David Moenning's Daily State of the Markets: 7/9
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Enough Already?
For much of yesterday’s session it appeared that the indices were experiencing clear cut breakdowns on the charts. Necklines were snapping, 200 day moving averages were toast, and lower lows were being established. Thus, it looked like the bears were firmly in control of the action and that we were smack in the middle of a downtrend.
It was also becoming clear that the market was experiencing a change in character. From March 10th through June 12th, the dips had been bought as all declines were viewed simply as buying opportunities. And it was for this reason that the pullbacks had been short and shallow. However, since then, it looks like the game has changed a bit as instead of dips being bought; rallies are being sold.
So, with stocks breaking down and apprehension growing about the state of the economic recovery as well as the upcoming earnings season, it looked like things could get ugly. After all, the downside projection for the much ballyhooed head-and-shoulders top formation was something on the order of 500 points lower and there didn’t appear to be any support in sight. Thus, any potential buyer having read “Technical Analysis of Stock Trends” was probably in “stand aside” mode.
The bulls did get a bit of a reprieve at about 1:00 eastern as traders learned that the Treasury’s auction of 10-year notes went off without a hitch. If you will recall it was just a month ago that the fast money crowd was worried that the 4% yield on the 10-year was an indication that the world wasn’t terribly excited about the vast sums of money the U.S. was planning to borrow and that a risk premium was beginning to be applied. But with yesterday’s auction going off at less than 3.4% and yields falling to 3.29% by the close, this worry has apparently been pushed to the back burner.
Unfortunately though, the upbeat mood didn’t last long as by 2:30 pm the S&P was staring at new lows on the day and there was a distinct nervousness growing. However, late in the day, somebody somewhere dug up a calculator and may have said, “Huh, that may be enough already.”
When stocks are in a corrective mode, the question of the day becomes: When will it end? Thus, it is important to note that corrections tend to end when they reach any one of the key numbers such as -5%, -7%, or -10%. So, with the S&P off -9.09% on an intraday basis and 7% on a closing basis, those not enamored with the projections of the H&S top formation may have decided that enough was enough.
Turning to this morning, the nation’s retailers are reporting their same-store sales results for June and so far it looks like Aeropostale (ARO), BJ’s Wholesale Club (BJ), Costco (COST), Kohl’s (KSS), Macy’s (M), and TJX Cos (TJX) have all posted results ahead of expectations while Gap (GPS), Limited Brands (LTD), American Eagle (AEO), Abercrombie & Fitch (ANF), Dillard’s (DDS) and Target (TGT) have come in on the light side.
On the economic front, weekly jobless claims came in better than expected at 565,000 versus expectations for 603,000. Continuing claims for unemployment insurance were reported at 6.88M vs. the consensus for 6.71M.
Running through the rest of the pre-game indicators, with the exception of Japan, the major overseas markets are mostly higher. Crude futures are moving up with the latest quote showing oil trading higher by $1.12 to $61.24. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.36%, 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 higher open. The Dow futures are currently ahead by about 35 points; the S&P’s are up by about 5 points, while the NASDAQ looks to be about 5 points above fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Alcoa (AA) – Reported -$0.26 vs. -$0.38
Upgrades/Downgrades/Brokerage Research:
Goldman Sachs (NYSE: GS) – Upgraded at BofA/Merrill
Taiwan Semiconductor (NYSE: TSM) – Upgraded at BofA/Merrill
SAP (NYSE: SAP) – Upgraded at BofA/Merrill
KLA-Tencor (Nasdaq: KLAC) – Upgraded at Barclays
Varian Semiconductor (Nasdaq: VSEA) – Upgraded at Barclays
Novellus (Nasdaq: NVLS) – Upgraded at Barclays
Western Union (NYSE: WU) – Upgraded at Credit Suisse
KB Home (NYSE: KBH) – Upgraded at Credit Suisse
Choice Hotels (NYSE: CHH) – Upgraded at Friedman Billings Ramsey
Starwood Hotels (NYSE: HOT) – Upgraded at Friedman Billings Ramsey
Kirby Corp (NYSE: KEX) – Upgraded at JP Morgan
StatoilHydro (NYSE: STO) – Upgraded at UBS
Sasol Ltd (NYSE: SSL) – 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.
For much of yesterday’s session it appeared that the indices were experiencing clear cut breakdowns on the charts. Necklines were snapping, 200 day moving averages were toast, and lower lows were being established. Thus, it looked like the bears were firmly in control of the action and that we were smack in the middle of a downtrend.
It was also becoming clear that the market was experiencing a change in character. From March 10th through June 12th, the dips had been bought as all declines were viewed simply as buying opportunities. And it was for this reason that the pullbacks had been short and shallow. However, since then, it looks like the game has changed a bit as instead of dips being bought; rallies are being sold.
So, with stocks breaking down and apprehension growing about the state of the economic recovery as well as the upcoming earnings season, it looked like things could get ugly. After all, the downside projection for the much ballyhooed head-and-shoulders top formation was something on the order of 500 points lower and there didn’t appear to be any support in sight. Thus, any potential buyer having read “Technical Analysis of Stock Trends” was probably in “stand aside” mode.
The bulls did get a bit of a reprieve at about 1:00 eastern as traders learned that the Treasury’s auction of 10-year notes went off without a hitch. If you will recall it was just a month ago that the fast money crowd was worried that the 4% yield on the 10-year was an indication that the world wasn’t terribly excited about the vast sums of money the U.S. was planning to borrow and that a risk premium was beginning to be applied. But with yesterday’s auction going off at less than 3.4% and yields falling to 3.29% by the close, this worry has apparently been pushed to the back burner.
Unfortunately though, the upbeat mood didn’t last long as by 2:30 pm the S&P was staring at new lows on the day and there was a distinct nervousness growing. However, late in the day, somebody somewhere dug up a calculator and may have said, “Huh, that may be enough already.”
When stocks are in a corrective mode, the question of the day becomes: When will it end? Thus, it is important to note that corrections tend to end when they reach any one of the key numbers such as -5%, -7%, or -10%. So, with the S&P off -9.09% on an intraday basis and 7% on a closing basis, those not enamored with the projections of the H&S top formation may have decided that enough was enough.
Turning to this morning, the nation’s retailers are reporting their same-store sales results for June and so far it looks like Aeropostale (ARO), BJ’s Wholesale Club (BJ), Costco (COST), Kohl’s (KSS), Macy’s (M), and TJX Cos (TJX) have all posted results ahead of expectations while Gap (GPS), Limited Brands (LTD), American Eagle (AEO), Abercrombie & Fitch (ANF), Dillard’s (DDS) and Target (TGT) have come in on the light side.
On the economic front, weekly jobless claims came in better than expected at 565,000 versus expectations for 603,000. Continuing claims for unemployment insurance were reported at 6.88M vs. the consensus for 6.71M.
Running through the rest of the pre-game indicators, with the exception of Japan, the major overseas markets are mostly higher. Crude futures are moving up with the latest quote showing oil trading higher by $1.12 to $61.24. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.36%, 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 higher open. The Dow futures are currently ahead by about 35 points; the S&P’s are up by about 5 points, while the NASDAQ looks to be about 5 points above fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Alcoa (AA) – Reported -$0.26 vs. -$0.38
Upgrades/Downgrades/Brokerage Research:
Goldman Sachs (NYSE: GS) – Upgraded at BofA/Merrill
Taiwan Semiconductor (NYSE: TSM) – Upgraded at BofA/Merrill
SAP (NYSE: SAP) – Upgraded at BofA/Merrill
KLA-Tencor (Nasdaq: KLAC) – Upgraded at Barclays
Varian Semiconductor (Nasdaq: VSEA) – Upgraded at Barclays
Novellus (Nasdaq: NVLS) – Upgraded at Barclays
Western Union (NYSE: WU) – Upgraded at Credit Suisse
KB Home (NYSE: KBH) – Upgraded at Credit Suisse
Choice Hotels (NYSE: CHH) – Upgraded at Friedman Billings Ramsey
Starwood Hotels (NYSE: HOT) – Upgraded at Friedman Billings Ramsey
Kirby Corp (NYSE: KEX) – Upgraded at JP Morgan
StatoilHydro (NYSE: STO) – Upgraded at UBS
Sasol Ltd (NYSE: SSL) – 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.
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