David Moenning's Daily State of the Markets: 4/22

April 22, 2008 10:47 AM EDT

So Far, So Good

Here’s a link to listen to an Audio Version of the report: http://PlayAudioMessage.com/play.asp?m=498875&f=PBZEFK&ps=13&c=FFFFFF&pm=2&h=25

After a breakout, it is fairly common for the stock or index in question to pull back to the breakout area to retest the move. In short, the idea is for prices to revisit the previous resistance zone and ask the question, “Are you sure?” This type of backing and filling generally occurs within three days and three weeks of the initial breakout and is often considered a second-chance buy point.

So, after last week’s blast of 4% among the major indices and a breakout move on the DJIA, it wasn’t exactly surprising to see stocks pull back a bit yesterday. And since the indices actually ended up near the highs of the day, the bulls will argue that so far at least, the retest phase looks good and is right on schedule.

Bank of America (BAC) got things moving to the downside by reporting a jaw-dropping 77% decline in net income. The company had to quintuple their provisions for credit losses and wrote down $1.9 Billion. Then National City (NCC) offered up a similarly disappointing report with the highlight being a 95% reduction in their dividend. Granted, most of this news was expected, but the reality of the damage inflicted by the credit crisis is still a bit staggering.

It also didn’t help that oil prices continued to march higher yesterday. An explosion in a Nigerian pipeline along with an impending strike at a UK refinery helped push crude for May delivery up by another $0.79 to $117.48. And although the U.S. consumer has managed to handle the massive move in oil over the past couple of years in fine fashion, one has to figure that we are either rapidly approaching or have already crossed the line in the sand where the consumer starts to pull back due to the increased cost of gasoline.

However, despite the negative news, stock prices managed to avoid the temptation to move lower and instead held up pretty nicely during Monday’s session. One argument is that the Hedgies, who have been successful so far this year by maintaining a defensive stance toward U.S. equities, may be quickly changing their tune with the indices rapidly approaching breakeven on the year.

But regardless of the reason, stocks had the opportunity to dive yesterday and didn't. So, from the bulls' perspective, it is "so far, so good" with regard to the retest of Friday's breakout on the Dow. However, we still need to see the S&P and NASDAQ confirm the move in relatively short order to get really fired up.

Turning to this morning, we don’t have any economic news to report before the bell, but we will get reports on Existing Home Sales, Home Prices, and word from the Richmond Fed at 10:00 am. In addition, there are a slew of earnings reports to plow through with yesterday’s disappointing TXN results taking the tone in tech down a bit.

Running through the rest of the pre-game indicators; the foreign markets are split mostly higher. Crude futures are moving down a smidge with the latest quote showing oil lower by $0.02 to $117.46. Interest rates are higher with the 10-yr trading at a yield of 3.75% so far. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to softer open. The Dow futures are currently off by about 25 points; the S&P’s are down about 4 points, while the NASDAQ looks to be about 11 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Boston Scientific (NYSE: BSX) – Reported $0.24 vs. $0.19
Celanese (NYSE: CE) – Reported $1.06 vs. $0.95
Hercules (NYSE: HPC) – Reported $0.35 vs. $0.34
Nabors Industries (NYSE: NBR) – Reported $0.81 vs. $0.76
Netflix (Nasdaq: NFLX) – Reported $0.23 vs. $0.24
Everest RE Group (NYSE: RE) – Reported $3.03 vs. $3.54
Steel Dynamics (Nasdaq: STLD) – Reported $0.72 vs. $0.63
Texas Instruments (NYSE: TXN) – Reported $0.43 vs. $0.43

Today's Earnings Before the Bell:

AT&T (NYSE: T) – Reported $0.74 vs. $0.74
AK Steel (NYSE: AKS) – Reported $0.90 vs. $0.82
Baker Hughes (NYSE: BHI) – Reported $1.21 vs. $1.20
BJ Services (NYSE: BJS) – Reported $0.43 vs. $0.55
CME Group (NYSE: CME) – Reported 4.67. vs. $4.83
Coach (NYSE: COH) – Reported $0.46 vs. $0.45
DuPont (NYSE: DD) – Reported $1.31 vs. $1.29
Fifth Third (Nasdaq: FITB) – Reported $0.55 vs. $0.49
Jacobs Engineering (NYSE: JEC) – Reported $0.80 vs. $0.77
Kimberly Clark (NYSE: KMB) – Reported $1.08 vs. $1.07
Lockheed Martin (NYSE: LMT) – Reported $1.73 vs. $1.63
McDonalds (NYSE: MCD) – Reported $0.81 vs. $0.70
Rayonier (NYSE: RYN) – Reported $0.51 vs. $0.44
Smith Intl (NYSE: SII) – Reported $0.87 vs. $0.87
UnitedHealth Group (NYSE: UNH) – Reported $0.78 vs. $0.80

News, Upgrades/Downgrades/Brokerage Research:

Apple Inc (Nasdaq: AAPL) – Estimate and target increased at Bank of America
Jefferies Group (NYSE: JEF) – Downgraded at Bank of America
Alliance Data Systems (NYSE: ADS) – Upgraded at JP Morgan
DST Systems (NYSE: DST) – Downgraded at Merrill Lynch

Mr. Moenning holds Long positions in stocks mentioned: AKS, STLD, RYN

Note: All earnings reports compared to Reuter's consensus estimates

** For More of David Moenning's Market Analysis, Stock Portfolios, and Trading Ideas, visit: http://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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: DMoenning@HeritageCapitalManagement.com

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Related Entities

• Existing-Home Sales
• JPMorgan
• Jefferies & Co
• Merrill Lynch
• Banc of America

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