David Moenning's Daily State of the Markets: 4/30

April 30, 2009 9:54 AM EDT

Don’t Fight the Tape?

When I got started in the business of the stock market back in the early 1980’s, the first two Wall Street-isms I learned were “Don’t fight the Fed” and “Don’t fight the Tape.” The idea behind each of these beloved clichés is that it rarely, if ever, pays to argue with Ms. Market or the folks that control the purse strings.

Perhaps the other big message to be taken out of these two phrases is that when dealing with the stock market, the words ‘could,’ ‘should,’ and ‘would’ should be removed from your vocabulary. You see, as an investor your primary job is to keep your portfolios in line with what the market IS doing instead of what you or someone else thinks it ought to be doing.

In fact, the reason I began penning my morning missive was to make sure that I kept myself in tune with what was driving the market on any given day. I figured that if I knew what was important to Ms. Market each and every day, I was unlikely to be surprised by any big moves.

What do these musing have to do with the recent stock market action, you ask? In short, the market is currently confounding a great many experienced investors by first not pulling back to any meaningful degree and second, by ignoring any and all bad news.

The folks that are out there calling for a correction or a retest aren’t dumb and for the most part, are not new to the game. Which is the point – by most accounts, the stock market “should” be pulling back here. We’ve enjoyed a stellar run that has now taken the S&P up +29.1% since March 9th. And in the process, stocks have become very overbought. This, coupled with a handful of other indicators, USUALLY leads to a correction or at least a pause that refreshes.

But as anyone looking to ‘buy the dips’ will attest, the much anticipated pullback just isn’t happening. So, with the Dow, S&P, and NASDAQ all breaking to new cycle highs yesterday, should those underinvested souls simply bomb in and stop ‘fighting the tape?’

Before we get to the answer – which actually is something for each individual investor to decide – we’d like to offer up a reason for why stocks continue to move on up. However, I’m not really referring to the excuse du jour such as the Fed saying that the economy’s decline is slowing. No, I’m talking about something more structural in nature.

We need to remember that the big mutual funds, who raised some cash near the end of last year, don’t have the luxury of buying in a single day or at the perfect spot on the charts. No, if you’ve got 10% of $30 billion in cash, it’s going to take more than a couple days to get that invested. The other thing to understand is that the big funds are paid to beat the S&P. And the bigger your fund is, the tougher this becomes. So, you really can’t afford to have cash sitting on the sidelines when stocks are moving higher. Because, in short, the only thing worse than a down -41% year is to underperform the next.

So, it is our guess that the folks in there buying everyday may not be the fast money crowd, but rather the big money boys trying to keep their bonuses. Yet at the same time Jason Goepfert reports that the days following an FOMC meeting which was accompanied by a gap higher have not been good. So, it’s probably a good idea to remain patient and to stay tuned.

Turning to this morning, on the economic front jobless claims for the week came in a bit below expectations at 631K vs. 640K. Next, the government reported Personal Incomes fell by -0.3% in March, which was a tenth lower than the consensus. On the spending side, Personal Spending also came in a tenth below expectations at -0.2%. Looking at inflation, the PCE Deflator was reported at +0.6% vs. expectations for +0.7% and the PCE Core rose by +0.2% vs. +0.1%. And finally, the Employment Cost Index was lower than expected at +0.3% vs. +0.5%.

Running through the rest of the pre-game indicators, the major overseas markets are all up big in response to the Fed’s comments yesterday. Crude futures are moving up with the latest quote showing oil trading higher by $0.61 to $51.58. On the interest rate front, we’ve got the yield on the 10-yr currently at 3.13%, while the yield on the 3-month T-Bill is trading at 0.10%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 90 points; the S&P’s are up about 11 points, while the NASDAQ looks to be about 14 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Agnico-Eagle Mines (NYSE: AEM) – Reported $0.10 vs. $0.10
AFLAC (NYSE: AFL) – Reported $1.22 vs. $1.16
Assurant (NYSE: AIZ) – Reported $1.17 vs. $1.43
Akamai (Nasdaq: AKAM) – Reported $0.43 vs. $0.40
Avalon Bay (NYSE: AVB) – Reported $1.27 vs. $1.18
CB Richard Ellis (NYSE: CBG) – Reported -$0.03 vs. $0.02
Crown Castle (NYSE: CCI) – Reported $0.02 vs. -$0.06
Cadence Design (Nasdaq: CDNS) – Reported -$0.10 vs. -$0.12
Cirrus Logic (Nasdaq: CRUS) – Reported -$0.01 vs. -$0.03
Citrix Systems (Nasdaq: CTXS) – Reported $0.32 vs. $0.31
Equity Residential (NYSE: EQR) – Reported $0.57 vs. $0.55
Express Scripts (Nasdaq: ESRX) – Reported $0.86 vs. $0.82
Essex Property Trust (NYSE: ESS) – Reported $2.50 vs. $1.49
Flowserve (NYSE: FLS) – Reported $1.64 vs. $1.47
First Solar (FSLR) – Reported $1.99 vs. $1.51
Genco Shipping (NYSE: GNK) – Reported $1.32 vs. $1.26
Harman Intl (NYSE: HAR) – Reported -$0.84 vs. -$0.44
Horace Mann (NYSE: HMN) – Reported $0.35 vs. $0.35
JDS Uniphase (JDSU) – Reported -$0.03 vs. -$0.03
Kirby Corp (NYSE: KEX) – Reported $0.57 vs. $0.52
LSI Corp (NYSE: LSI) – Reported -$0.03 vs. -$0.04
Annaly Capital (NYSE: NLY) – Reported $0.56 vs. $0.55
Realty Income (NYSE: O) – Reported $0.45 vs. $0.46
Owens-Illinois (NYSE: OI) – Reported $0.27 vs. $0.36
Oceaneering Intl (NYSE: OII) – Reported $0.80 vs. $0.68
ONEOK Partners (NYSE: OKS) – Reported $0.85 vs. $0.80
O’Reilly Auto (Nasdaq: ORLY) – Reported $0.47 vs. $0.40
ProLogis (NYSE: PLD) – Reported $0.86 vs. $0.80
Starbucks (SBUX) – Reported $0.16 vs. $0.15
Questar (NYSE: STR) – Reported $0.86 vs. $0.79
Teradyne (NYSE: TER) – Reported -$0.38 vs. -$0.40
Unum Group (NYSE: UNM) – Reported $0.62 vs. $0.60
Visa (NYSE: V) – Reported $0.73 vs. $0.64

Varian Medical (NYSE: VAR) – Reported $0.64 vs. $0.60
Whiting Petroleum (NYSE: WLL) – Reported -$0.61 vs. -$0.72


Today’s Earnings Before the Bell:

Ashland (NYSE: ASH) – Reported $0.65 vs. $0.31
AstraZeneca (NYSE: AZN) – Reported $1.58 vs. $01.40
Cardinal Health (NYSE: CAH) – Reported $0.97 vs. $0.98
Celgene (Nasdaq: CELG) – Reported $0.44 vs. $0.43
CIGNA (NYSE: CI) – Reported $0.69 vs. $0.90
Colgate Palmolive (NYSE: CL) – Reported $0.97 vs. $0.96
Comcast (Nasdaq: CMCSA) – Reported $0.27 vs. $0.23
Cummins (NYSE: CMI) – Reported $0.26 vs. $0.25
Covidien (NYSE: COV) – Reported $1.07 vs. $0.85
Dow Chemical (NYSE: DOW) – Reported $0.12 vs. -$0.20
Dominos Pizza (NYSE: DPZ) – Reported $0.20 vs. $0.17
Eastman Kodak (NYSE: EK) – Reported -$0.95 vs. -$0.33
Hornbeck Offshore (NYSE: HOS) – Reported $1.01 vs. $0.93
Starwood Hotels (NYSE: HOT) – Reported $0.14 vs. $0.03
Intl Fragrance (NYSE: IFF) – Reported $0.60 vs. $0.62
Intl Paper (NYSE: IP) – Reported $0.08 vs. -$0.04
Iron Mountain (NYSE: IRM) – Reported $0.14 vs. $0.12
Kellogg (NYSE: K) – Reported $0.84 vs. $0.79
Kimco Realty (NYSE: KIM) – Reported $0.43 vs. $0.44
Lancaster Colony (LANC) – Reported $0.76 vs. $0.49
Motorola (NYSE: MOT) – Reported -$0.08 vs. -$0.11
Mylan (NYSE: MYL) – Reported $0.33 vs. $0.28
Newmont Mining (NYSE: NEM) – Reported $0.44 vs. $0.41
Northeast Utilities (NYSE: NU) – Reported $0.60 vs. $0.35
Newell Rubbermaid (NYSE: NWL) – Reported $0.20 vs. $0.08
NYSE Euronext (NYSE: NYX) – Reported $0.43 vs. $0.38
Owens Corning (NYSE: OC) – Reported $0.04 vs. -$0.04
OfficeMax (NYSE: OMX) – Reported $0.23 vs. $0.16
Pride Intl (NYSE: PDE) – Reported $0.87 vs. $0.86
Procter & Gamble (NYSE: PG) – Reported $0.80 vs. $0.80
Patterson UTI (Nasdaq: PTEN) – Reported $0.11 vs. $0.14
Revlon (NYSE: REV) – Reported $0.25 vs. -$0.23
Sepracor (Nasdaq: SEPR) – Reported $0.85 vs. $0.69
Travelers (NYSE: TRV) – Reported $1.34 vs. $1.30
Viacom (NYSE: VIA.B) – Reported $0.29 vs. $0.26
Watson Pharmaceutical (NYSE: WPI) – Reported $0.58 vs. $0.49
Exxon Mobil (NYSE: XOM) – Reported $0.92 vs. $0.95
Excel Energy (NYSE: XEL) – Reported $0.38 vs. $0.37

Upgrades/Downgrades/Brokerage Research:

Avalon Bay (NYSE: AVB) – Downgraded at BofA/Merrill
Goodyear Tire (NYSE: GT) – Downgraded at Citi, Upgraded at Goldman
Akamai (Nasdaq: AKAM) – Upgraded at Goldman
Options Express (OXPS) – Upgraded at Goldman
Garmin (Nasdaq: GRMN) – Removed from Conviction Sell list at Goldman
Computer Sciences (NYSE: CSC) – Added to Conviction Sell list at Goldman
Host Hotels (NYSE: HST) – Upgraded at JP Morgan
LaSalle Hotel (NYSE: LHO) – Upgraded at JP Morgan
Praxair (NYSE: PX) – Upgraded at JP Morgan
Rockwell Automation (NYSE: ROK) – Downgraded at RW Baird
PepsiAmericas (NYSE: PAS) – Downgraded at UBS
Reynolds American (NYSE: RAI) – Downgraded at UBS
Costco (Nasdaq: COST) – Downgraded at UBS
VimpelCom (NYSE: VIP) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: LANC, MYL


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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