry. Ms Whitney’s negativity has certainly served her well as her well publicized bear call on the banks allowed her to jump ship recently from Oppenheimer and start her own firm. So, traders figured that if a long-time bear was suddenly more optimistic, maybe, just maybe all the bad news in the sector was finally out.

However, giving “Merbear” all the credit for saving the bulls from the recent despair doesn’t seem to work that well when looking at the charts. You see, the interview in which the bulls’ new best friend talked about Bank of America (BAC) being cheap and the 15% upside still available in the banking sector was done BEFORE the market opened. And while the DJIA did open 40 points or so to the upside, the gains were actually given back in the next 30 minutes.

So, while it is certainly more dramatic to talk about an attractive long-time bear turning bullish, at least for a trade, it is more likely that what really got the bulls moving yesterday were comments from regulators that the CIT (CIT) situation does NOT present a systemic risk and that Goldman says earnings from GE Capital will help GE to an upside surprise. Oh, and a little short covering after the failure of the head-and-shoulders top formation might have helped things along as well.

The bottom line is yesterday’s rally provided a reprieve for the bulls who, up until Ms. Whitney came along, were staring at something on the order of 500 points to the downside – or so the technicians tell us. So, now that our heroes in horns have some breathing room, they will need to find some good news in the hundreds of earnings reports due out this week in order to keep this thing moving on up.

Turning to this morning, we’ve got earnings from Goldman Sachs and Johnson & Johnson (JNJ) – both of which were above analyst estimates. In addition the government reported that the Producer Price Index for June came in with a gain of +1.8% which was double the estimates for an increase of +0.9%. When you strip out food and energy, the core PPI was also much hotter than expected at +0.5% versus the consensus for an increase of +0.1%. In addition, the Advance Retail Sales report showed sales increased nicely by +0.6%, which was better than the consensus for an increase of +0.4%.

Running through the rest of the pre-game indicators, the major overseas markets are higher across the board. Crude futures are moving up with the latest quote showing oil trading higher by $1.07 to $60.76. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.44%, while the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a mixed open after the PPI numbers. The Dow futures are currently ahead by about 15 points; the S&P’s are up by about 2 points, while the NASDAQ looks to be about 2 points below fair value at the moment.

Today’s Earnings Before the Bell:

Goldman Sachs (NYSE: GS) – Reported $4.93 vs. $3.48
Johnson & Johnson (NYSE: JNJ) – Reported $1.15 vs. $1.11

Upgrades/Downgrades/Brokerage Research:

Burger King Holdings (NYSE: BKC) – Downgraded at BofA/Merrill
Bank of New York Mellon (NYSE: BK) – Upgraded at BofA/Merrill
Northern Trust (Nasdaq: NTRS) – Upgraded at BofA/Merrill
Blue Nile (Nasdaq: NILE) – Upgraded at Citi
Caterpillar (NYSE: CAT) – Estimates reduced at Credit Suisse
VMware (NYSE: VMW) – Upgraded at Jefferies
Prudential (NYSE: PRU) – Upgraded at JP Morgan
L-3 Communications (NYSE: LLL) – Upgraded at JP Morgan
Mohawk Inds (NYSE: MHK) – Upgraded at JP Morgan
Masco (NYSE: MAS) – Downgraded at JP Morgan
Posco (NYSE: PKX) – Upgraded at Morgan Stanley
Chevron (NYSE: CVX) – Initiated overweight at Morgan Stanley
ConocoPhillips (NYSE: COP) – Initiated equal-weight at Morgan Stanley
Hess Corp (NYSE: HES) – Initiated equal-weight at Morgan Stanley
Murphy Oil (NYSE: MUR) – Initiated equal-weight at Morgan Stanley
Exxon Mobil (NYSE: XOM) – Initiated equal-weight at Morgan Stanley
Marathon Oil (NYSE: MRO) – Initiated underweight at Morgan Stanley
Vodafone (NYSE: VOD) – Downgraded at UBS

Long positions in stocks mentioned: CVX

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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• Credit Suisse
• UBS
• JPMorgan
• Citi
• Morgan Stanley
• Jefferies & Co
• Banc of America
• Meredith Whitney
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