David Moenning's Daily State of the Markets: 4/13

April 13, 2009 9:48 AM EDT

More Where That Came From?

Stocks roared higher on Thursday on the back of a surprise earnings preannouncement from Wells Fargo (WFC). The big bank said it would earn a record profit of more than $3 billion on revenues of $20 billion, which works out to about $0.55 a share and is more than double the Reuters consensus estimate of $0.26 and the First Call estimate of $0.23. Part of what made the announcement explosive is WFC wasn’t due to report earnings until April 22nd. Thus, the surprise factor was a big hit for the bulls.

However, with JP Morgan (JPM), Goldman Sachs (GS), and Citi (C) all reporting earnings this week, the big question now becomes will there be more upside surprises in the banking sector? Remember, these are some of the same companies that traders assumed were staring at government takeovers just a month ago. These are the same banks that helped sponsor the financial Armageddon theory that was so pervasive up until March 10th. And these are the very banks that are undergoing the Treasury’s “stress test” to see if they can make it going forward.

In reality, there are a couple other questions that Thursday’s big surprise brings up such as how much did the FASB rule change impact those spectacular earnings at Wells Fargo? Next, what happened to all those toxic assets that we’ve heard so much about over the past year? And finally, is the need for additional capital now over or is this just a pause in the game?

The only problem with the preannouncement from Wells Fargo is that since it wasn’t an official earnings report, a lot of details were left out. Thus, we will have to wait a couple of weeks before some clarity is provided. But the lack of detail didn’t stop traders from taking WFC up +34% on Thursday alone.

Speaking of banks and earnings reports, it will be a busy week this week as we’ll get results from Goldman Sachs (GS) on Tuesday, JP Morgan Chase (JPM) on Thursday, and Citi (C) on Friday. So, while the banking sector has been hot lately with the Banking Index (BKX) up a nifty +81.6% since March 9th, you will want to pay close attention to these reports this week.

In addition to the banks, we’ll get earnings from several bellwethers including GE (GE), Intel (INTC), Johnson & Johnson (JNJ), and CSX (CSX) this week. And since analysts do not have a good handle on what to expect out of many companies these days, you can bet that every word will be intensely scrutinized. So stay tuned, this is definitely going to be interesting.

Getting back to the topic of the general market, the S&P and NASDAQ definitely broke to new high ground for this cycle on Thursday on strong volume and stellar breadth. However, at this stage of the game, we should keep in mind that the market has now enjoyed the best five-week run since 1933 and is once again overbought. Thus, even a ‘pause that refreshes’ would not be out of the question at some point soon.

Turning to this morning, we don’t have any economic news before the bell and the earnings calendar is almost blank today. On the news front, it looks like the Treasury Department is directing General Motors (GM) to begin preparing for a bankruptcy by June 1st, which is putting a drag on stocks in the pre-market.

Running through the rest of the pre-game indicators, with the exception of Japan, which was down, most of the major overseas markets were closed for Easter Monday. Crude futures are moving lower with the latest quote showing oil trading down $0.88 to $51.36. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.93%, while the yield on the 3-month T-Bill is trading at 0.18%. 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 85 points; the S&P’s are down about 7 points, while the NASDAQ looks to be about 11 points below fair value at the moment.

Stocks “In Play” This Morning:

Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

Boeing (NYSE: BA) – Estimates reduced at Bernstein
Capital One (NYSE: COF) – Downgraded at Calyon Securities
Limited Brands (NYSE: LTD) – Downgraded at Citi
Microsoft (Nasdaq: MSFT) – Added to Recommended list at Citi
Group 1 Automotive (NYSE: GPI) – Upgraded at Goldman
Penske Automotive (NYSE: PAG) – Downgraded at Goldman
OfficeMax (NYSE: OMX) – Upgraded at Goldman
AK Steel (NYSE: AKS) – Upgraded at Goldman
Warner Music Group (NYSE: WMG) – Upgraded at Goldman
Parker Hannifin (NYSE: PH) – Downgraded at Goldman
Google (Nasdaq: GOOG) – Target increased at Oppenheimer
Corning (NYSE: GLW) – Downgraded at Oppenheimer
Wynn Resorts (Nasdaq: WYNN) – Downgraded at Oppenheimer
Applied Materials (Nasdaq: AMAT) – Upgraded at Piper Jaffray
Brocade (Nasdaq: BRCD) – Downgraded at Piper Jaffray
MEMC Electronic Materials (NYSE: WFR) – Downgraded at Piper Jaffray
Amgen (Nasdaq: AMGN) – Estimates reduced at UBS
Salesforce.com (NYSE: CRM) – Upgraded at UBS
Intuit (Nasdaq: INTU) – Downgraded at UBS
Eaton (NYSE: RTN) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

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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