David Moenning's Daily State of the Markets: 5/18

May 18, 2009 9:31 AM EDT

Running Out of Reasons?

After spending entirely too much time in the yard and the garage yesterday (who invented the concept of spring cleaning anyway) I fired up the computer and noticed an article on Yahoo (YHOO) about the stock market. The article caught my eye because the market doesn’t usually make the list of news headlines unless something really good or really bad happens.

It must have been a slow news day because the article didn’t discuss anything of importance and focused primarily on the idea that the stock market had run out of reasons to rally. There was talk of valuation issues, weak economic data, and the idea that there may not be any catalysts available to send stocks higher with earnings season now winding down.

Although I did take issue with several of the theories and interviews offered up within what turned out to be a rather generic space filler, the concept reminded me of what I saw during Friday’s session. Stocks started out higher but then did appear to run out of reasons to rally as traders succumbed to a lot of negative chatter.

There was the cut in equity allocation out of UBS based on valuations, the selloff in commodities because of – what else – concerns regarding global growth, renewed concerns about the involvement of Big Brother in just about everything – but especially in the financial sector, some worry over the reports from Visa, MasterCard, and Amex, and the reality that GM is closing about 1100 dealerships, which just might add some pressure to the unemployment numbers.

So, given this news backdrop, it is little wonder that the bulls couldn’t find a reason to rally. However, we’d also like to point out that the bears weren’t able to get anything going here either, which, is actually rather positive.

It is clear that stocks are in pullback mode at the present time. And as we’ve said a time or three before, it is during a countertrend move that Ms. Market often tips her hand. Everyone is expecting a pullback of 5% or so in the major indices, which is about what we’ve seen thus far. And with the market now approaching the breakout area – which should represent decent support – it will be interesting to see what happens from here. Should stocks break down into the former trading range, then a quick trip down to the bottom of the range wouldn’t be too surprising.

However, if you are a card carrying member of the bear camp, you’ve got to be a little disappointed in the long awaited pullback so far. There has been little in the way of downside pressure and the volume during the decline has been on the weak side. Thus, if our furry friends don’t get something more vigorous going soon, the bulls are likely to suggest that it’s the bears who have run out of reasons for a decline.

Turning to this morning, the bulls may have found a couple of reasons to rally in the early going. First, India’s stock market is soaring on the back of election results. Next, influential banking analyst Dick Bove at Rochdale says that he sees “explosive earnings and stock growth� for the banks. And finally, we’ve just learned that Warren Buffett increased Berkshire Hathaway’s stakes in Wells Fargo (WFC) and US Bancorp (USB).

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 $1.26 to $57.60. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.09%, 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 higher open. The Dow futures are currently ahead by about 70 points; the S&P’s are up about 8 points, while the NASDAQ looks to be about 11 points above fair value at the moment.

Stocks “In Play� This Morning:

Today’s Earnings Before the Bell:

Lowe’s (NYSE: LOW) – Reported $0.32 vs. $0.25

Upgrades/Downgrades/Brokerage Research:

Sonic (Nasdaq: SONC) – Downgraded at Barclays
Brinker Intl (NYSE: EAT) – Upgraded at Barclays
Lennar (NYSE: LEN) – Upgraded at Citi
CNOOC (NYSE: CEO) – Downgraded at Credit Suisse
Marvel (Nasdaq: MRVL) – Upgraded at Credit Suisse, Morgan Stanley
Principal Financial Group (NYSE: PFG) – Upgraded at Friedman Billings Ramsey
Macerich (NYSE: MAC) – Upgraded at Goldman
Equity Residential (NYSE: EQR) – Upgraded at Goldman
Rockwell Collins (NYSE: COL) – Upgraded at Goldman
Boeing (NYSE: BA) – Upgraded at Goldman
Macy’s (NYSE: M) – Added to Buy list at Goldman
Bank of America (NYSE: BAC) – Added to Buy list at Goldman
L-3 Communications (NYSE: LLL) – Downgraded at Goldman
Nordstrom (NYSE: JWN) – Downgraded at Goldman
Raytheon (NYSE: RTN) – Downgraded at Goldman
Northrop Grumman (NYSE: NOC) – Downgraded at Goldman
Autonation (NYSE: AN) – Downgraded at Goldman
Ensco (NYSE: ESV) – Upgraded at Jefferies
Rowan Cos (NYSE: RDC) – Upgraded at Jefferies
BJ Services (NYSE: BJS) – Downgraded at Jefferies
Smith Intl (NYSE: SII) – Downgraded at Jefferies
Schlumberger (NYSE: SLB) – Downgraded at Jefferies
Goldman Sachs (NYSE: GS) – Upgraded at JMP Securities
Morgan Stanley (NYSE: MS) – Upgraded at JMP Securities
MGM Mirage (NYSE: MGM) – Upgraded at JP Morgan
Broadcom (Nasdaq: BRCM) – Upgraded at Morgan Stanley
Micron Technologies (NYSE: MU) – Upgraded at Morgan Stanley
MEMC Electronic Mat (NYSE: WFR) – Upgraded at Morgan Stanley
PMC Sierra (Nasdaq: PMCS) – Downgraded at Morgan Stanley
Xilinx (Nasdaq: XLNX) – Downgraded at Morgan Stanley
Energizer (NYSE: ENR) – Upgraded at UBS
AngloGold Ashanti (NYSE: AU) – Downgraded at UBS

Long positions in stocks mentioned: CEO, JPM

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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