David Moenning's Daily State of the Markets: A Day In The Life


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October 9, 2009 9:47 AM EDT

As I may have mentioned a time or two lately, from a big-picture perspective, we see two things happening. First, we believe there is a fair amount of performance anxiety driving stock prices these days as fund managers scramble to find a way to try and keep up with the Joneses (i.e. the S&P 500). Second, and more importantly, it is fairly obvious that the stock market is in the process of discounting the prospects for an economic recovery.

From a short-term perspective, the market appears to be reacting to anything and everything that either supports or disputes the economic recovery premise. Yesterday was a fairly good example of this thesis and while I usually despise the rehashing of the intraday activity, in this case looking at “a day in the life” of the market might shed some light on what is happening.

Stocks got started off on the right foot thanks to the better-than expected earnings from Alcoa (AA), which led to gains across the board in the foreign markets overnight. The thinking here was that if a company like Alcoa can beat the estimates by such a wide margin ($0.04 vs. -$0.09) then the earnings season might have some real potential in terms of surprises to the upside.

The bulls then got some support from the weekly jobless claims which came in a bit better than expectations. And while this very report helped send stocks lower last week because the numbers were below what analysts had hoped for, this week the realization that jobless claims were now at the lowest level of the year seemed to support the recovery theme.

The bulls also got a hand from the nation’s retailers as same-store sales comparisons came in well above expectations. According to StreetAccount, 23 of the 26 retailers that report sales on a monthly basis came in with results that were ahead of expectations and 8 companies also increased their earnings guidance in the process. Thus, it didn’t take long for the bulls to start talking about the prospects for a holiday shopping season that may not be as dismal as is currently being projected.

But from there, our heroes in horns ran into a couple of snags on their road to new high ground. First, there was some political wrangling, which actually worked out in the end as Nancy Pelosi said that the House will consider extending the first-time home buyer tax credit. But with stocks sitting at the highs of the day, the results of the 30-year bond auction reminded traders of the gi-normous amount of money the U.S. government is borrowing at the present time and some profit-taking ensued.

From there, stocks languished into the close with many of the leaders such as Apple (AAPL), Google (GOOG), and Goldman Sachs (GS) finishing with losses on the day. And as any technician worth his or her salt will tell you, this was not good price action. Thus, the bears will argue that the rally now looks tired and we would not be surprised if our furry friends try to make their presence felt in the near term.

Turning to this morning, the nation’s trade balance for August came in better than expectations at $30.7 billion versus expectations for $33.0B and July’s deficit of $31.9B.

Running through the rest of the pre-game indicators, the foreign markets are mixed by region with Asian markets higher and European markets fractionally lower. Crude futures are moving down with the latest quote showing oil trading off by $0.73 to $70.96. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.25%, while the yield on the 3-month T-Bill is currently at 0.06%. 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 20 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about 8 points below fair value at the moment.

Upgrades/Downgrades/Brokerage Research:

Marriott (MAR) – Upgraded at BofA/Merrill
LSI Corp (LSI) – Upgraded at Barclays
Supervalu (SVU) – Downgraded at Barclays
Zimmer Holdings (ZMH) – Downgraded at Citi
Baidu (BIDU) – Target increased to $480 at Citi
Bristol-Myers (BMY) – Upgraded at Cowen
Lam Research (LRCX) – Upgraded at Credit Suisse
Ralcorp Holdings (RAH) – Downgraded at Credit Suisse
Deutsche Bank (DB) – Upgraded at Credit Suisse
AK Steel (AKS) – Upgraded at Deutsche Bank
Spectra Energy (SE) – Upgraded to Conviction Buy at Goldman
Viacom (VIA.B) – Estimates increased at Goldman
El Paso (EP) – Downgraded at Goldman
Aeropostale (ARO) – Downgraded at Goldman
PetroChina (PTR) – Upgraded at HSBC
Sinopec (SNP) – Downgraded at HSBC
Pinnacle West (PNW) – Upgraded at JP Morgan
Research In Motion (RIMM) – Upgraded at RW Baird
Starwood Hotels (HOT) – Downgraded at Soleil Securities
Limited Brands (LTD) – Downgraded at Soleil Securities
NetApp (NTAP) – Upgraded at ThinkEquity
CSX Corp (CSX) – Added to Strategic Stock Selection at UBS
Apple (AAPL) – Added to Strategic Stock Selection at UBS
Prudential (PRU) – Added to Strategic Stock Selection at UBS

Long positions in stocks mentioned: GS, SE, ARO, PTR, AAPL

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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