David Moenning's Daily State of the Markets: Is Less Oil Really A Good Thing?


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August 20, 2009 9:12 AM EDT

There are times when the short-term movements in the stock market, which we affectionately refer to as ‘wiggles and jiggles,’ cause the average investor to scratch their head in earnest. For example, just about the time the public may have figured out that it is the state of the Shanghai stock market that holds the key to the daily machinations here in the U.S., suddenly, and without warning, traders decided to focus on oil.

In case you haven’t noticed, the price of oil has been following the stock market around like a little puppy dog for some time now. While this may sound counterintuitive at first, the idea is that if stocks go up on the back of positive economic news, analysts presume that the economic improvement will, in turn, mean more demand for oil. Therefore, when stocks go up, oil goes up.

Never mind the fact that it was just one short year ago that the world was consumed with fear over what the surging price of oil was going to do to the global economy. Never mind that a year ago people were concerned about oil shortages and economists everywhere were trying to figure out if China and India were going to rob other countries of their precious crude. No, nowadays higher oil is a good thing.

In case you’re wondering where I’m going with this, I’ll get to the point. At least part of the reason that stocks rebounded nicely from yesterday’s lows was a report showing that oil inventories were actually less than had been expected. Who cares about this anymore, you ask? The analysts looking under every rock in search of signs – any signs – of economic recovery, that’s who. In short, the idea is that a reduction in oil inventories means that there has been more demand – which, in turn, means that the economy must be doing better than we thought.

Okay, I’ll admit that this is a bit of a stretch for justifying a move up off the bottom in the stock market. So, it probably won’t be surprising to learn that there was another little something at work in the market yesterday that helped rescue the bulls from the abyss.

No, we’re not talking about earnings reports or economic data here. And no, there wasn’t any influential analyst calling for higher stock prices. Nope, it was none other than a classic options expiration week rumor that got stock prices moving to the upside.

Although the White House officially denied the speculation, word was making the rounds that a second stimulus plan was about to be announced. And while the thought of more debt would likely send bond traders scurrying to the sidelines, the idea that the government might be focusing on something other than their health care initiative is viewed as a positive.

So, now that the bulls seemed to have regained possession of the ball, it will be very interesting to see if they can overcome the overhead resistance that is now apparent on the charts.

Turning to this morning, the Chinese stock market enjoyed its best session since early March on the back of a report that Chinese banks were actually lending more money than had been feared. On the economic front Initial Claims for Unemployment came in at 576K, which was higher than the expectations for 550K while Continuing Claims were 6.24M vs. 6.21M. In addition, at 10:00 we’ll get a peek at the Index of Leading Economic Indicators (which last month signaled an end to the recession) as well as the Philly Fed report.

Running through the rest of the pre-game indicators, the major overseas markets are up more than 1% across the board. Crude futures are moving lower with the latest quote showing oil trading off by $0.43 to $71.99. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.45%, while the yield on the 3-month T-Bill is trading at 0.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a slightly higher open but much less so after the Jobless Claims numbers. The Dow futures are currently ahead by about 18 points; the S&P’s are up about 2 points, while the NASDAQ looks to be about 2 points above fair value at the moment.

Yesterday’s Earnings After the Bell:

Harman Intl (HAR) – Reported -$0.45 vs. -$0.60
Hot Topic (HOTT) – Reported -$0.07 vs. -$0.08
JDS Uniphase (JDSU) – Reported -$0.01 vs. -$0.02
Limited Brands (LTD) – Reported $0.19 vs. $0.16
NetApp (NTAP) – Reported $0.22 vs. $0.20
PetSmart (PETM) – Reported $0.31 vs. $0.29
Phillips-Van Heusen (PVH) – Reported $0.60 vs. $0.44
Semtech (SMTC) – Reported $0.12 vs. $0.16
Synopsys (SNPS) – Reported $0.47 vs. $0.41

Today’s Earnings Before the Bell:

The Buckle (BKE) – Reported $0.54 vs. $0.52
Dick’s Sporting Goods (DKS) – Reported $0.36 vs. $0.31
Heinz (HNZ) – Reported $0.67 vs. $0.62
Hormel Foods (MRL) – Reported $0.57 vs. $0.52
Lancaster Colony (LANC) – Reported $1.01 vs. $0.77
Patterson Companies (PDCO) – Reported $0.38 vs. $0.38
Sears Holdings (SHLD) – Reported -$0.17 vs. $0.35

Upgrades/Downgrades/Brokerage Research:

Priceline.com (PCLN) – Initiated overweight at Barclays
AstraZeneca (AZN) – Downgraded at Citi
PetSmart (PETM) – Downgraded at Credit Suisse, Piper Jaffray
CKE Restaurants (CKR) – Upgraded at Credit Suisse
China Telecom (CHA) – Upgraded at Deutsche Bank
Regions Financial (RF) – Downgraded at Deutsche Bank
Credit Suisse (CS) – Upgraded at FBR Capital
Google (GOOG) – Added to Conviction Buy list at Goldman Sachs
Jack In The Box (JACK) – Upgraded at JP Morgan
Advance Auto Parts (AAP) – Mentioned positively at Morgan Stanley
Goldman Sachs (GS) – Estimates reduced at Rochdale

Long positions in stocks mentioned: PCLN, CHA, AAP, 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.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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