David Moenning's Daily State of the Markets: 6/9
All About the Turn
The bulls were able to reverse Friday’s reversal yesterday with a reversal of their own. Yes volume was thin, so even using the term reversal once in a sentence, let alone three times, probably isn’t technically accurate or grammatically appropriate. But with prices swinging back and forth in a rather violent fashion lately, the term does seem to fit the action nicely.
Stocks were lower for most of the session yesterday partly due to some carryover selling from Friday but also as a result of a rally in the dollar, a new high for interest rates, and a noticeable pullback in the reflation trade – which for those of you who aren’t fluent in Wall Street-eeze, is the term being used for the rebound in the commodities, materials, and commodity producing countries.
However, with the market flirting with some important technical levels and all kinds of chatter making the rounds about the ramifications of a break below 930 on the S&P, comments made by Nobel Laureate Paul Krugman to the London School of Economics caused the market to turn on a dime. While just last week Mr. Krugman had told us that he did not see signs of a recovery yet, yesterday he said that he wouldn’t be surprised if history showed the recession in the U.S. to have ended this summer.
So, with Krugman’s apparently reversing his position, the Dow shot higher and wound up jumping 150 points in less than 20 minutes. Thus, IF the market is trying to tell us something – and given the light volume, there is no guarantee that it is – it would appear to be that this market is focused primarily on the coming turn in the economy.
We continue to be of the mind that the initial phase of the recent rally was a removal of the Armageddon discounting that was applied to stock prices earlier in the year. Our stance is once we learned that the banks weren’t going out of business or all going to become “National Bank Of’s,” investors started to recoup the worst-case scenario pricing that had been applied. The next phase of the rally has been sponsored by the bet that the economy will recover. And then lately this has morphed into an expectation that the recovery will happen sooner than most had originally thought. So, if you are looking for market drivers these days, you needn’t look much farther than the economic data.
Turning to the charts, everybody with a pencil and a ruler, or at least some decent charting software, sees the importance of the 8600 level on the Dow and the 925 – 930 zone on the S&P. In short, these levels represent the top end of the recent trading range, which the indices, in the immortal words of Jim Morrison, managed to break on through to the other side (thanks Bob) last week. Thus, should prices reverse course and break on through to the other “other side,” the bears remind us that a visit to the low end of the range would be in order. So, in addition to the economic data, it might be a good idea to keep an eye on the charts for a while.
Turning to this morning, we once again don’t have any economic news to review before the bell although at 10:00 am we’ll get a report on US Wholesale Inventories.
Running through the rest of the pre-game indicators, with the exception of France, the major overseas markets are down a bit. Crude futures are moving higher with the latest quote showing oil trading up $1.39 at $69.48. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.85%, while the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a slightly higher open. The Dow futures are currently ahead by about 20 points; the S&P’s are up about 3 points, while the NASDAQ looks to be about 9 points above fair value at the moment.
Stocks “In Play” This Morning:
Upgrades/Downgrades/Brokerage Research:
Hartford Financial Group (NYSE: HIG) – Downgraded at Citi
Jabil Circuits (NYSE: JBL) – Downgraded at Credit Suisse
Apple (Nasdaq: AAPL) – Estimates increased at Goldman
CSX (NYSE: CSX) – Upgraded at Goldman
Burlington Northern (NYSE: BNI) – Downgraded at Goldman
Safeway (NYSE: SWY) – Upgraded at Jefferies
National Semiconductor (NYSE: NSM) – Estimates increased at JP Morgan
Ternium (NYSE: TX) – Upgraded at Morgan Stanley
US Steel (NYSE: X) – Upgraded at Morgan Stanley
AK Steel (NYSE:AKS)– Upgraded at Morgan Stanley
Nucor (NYSE: NUE) – Downgraded at Morgan Stanley
SEI Investments (Nasdaq: SEIC) – Upgraded at Oppenheimer
Goldcorp (NYSE: GG) – Downgraded at UBS
Masco (NYSE: MAS) – Downgraded at UBS
St. Jude Medical (NYSE: STJ) – Downgraded at UBS
Long positions in stocks mentioned: JPM, AAPL
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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