David Moenning's Daily State of the Markets: 8/11

Does It Count?

Here's a link to listen to an Audio Version of the report:

This morning, I’d like to follow up on last week’s discussion of technical analysis and the challenges one faces when trying to be a pure chart technician. On Friday, the Dow blasted higher by 303 points and appeared to break above the recent resistance levels, which definitely has to be considered a positive from any chart-watchers’ perspective.

The rally capped a positive yet volatile week as the S&P 500 wound up with the biggest weekly gain since April and the first back-to-back weekly gains in nearly four months. Stocks advanced on the back of another drop in oil, a strong rally in the dollar, and the thinking that we’ve seen the worst in both the credit crisis and the inflation scare.

The session didn’t exactly start off on a stellar note as we got more bad news from Fannie Mae (FNM). Early in the session Fannie released an earnings report that was fairly dismal. The GSE reported a loss of -$2.54, which easily exceeded the estimates of -$0.97 and -$0.69 from Reuters and First Call. The company went on to slash its dividend, increase its credit loss ratio, and then spoke of the likelihood of continued home price declines.

However, since traders have been focused lately on the positives relating to oil’s decline they didn’t put much credence in the report. Instead, most of the attention was concentrated on oil and the greenback.

Which brings us back to the point of this morning’s missive. One look at a chart of the U.S. Dollar makes it clear that the greenback “broke out” of the recent five-month old basing pattern in rather spectacular fashion last week. Looking back, it became clear that the buck broke out on Thursday and then accelerated in textbook fashion on Friday with a breakaway gap and strong volume.

However, if you flip over to a chart of either the Dow or S&P 500, the technical action isn’t nearly as dramatic. Yes, it does appear that the major stock market indices broke above their recent trading ranges. But unfortunately, the volume was less than impressive on Friday at 1.2 Billion shares and was actually lower than Thursday’s total. And yes, I know it was a summer Friday and that volume usually isn't strong at this time in the year. But, without the volume confirmation, does the purported breakout really count?

In addition, the S&P 500 still has some work to do in order to eclipse its 50-day moving average. So, while the bulls would appear to have possession at this point, with additional resistance looming and an overbought condition present, this may not be the best time to blindly jump on the bull bandwagon. However, it is important to remember that since the bulls have been doing some heavy lifting lately, they have earned a break and thus, they have some time before they must put together an all-important follow-through day.

Turning to this morning, we don't have any economic data to review before the bell. And in the early going, it appears that stocks are taking a little break after Friday’s impressive run.

Running through the rest of the pre-game indicators; with the exception of Japan, the major foreign markets are all a little higher. Crude futures are moving higher with the latest quote showing oil trading up by $0.60 to $116.10. Interest rates are down a hair this morning with the yield on the 10-yr currently trading at 3.93%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a slightly lower open. The Dow futures are currently off by about 27 points; the S&P’s are down by about 3 points, while the NASDAQ looks to be about 4 points below fair value at the moment.

Stocks “In Play” This Morning:

Today's Earnings Before the Bell:

Clear Channel Outdoor (NYSE: CCO) – Reported $0.23 vs. $0.18
Calpine (NYSE: CPN) – Reported $0.44 vs. $0.10

News, Upgrades/Downgrades/Brokerage Research:

Qwest (NYSE: Q) – Upgraded at Citi
Emulex (NYSE: ELX) – Upgraded at Citi
QLogic (Nasdaq: QLGC) – Downgraded at Citi
AXA (NYSE: AXA) – Downgraded at Credit Suisse
Boeing (NYSE: BA) – Removed from Conviction Sell list at Goldman
Brinker Intl (NYSE: EAT) – Downgraded at Goldman
FPL Group (NYSE: FPL) – Upgraded at JP Morgan
Hertz Global (NYSE: HTZ) – Downgraded at JP Morgan

Disclosure: Mr. Moenning and/or related firms hold long positions in: GS

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.TopGunsTrading.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.


David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

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