David Moenning's Daily State of the Markets: Hope Springs Eternal


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August 3, 2009 9:35 AM EDT

Hope Springs Eternal

After the best July in 20 years and the biggest 5-month gain for the stock market since 1938, it is safe to say that investors are hopeful about the future right now. Of course, the bears will quickly point out that this is likely to be false hope as a double-dip recession is being projected by the glass-is-half-empty crowd. But with earnings coming in largely better than expected and the cold, hard numbers suggesting that the recession is ending, being hopeful appears to be the way to play the game – well, for now, anyway.

How else do you explain the lack of any pullback worth mentioning over the last three weeks, during which the S&P has popped 13%. To be sure, the news has not been all peaches and cream during this time and the earnings numbers haven’t been universally stellar. However, the real story behind the numbers right now is experienced investors know that the time to get back into the game (or return to a fully invested position) is BEFORE the government announces that the recession is over. So, although the bandwagon might be getting a bit crowded at the present time, hope is where it’s at right now.

A weekly chart of the S&P 500 really tells the whole story. For the past 9 months, stocks have basically been attempting to find a bottom after the waterfall/panic decline seen last fall. And except for the dive sponsored by the fear of Financial Armageddon from January through early March, stocks had been going sideways – until two weeks ago, that is. At that time, stocks broke on through to the other side and haven’t looked back since.

So, you can call it fund manager buying as the pros fear being left behind the S&P 500 come bonus time, or investors becoming more hopeful, or whatever you’d like, but there is no denying the fact that the bulls are once again on a roll. And if history is any kind of guide, except for the requisite pullbacks, it looks like our heroes in horns might have some more work to do before the fun in the sun is over this summer.

Why all the big picture yammering this fine Monday morning, you ask? Because it is the big picture that kept stocks levitated at the end of the week last week. There really wasn’t any big news that kept the bears completely and totally stymied. In fact, the economic data that came out on Friday was mixed. Thus, the driver behind the market in the short-term would appear to be the big picture scenario.

Don’t get me wrong. Stocks are overbought and overdo for a pullback. However, as I’m guessing is the case among the fund manager crowd these days, we’d probably continue to use any pullback as a buying opportunity for a while yet.

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

Running through the rest of the pre-game indicators, with the exception of Japan, which was down a smidge, the major overseas markets are higher across the board. Crude futures are moving up with the latest quote showing oil trading higher by $1.47 to $70.92. On the interest rate front, we’ve got the yield on the 10-yr trading lower at 3.58%, 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 75 points; the S&P’s are up by about 10 points, while the NASDAQ looks to be about 19 points above fair value at the moment.

Today’s Earnings Before the Bell:

Clorox (CLX) – Reported $1.20 vs. $1.19
FirstEnergy (FE) – Reported $0.87 vs. $0.84
GEO Group (GEO) – Reported $0.33 vs. $0.33
Humana (HUM) – Reported $1.67 vs. $1.64
James River Coal (JRCC) – Reported $0.59 vs. $0.79
Loews (L) – Reported $0.78 vs. $0.98
MGM Mirage (MGM) – Reported -$0.12 vs. -$0.09
Tyson Foods (TSN) – Reported $0.35 vs. $0.22

Upgrades/Downgrades/Brokerage Research:

Abercrombie & Fitch (ANF) – Upgraded at Barclays
Gap (GPS) – Upgraded at Barclays
Ross Stores (ROST) – Downgraded at Barclays
MDC Holdings (MDC) – Downgraded at Credit Suisse
Franklin Resources (BEN) – Upgraded at Goldman
Janus Capital (JNS) – Upgraded at Goldman
Waddell & Reed (WDR) – Downgraded at Goldman
Regions Financial (RF) – Downgraded at Goldman
ITT Corporation (ITT) – Downgraded at Goldman
3M (MMM) – Upgraded at Goldman
Patterson-UTI (PTEN) – downgraded at Jefferies
Burger King Holdings (BKC) – Downgraded at JP Morgan
JC Penney (JCP) – Upgraded at Thomas Weisel
Dean Foods (DF) – Estimates increased at UBS
Kraft (KFT) – Estimates increased at UBS
Cisco Systems (CSCO) – Mentioned positively at UBS
Wendy’s/Arby’s Group (WEN) – Upgraded at UBS
Genzyme (GENZ) – Downgraded at UBS

Long positions in stocks mentioned: CSCO

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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