David Moenning's Daily State of the Markets: Expecting Too Much?


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October 5, 2009 9:45 AM EDT

The headlines read that the market finished lower for a fourth straight session and for the second straight week. The headlines also read that it was the weaker-than expected jobs report that caused traders to once again voice their disappointment over the non-recovery in the employment picture. But what the headlines didn’t say is that Friday was a day that could have been a whole lot worse and that anybody expecting the jobs report to actually be positive was simply expecting too much at this stage of the game.

With the market looking like it was ready to crack and perhaps enter into something much scarier than your run-of-the-mill pullback, word that the economy lost another 263,000 jobs in September was not what the bulls were looking for Friday morning. And in the moments immediately following the release of the data, it started to feel like the bad old days were back as the futures started to flush lower.

A colleague texted me immediately after the release and wanted to know if it was time to take some profits on his shorts. My response was, “Yea that makes sense, but this could get ugly.” So my guess is that with some fear in the air, traders might have been looking around for their helmets and bracing for a rough open.

However, after a few minutes and the requisite red numbers at the open, it was as if somebody said, “Hey, wait a minute; did anybody REALLY expect the job market to suddenly get better?” Even the most optimistic economists have been calling for something called a “jobless recovery.” And with jobs being a lagging indicator, even in the best of situations, a recovery in the labor market would still be many months away.

In other words, traders may have suddenly realized that nobody in their right mind should be expecting this report to show anything other than the job market is “less bad” than it was in the spring. So it turns out the fact that the report didn’t show much improvement wasn’t the abject disaster it might have been.

So, with the bears having snapped the 10 and 25 day moving averages and now threatening important support, we come into this week waiting on the earnings parade to begin. The bulls are hoping that another round of better-than-expected report cards and perhaps some talk of top line growth in the future might be enough for them to hold the line and perhaps even get a rebound started. But unfortunately, the reports don’t really start to roll in for another week.

So until then, we’ll watch those lines in the sand and hope that investors aren’t expecting too much from the economy at this stage of the game.

Turning to this morning, we don’t have any economic data to review before the bell, but we will get the ISM Non-Manufacturing Composite at 10:00 am eastern.

Running through the rest of the pre-game indicators, the foreign markets are mostly higher, but only fractionally so. Crude futures are moving down with the latest quote showing oil trading off by $0.75 to $69.65. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.20%, while the yield on the 3-month T-Bill is currently at 0.09%. 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 35 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 10 points above fair value at the moment.

Upgrades/Downgrades/Brokerage Research:

Accenture (ACN) – Upgraded at Argus
Health Management (HMA) – Upgraded at Argus
Sybase (SY) – Initiated buy at BofA/Merrill
ResMed (RMD) – Downgraded at Canaccord Adams
Equity Lifestyle Properties (ELS) – Upgraded at Citi
UDR Inc (UDR) – Upgraded at Citi
Apartment Investment (AIV) – Downgraded at Citi
Nalco Holding (NLC) – Upgraded at Citi
Convergys (CVG) – Upgraded at Citi
Henry Schein (HSIC) – Estimate and target increased at Credit Suisse
Manitowoc (MTW) – Upgraded at Deutsche Bank
Advanced Micro Devices (AMD) – Downgraded at FBR Capital
Fifth Third Bancorp (FITB) – Removed fromBuy Listat Goldman
Wells Fargo (WFC) – Upgraded at Goldman
Comerica (CMA) – Upgraded at Goldman
Capital One (COF) – Added to Buy list at Goldman
Microsoft (MSFT) – Estimates increased at ISI Group
PetSmart (PETM) – Upgraded at Janney Montgomery Scott
BB&T Corp (BBT) – Upgraded at Morgan Keegan
CommVault Systems (CVLT) – Downgraded at Morgan Keegan
General Dynamics (GD) – Upgraded at Morgan Stanley
Research in Motion (RIMM) – Upgraded at Needham
Hewlett-Packard (HPQ) – Target increased at Thomas Weisel

Long positions in stocks mentioned: GS, MSFT

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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