David Moenning's Daily State of the Markets: 5/19

May 19, 2009 9:54 AM EDT

Are the Bulls Back?

After a 5-day hiatus, the bulls returned to the corner of Broad and Wall yesterday sending the indices up +3% or so. With the requisite correction in which the S&P fell -4.99%, the NASDAQ dropped -5.63%, and the Dow declined -3.67% apparently complete, our heroes in horns tried to make the case that they were back in a big way.

Yes, the volume was light. And no, the move didn’t really change much of anything on the charts. However, unless things turn ugly again in a hurry, the blast higher may have served as a dagger to the heart of those looking for a significant retest of the March lows in the near future.

The trigger for the move came primarily from the banking sector however, better-than-expected earnings on the home improvement front, renewed optimism surrounding the green shoots and economic recovery theme, and positive data out of the Eurozone and Japan all helped lend the bulls a hand on Monday.

Although stocks were heading modestly higher prior to the opening bell on the back of decent economic data from across the pond, it was commentary from influential banking analysts Dick Bove that really got things moving. The Rochdale analyst suggested that the banks had explosive growth potential in the current environment and that many could triple in the next three years.

In addition to Bove’s comments, BMO Capital upgraded the banking sector to outperform for the first time in two years. And finally, the mighty Goldman Sachs (GS) got in the game by upgrading Bank of America (BAC) and adding it to their Buy list. Goldman cited waning concerns over BAC’s secondary offering as well as rising expectations for second quarter earnings.

Now toss in surprisingly positive reports from Lowe’s (LOW) and Dillard’s (DDS), and then a couple of upgrades in the volatile semiconductor sector and you suddenly have a recipe for the shorts to cover and the funds to resume their buying.

However, with the Dow back to within spitting distance of its recent cycle high (just 71 points to be exact), it will be interesting to see if the bull camp can continue to romp.

Turning to this morning, the bulls may have their conviction tested in the early going after the report on housing starts and building permits. After yesterday’s National Association of Home Builder survey suggested that things were improving, today’s drop of -12.8% in housing starts and the -3.3% fall in building permits – both of which are now at record lows – would seem to suggest otherwise.

Running through the rest of the pre-game indicators, the major overseas markets followed Wall Street higher. Crude futures are moving up with the latest quote showing oil trading higher by $0.55 and bumping into the $60 level at $59.58. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.25%, 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 relatively flat open. The Dow futures are currently about even; the S&P’s are up about a point, while the NASDAQ looks to be about 3 points below fair value at the moment.

Stocks “In Play� This Morning:

Today’s Earnings Before the Bell:

Dicks Sporting Goods (NYSE: DKS) – Reported $0.11 vs. $0.07
Home Depot (NYSE: HD) – Reported $0.35 vs. $0.28
Medtronic (NYSE: MDT) – Reported $0.82 vs. $0.82
Saks (NYSE: SKS) – Reported -$0.04 vs. -$0.26

Upgrades/Downgrades/Brokerage Research:

Advance Auto Parts (NYSE: AAP) – Upgraded at BofA/Merrill
Kansas City Southern (NYSE: KSU) – Upgraded at BofA/Merrill
Arkansas Best (Nasdaq: ABFS) – Upgraded at BofA/Merrill
Con-Way (NYSE: CNW) – Upgraded at BofA/Merrill
Worthington Inds (NYSE: WOR) – Added to Sell list at Goldman
Tidewater (NYSE: TDW) – Removed from Sell list at Goldman
CNOOC (NYSE: CEO) – Upgraded at Goldman

PetroChina (NYSE: PTR) – Upgraded at Goldman
Tenet Healthcare (NYSE: THC) – Upgraded at Goldman
Lifepoint Hospitals (Nasdaq: LPNT) – Downgraded at Goldman
Sherman Williams (NYSE: SHW) – Upgraded at JP Morgan
Regions Financial (NYSE: RF) – Downgraded at Moody’s
State Street (NYSE: STT) – Upgraded at RBC Capital
Sprint Nextel (NYSE: S) – To offer Palm Pre nationwide on June 6

Long positions in stocks mentioned: CEO, JPM, S

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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• JPMorgan
• Goldman Sachs
• Banc of America
• BMO Capital
• RBC Capital
• Richard Bove
• David Moenning
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