David Moenning’s Daily State of the Markets: 6/26

June 26, 2009 9:46 AM EDT

T+3 Was the Key

The bulls came roaring back yesterday. Some of the reasons offered for the rebound was the positive technical action, a well-bid treasury auction, lower mortgage rates, an upbeat preannouncement in tech, renewed enthusiasm for the retail sector, a surprisingly good report from a homebuilder, and the Fed’s first step in removing numerous emergency lending programs designed to avert an all-out financial meltdown last winter.

However, there may have been a little more than meets the eye at work yesterday. For the most part, traders have been focused on the economic data with all eyes currently searching for signs of an actual uptick in the economy. So, when the weekly jobless claims actually came in above the consensus (which in this case is a bad thing), one might have expected to see some selling ensue. Especially when you consider that the report showed approximately 100,000 people rolled into the new extended unemployment benefits program that was part of the President’s stimulus package.

While stocks did open a smidge to the downside, the indices were green-lighted after the first 10 minutes and finished the day with gains of +2% or more. The advance, which occurred on an increase in volume and solid breadth seemed to put a damper on the bears enthusiasm for a break down below the important lines in the sand at 880 on the S&P, 8225 on the Dow, and 1750 on the NASDAQ.

Although there was a fairly long list of positive inputs that we hinted to at the outset of the report, none of the above seemed worthy of the rather spirited rebound. Sure there may have been some technical buying as it became clear that the S&P was going to hold the line and move back above its 10 day moving average. And there was some chatter that the Dow was on the verge of something called a “golden cross.” But in reality, this, along with the news on the retailers, tech, homebuilders etc., wouldn’t usually do the trick.

However, a quick peek at the calendar did explain an awful lot about yesterday’s sudden pop higher. You see, yesterday was the last day that managers could buy stocks and have them show up on the books at the end of the quarter due to the “T+3” settlement rules. So, if you are a believer in the idea of end-of-quarter window dressing, then you probably don’t need to look much farther to find a reason for a big rally that seemed to occur out of the blue.

They say that it is the action seen during countertrend moves that says the most about the health of the overall trend. Thus, it is worthy of note that the June pullback hasn’t been exactly terrifying. And then the action on the NASDAQ has actually been quite encouraging. So, if the bulls can find a way to maintain possession here, there might be some hope for some fun in the summer sun.

Turning to this morning, the report on personal income and spending came in a bit better than expected overall. Personal Incomes increased by +1.4% in May, which was well above the consensus for a reading of +0.3%. Spending was in line with expectations with a gain of +0.3% and the PCE Deflator – a measure of inflation – was spot on with an increase of +0.1%. However, when you dig into the numbers, the increase in incomes may be a bit misleading as the entire gain was driven by government transfer payments. If you exclude this category, incomes actually fell by -0.1%.

Running through the rest of the pre-game indicators, the major overseas markets are mostly higher. Crude futures are moving up with the latest quote showing oil trading higher by $0.30 to $70.53. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.53%, while the yield on the 3-month T-Bill is trading at 0.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a flat-to-lower open. The Dow futures are currently off by about 13 points; the S&P’s are down about 1 point, while the NASDAQ looks to be about 4 points below fair value at the moment.

Stocks “In Play” This Morning:

Upgrades/Downgrades/Brokerage Research:

Nike (NYSE: NKE) – Downgraded at Argus Research
Webster Financial (NYSE: WBS) – Upgraded at Friedman Billings Ramsey
Overseas Shipholding (NYSE: OSG) – Downgraded at Friedman Billings Ramsey
Genzyme (Nasdaq: GENZ) – Target reduced at Goldman
Gilead Sciences (Nasdaq: GILD) – Target reduced at Goldman
Logitech (Nasdaq: LOGI) – Upgraded at Goldman
St. Jude Medical (NYSE: STJ) – Estimates increased at JP Morgan
Boston Scientific (NYSE: BSX) – Estimates increased at JP Morgan
Medtronic (NYSE: MDT) – Estimates increased at JP Morgan
F5 Networks (Nasdaq: FFIV) – Target increased at Oppenheimer
Monsanto (NYSE: MON) – Target reduced at UBS
DaVita (NYSE: DVA) – Estimates increased at UBS
Deutsche Bank (NYSE: DB) – Upgraded at UBS
Illinois Tool (NYSE: ITW) – Upgraded at Wachovia

Long positions in stocks mentioned: none

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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