David Moenning's Daily State of the Markets: 03/06
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Looking For a Rebound
Good morning. Investors came into Monday morning hoping for a rebound after last week’s steep declines. But unfortunately, they were greeted with more worries about sub-prime mortgages, the health of global markets, and the carry-trade. So, instead of a turnaround, investors wound up watching another selloff into the close.
Although an awful lot of analysts feel that a rebound is probably close at hand, yesterday’s action was downright disappointing as traders referred to the market as feeling “heavy.” And with the indices diving lower into the close, the bulls went home with their tails between their legs.
While there wasn't anything new to drive prices lower, there was definitely a “NEW” problem – as in New Century Financial. The sub-prime mortgage lender, which is poster child for the current debacle, fell nearly -70% yesterday on word of an investigation into the company’s stock movement. Thus, with the stock having gone from above $50 in June to $4.56 yesterday, Wall Street appears to be voicing its concern about the company’s ability to stay in business.
But the sub-prime problems weren't limited to NEW yesterday as Fremont General fell 32% on word that it will attempt to sell its sub-prime mortgage market arm. The problems with these two companies became a cancer to almost all financials as everything from banks, to brokers, to REITS wound up with an awful lot of red ink yesterday.
The other major issue weighing on the market was the ongoing rise in the Yen. With every uptick in the Yen investors worry that more and more carry-trades will continue to be unwound. And with losses steepening, those looking to do the unwinding tend to sell the most liquid assets on their books, which adds to selling pressure in the U.S.
On the economic front, the news wasn't all that bad, but wasn’t strong enough to reverse the negative mood. The ISM Non-Manufacturing Business Activity Index fell 4.7 points to 54.3 in February, which was the below expectations for a reading of 57.5 and the lowest level since April 2003. The good news was that the index remains solidly over 50, which is an indication that the services sector of the economy continues to expand. It was also positive that the Prices Paid Index fell to the lowest level since October, which indicates that inflation does not appear to be heating up.
When you add it all up, yesterday’s action would seem to indicate that the bears are squarely in control and that any hopes for this being a one or two week affair seem to be fading fast.
Turning to this morning however, the mood appears to be much brighter everywhere you look. An unexpected reduction in interest rates in Indonesia helped brighten traders’ spirits and this morning’s drop in the Yen has turned the screens green around the globe. Now the question is: Will it last?
Running through the pre-game indicators, as we mentioned, the major overseas markets are higher across the board with Hong Kong gaining by 2.1%, Japan is up 1.2%, and the major European bourses are sporting gains of nearly 1%. Gold futures are trading higher by $5 this morning to $644.20 right now. In the oil pits, crude futures are ahead $0.38 this morning and the latest quote is at $60.45. Interest rates are also moving up a bit this morning and the yield on the 10-year is currently trading at 4.53%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open to the upside for a change. The Dow futures are currently up by about 80 points; the S&P’s are about 9 points to the good, while the NASDAQ looks to be about 15 points above fair value at the moment.
Stocks “In Play” This Morning:
Anheuser Busch (NYSE: BUD) – Upgraded at AG Edwards
Intl Sec Exch (NYSE: ISE) – Upgraded at BofA, Goldman Sachs
Ann Taylor (NYSE: ANN) – Upgraded at BofA
Texas Instruments (NYSE: TXN) – Upgraded at Bear Stearns
Monsanto (NYSE: MON) – Upgraded at Citigroup
Altria (NYSE: MO) – Upgraded at Deutsche Bank
Health Mgmt Assoc (NYSE: HMA) – Upgraded at Deutsche Bank
Intl Game Technology (NYSE: IGT) – Upgraded at Goldman Sachs
Station Casinos (NYSE: STN) – Downgraded at Goldman Sachs
Advanced Micro Devices (NYSE: AMD) – Upgraded at JMP Securities
Barnes & Noble (NYSE: BKS) – Upgraded at Merrill Lynch
Meridian Gold (NYSE: MDG) – Upgraded at UBS
Apria Healthcare Group (NYSE: AHG) – Downgraded at UBS
Mr. Moenning holds Long positions in stocks mentioned: BSC, GS, MO
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.TopGunsTrading.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.
Good morning. Investors came into Monday morning hoping for a rebound after last week’s steep declines. But unfortunately, they were greeted with more worries about sub-prime mortgages, the health of global markets, and the carry-trade. So, instead of a turnaround, investors wound up watching another selloff into the close.
Although an awful lot of analysts feel that a rebound is probably close at hand, yesterday’s action was downright disappointing as traders referred to the market as feeling “heavy.” And with the indices diving lower into the close, the bulls went home with their tails between their legs.
While there wasn't anything new to drive prices lower, there was definitely a “NEW” problem – as in New Century Financial. The sub-prime mortgage lender, which is poster child for the current debacle, fell nearly -70% yesterday on word of an investigation into the company’s stock movement. Thus, with the stock having gone from above $50 in June to $4.56 yesterday, Wall Street appears to be voicing its concern about the company’s ability to stay in business.
But the sub-prime problems weren't limited to NEW yesterday as Fremont General fell 32% on word that it will attempt to sell its sub-prime mortgage market arm. The problems with these two companies became a cancer to almost all financials as everything from banks, to brokers, to REITS wound up with an awful lot of red ink yesterday.
The other major issue weighing on the market was the ongoing rise in the Yen. With every uptick in the Yen investors worry that more and more carry-trades will continue to be unwound. And with losses steepening, those looking to do the unwinding tend to sell the most liquid assets on their books, which adds to selling pressure in the U.S.
On the economic front, the news wasn't all that bad, but wasn’t strong enough to reverse the negative mood. The ISM Non-Manufacturing Business Activity Index fell 4.7 points to 54.3 in February, which was the below expectations for a reading of 57.5 and the lowest level since April 2003. The good news was that the index remains solidly over 50, which is an indication that the services sector of the economy continues to expand. It was also positive that the Prices Paid Index fell to the lowest level since October, which indicates that inflation does not appear to be heating up.
When you add it all up, yesterday’s action would seem to indicate that the bears are squarely in control and that any hopes for this being a one or two week affair seem to be fading fast.
Turning to this morning however, the mood appears to be much brighter everywhere you look. An unexpected reduction in interest rates in Indonesia helped brighten traders’ spirits and this morning’s drop in the Yen has turned the screens green around the globe. Now the question is: Will it last?
Running through the pre-game indicators, as we mentioned, the major overseas markets are higher across the board with Hong Kong gaining by 2.1%, Japan is up 1.2%, and the major European bourses are sporting gains of nearly 1%. Gold futures are trading higher by $5 this morning to $644.20 right now. In the oil pits, crude futures are ahead $0.38 this morning and the latest quote is at $60.45. Interest rates are also moving up a bit this morning and the yield on the 10-year is currently trading at 4.53%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open to the upside for a change. The Dow futures are currently up by about 80 points; the S&P’s are about 9 points to the good, while the NASDAQ looks to be about 15 points above fair value at the moment.
Stocks “In Play” This Morning:
Anheuser Busch (NYSE: BUD) – Upgraded at AG Edwards
Intl Sec Exch (NYSE: ISE) – Upgraded at BofA, Goldman Sachs
Ann Taylor (NYSE: ANN) – Upgraded at BofA
Texas Instruments (NYSE: TXN) – Upgraded at Bear Stearns
Monsanto (NYSE: MON) – Upgraded at Citigroup
Altria (NYSE: MO) – Upgraded at Deutsche Bank
Health Mgmt Assoc (NYSE: HMA) – Upgraded at Deutsche Bank
Intl Game Technology (NYSE: IGT) – Upgraded at Goldman Sachs
Station Casinos (NYSE: STN) – Downgraded at Goldman Sachs
Advanced Micro Devices (NYSE: AMD) – Upgraded at JMP Securities
Barnes & Noble (NYSE: BKS) – Upgraded at Merrill Lynch
Meridian Gold (NYSE: MDG) – Upgraded at UBS
Apria Healthcare Group (NYSE: AHG) – Downgraded at UBS
Mr. Moenning holds Long positions in stocks mentioned: BSC, GS, MO
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.TopGunsTrading.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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