David Moenning's Daily State of the Markets: 10/23

October 23, 2008 10:07 AM EDT

All About Redemptions

In looking at Wednesday’s thrashing, there appear to be so many reasons and so little time this morning – so, let’s get right to it. The Dow plunged another 514 points yesterday and in the process, scared the bajeebers out of just about everyone that still happens to own any stock at all. After briefly flirting with some performance anxiety this week during the market’s upside adventure, all of a sudden any exposure to stocks feels wrong again. And with the S&P breaking down to a fresh new low, albeit by just a hair, fear made a triumphant return to the corner of Broad and Wall yesterday.

The good news is that the credit markets continue to, as they are now saying on Wall Street, “thaw.� In short, this means that rates for short-term funding (such as commercial paper) have become a little more reasonable again, which, in theory anyway, should mean that money will begin to flow soon. And it’s about time because it appears that Mr. Bernanke is indeed dropping money out of a helicopter these days as the Fed continues to come up with ideas to try and help the situation.

But unfortunately, that’s where the good news ended. And with the sweeps coming up next month, the television media was not shy about telling us just how bad things are out there in the stock market, the housing market, the economy, and well, just about everything. Everywhere you turned you heard about the global slowdown, the economic uncertainty in the U.S., a weak earnings season, the fragility of the global financial system, and the meltdown that was occurring in the emerging markets.

And then, on a less macro scale, we heard about margin calls, computerized bids being pulled, quant funds moving to cash, technical selling, and yet another hedge fund blowup. We heard endless banter about how slot machines in Vegas are more regulated than CDS’s (which is definitely true). And finally, there was my personal favorite; the worry that the Fed is running out of bullets.

But in reality, yesterday’s retest of the lows, the success of which remains a question mark at this stage of the game, was helped along by old fashioned redemptions. You can call it capitulation if you’d like, but the bottom line is there are simply too many people still selling stocks right now.

Yes, I understand that part of the selling comes from the “new trade� in hedgieland, which is to short the S&P and go long the dollar and yen. To which I say, gee, I’m glad I own the dollar and yen ETFs in my Global portfolio. And yes, I do agree that there are macro factors at work here that are far from positive. And finally, I get the fact that a retest is always a self-fulfilling prophecy once it gets going.

But I am sorry to report that at this stage of the game, it isn’t about technical levels or news or even globally coordinated bailout packages. No, it’s about getting everybody out that either can’t take it anymore or is being forced to the sidelines by redemptions. So, until the margin calls cease and the calls from people like Joe the plumber to his mutual funds and his broker asking for his money back end, we can’t really expect to see a bottom.

Turning to this morning, the earnings reports are flooding in and in general, aren’t that bad. However, keep in mind that it is the outlook for the coming quarter that is the real issue right now.

Running through the rest of the pre-game indicators, the major overseas markets were once again lower across the board. Crude futures are down again with the latest quote showing oil trading lower by $0.38 to $66.37. On the interest rates front, we’ve got the yield on the 10-yr currently trading at 3.54% while the yield on the 3-month T-Bill is at 0.956% and overnight LIBOR is at 1.21% which is up from yesterday’s rate of 1.12%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 70 points; the S&P’s are down by about 10 points, while the NASDAQ looks to be about 12 points below fair value at the moment.

Stocks “In Play� This Morning:

Yesterday’s Earnings After the Bell:

Alcon (NYSE: ACL) – Reported $2.07 vs. $1.57
Alliance Data (NYSE: ADS) – Reported $1.22 vs. $1.16
Amerigroup (NYSE: AGP) – Reported $0.74 vs. $0.50
Allstate (NYSE: ALL) – Reported -$0.35 vs. $0.66

Amgen (Nasdaq: AMGN) – Reported $1.23 vs. $1.08

Amazon.com (Nasdaq: AMZN) – Reported $0.27 vs. $0.25
CR Bard (NYSE: BCR) – Reported $1.09 vs. $1.08
Baidu (Nasdaq: BIDU) – Reported $1.54 vs. $1.34
Chipotle Mexican Grill (NYSE: CMG) – Reported $0.59 vs. $0.59
Con-Way (NYSE: CNW) – Reported $0.81 vs. $0.65
Citrix Systems (Nasdaq: CTXS) – Reported $0.43 vs. $0.37
F5 Networks (Nasdaq: FFIV) – Reported $0.24 vs. $0.20
Intersil (Nasdaq: ISIL) – Reported $0.44 vs. $0.40
Knight Trans (NYSE: KNX) – Reported $0.19 vs. $0.16
Lam Research (Nasdaq: LRCX) – Reported $0.26 vs. $0.25
LSI Corp (NYSE: LSI) – Reported $0.14 vs. $0.10
Noble Corp (NYSE: NE) – Reported $1.47 vs. $1.34
Nutrisystem (Nasdaq: NTRI) – Reported $0.45 vs. $0.48
OSI Pharmaceuticals (Nasdaq: OSIP) – Reported $0.56 vs. $0.56
Pulte Homes (NYSE: PHM) – Reported -$1.11 vs. -$0.58
Plantronics (NYSE: PLT) – Reported $0.41 vs. $0.39
PartnerRe (NYSE: PRE) – Reported $2.27 vs. $2.09
Robert Half (NYSE: RHI) – Reported $0.43 vs. $0.43
Ryland Group (NYSE: RYL) – Reported -$1.54 vs. -$0.95
StanCorp Financial (NYSE: SFG) – Reported $1.46 vs. $1.25
Skechers USA (NYSE: SKX) – Reported $0.60 vs. $0.56
SLM Corp (NYSE: SLM) – Reported $0.19 vs. $0.35
Seagate Technology (NYSE: STX) – Reported $0.26 vs. $0.22
Teradyne (NYSE: TER) – Reported $0.09 vs. $0.13
Terex (NYSE: TEX) – Reported $1.08 vs. $1.32
Torchmark (NYSE: TMK) – Reported $0.72 vs. $1.49
Tootsie Roll Industries (NYSE: TR) – Reported $0.36 vs. $0.36

Today’s Earnings Before the Bell

Alexion Pharmaceuticals (Nasdaq: ALXN) – Reported $0.23 vs. $0.04

TD Ameritrade (Nasdaq: AMTD) – Reported $0.29 vs. $0.32
Black & Decker (NYSE: BDK) – Reported $1.42 vs. $1.30
Bristol-Myers (NYSE: BMY) – Reported $0.46 vs. $0.42
Coca Cola Enterprises (NYSE: CCE) – Reported $0.46 vs. $0.46
Diamond Offshore (NYSE: DO) – Reported $2.23 vs. $2.23
Dow Chemical (NYSE: DOW) – Reported $0.60 vs. $0.56
Equitable Resources (NYSE: EQT) – Reported $0.73 vs. $0.39
1800Flowers.com (Nasdaq: FLWS) – Reported -$0.08 vs. -$0.11
Goodrich (NYSE: GR) – Reported $1.33 vs. $1.13
Starwood Hotels (NYSE: HOT) – Reported $0.71 vs. $0.53
Jet Blue (Nasdaq: JBLU) – Reported -$0.02 vs. -$0.04
Janus Capital (NYSE: JNS) – Reported $0.28 vs. $0.23
Laboratory Corp (NYSE: LH) – Reported $1.10 vs. $1.12
L-3 Communications (NYSE: LLL) – Reported $1.73 vs. $1.71
Eli Lilly (NYSE: LLY) – Reported $1.04 vs. $1.02
Altria (NYSE: MO) – Reported $0.46 vs. $0.44
NII Holdings (Nasdaq: NIHD) – Reported $0.54 vs. $0.65
National Oilwell Varco (NYSE: NOV) – Reported $1.44 vs. $1.30
Petro Canada (NYSE: PCZ) – Reported $2.56 vs. $2.27
Prologis (NYSE: PLD) – Reported $0.63 vs. $0.53
Potash (NYSE: POT) – Reported $3.92 vs. $3.52
Regal Entertainment (NYSE: RGC) – Reported $0.21 vs. $0.28
Radio Shack (NYSE: RSH) – Reported $0.39 vs. $0.36
Raytheon (NYSE: RTN) – Reported $1.01 vs. $0.97

Snap-On (NYSE: SNA) – Reported $0.94 vs. $0.86
SunTrust Banks (NYSE: STI) – Reported $0.88 vs. $0.60
Thermo Fisher Scientific (NYSE: TMO) – Reported $0.76 vs. $0.76
Union Pacific (NYSE: UNP) – Reported $1.38 vs. $1.30
UPS (NYSE: UPS) – Reported $0.96 vs. $0.89
Xcel Energy (NYSE: XEL) – Reported $0.51 vs. $0.55
Xerox (NYSE: XRX) – Reported $0.29 vs. $0.28
Zimmer Holdings (NYSE: ZMH) – Reported $0.97 vs. $0.88


News, Upgrades/Downgrades/Brokerage Research:

AK Steel (NYSE: AKS) – Initiated Sell at Bank of America
Archer Daniels Midland (NYSE: ADM) – Upgraded at Barclays
AstraZeneca (NYSE: AZN) – Upgraded at BNP Paribas
Cadence Design System (Nasdaq: CDNS) – Downgraded at Citi
Logitech (Nasdaq: LOGI) – Downgraded at Citi, Credit Suisse
Luxottica (NYSE: LUX) – Downgraded at Citi
Lam Research (Nasdaq: LRCX) – Downgraded at Credit Suisse
Allegheny Technologies (NYSE: ATI) – Downgraded at Deutsche Bank
Hewitt Assoc (NYSE: HEW) – Added to Conviction Sell list at Goldman
Freeport McMoRan (NYSE: FCX) – Downgraded at Goldman
Southern Copper (NYSE: PCU) – Downgraded at Goldman
Teck Cominco (NYSE: TCK) – Upgraded at Goldman
Salesforce.com (NYSE: CRM) – Upgraded at Jefferies
Covance (NYSE: CVD) – Downgraded at Jefferies
SanDisk (Nasdaq: SNDK) – Downgraded at JP Morgan
ADC Telecom (Nasdaq: ADCT) – Downgraded at JP Morgan
Alcon (NYSE: ACL) – Downgraded at JP Morgan
Frontline (NYSE: FRO) – Downgraded at JP Morgan
Nordic American Tanker (NYSE: NAT) – Downgraded at JP Morgan
Overseas Shipholding Group (NYSE: OSG) – Downgraded at JP Morgan
AutoZone (NYSE: AZO) – Upgraded at Merrill
Petrobras (NYSE: PBR) – Target reduced at Morgan Stanley
Con-Way (NYSE: CNW) – Downgraded at RW Baird
Circuit City (NYSE: CC) –Mentioned cautiously at UBS
Whole Foods (Nasdaq: WFMI) – Upgraded at UBS
National Semiconductor (NYSE: NSM) – Target increased at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: ALXN, POT


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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