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

April 4, 2008 9:46 AM EDT

The Recession Has Arrived

Here's a link to listen to an Audio Version of the report:

So far at least, stocks have not followed the recent pattern of blasting higher by 400 points on Tuesday only to give it all back Wednesday through Friday. Naturally, the bulls contend that this is a good thing and that this time will be different. In short, our horned heroes have been promoting the idea that all the bad news is now out and thus, the next big move will be to the upside.

But, in reality, the lack of any downside action following another Terrific Tuesday is probably tied to the release of this morning's Big Kahuna of economic data – the March Jobs reports. In front of big economic numbers, the major indices will often times wind up positioned right at important inflection points on a chart basis. And in this case, we find the Dow, S&P 500, and the NASDAQ sitting right at the top of the three-month old trading range.

So, it would appear that stocks are set up for the bulls to attempt a breakout move to the upside on data from the Labor Department that is better than expected. And then if the news is bad, the bears are well positioned to generate some selling as there would be little resistance to the downside should the jobs data come too weak.

However, before we get to the numbers we should probably take a quick peek back at yesterday's action to see if there was anything of significance to report. Probably the most important takeaway from what appeared to be a sleepy session is the fact that the bears were unable to get anything going to the downside. Despite the facts that (a) everyone expected some selling after Tuesday’s terrific blast and (b) the news flow had a distinctly negative bent, the sellers were kept at bay during yesterday’s session.

In sum, the market managed to overcome an early bout of selling tied to the unexpected increase in weekly jobless claims, the jump in consumer loan delinquencies – which were the highest in 15 years, another batch of downward revisions to earnings estimates in the brokerage community, and the news that demand for commercial office space is slowing. And while the bulls will point to an improvement in sentiment, it seems that yesterday’s rebound in the indices was tied to comments from Merrill Lynch’s John Thain, who said that Merrill does not need to raise any additional capital. This, coupled with Ben Bernanke's solid defense of the Bear deal on Capitol Hill kept the bulls’ hopes for a breakout alive.

Turning to this morning, the March Employment Report has just been released, so let's get right to the numbers. The Labor Department reported that Nonfarm Payrolls fell by 80,000 last month, which was below the consensus expectations for a decline of 50,000 jobs and February’s drop of 63,000. In addition, the Unemployment rate came in at 5.1%, which was up from February’s 4.8% level and also above expectations. Then to add insult to injury, both January and February’s job totals were revised lower to a net loss of -67,000. So, when you add up the first quarter’s numbers, the economy wound up losing 232,000 jobs.

The bottom line? With this morning's numbers, it is VERY hard for anyone to now argue that we are not in recession at the present time.

Running through the rest of the pre-game indicators; the foreign markets were once again split by region with Asian markets moving a bit lower and European bourses were a little higher before the jobs report. Crude futures are moving up with the latest quote showing oil higher by $0.82 to $104.65. Interest rates are moving down on the weak data with the 10-yr trading at a yield of 3.55% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a flat to slightly down open. The Dow futures are currently off by about 5 points; the S&P’s are very close to breakeven, while the NASDAQ looks to be about 2 points above fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Family Dollar Stores (NYSE: FDO) – Reported $0.45 vs. $0.42
Mosaic (NYSE: MOS) – Reported $1.17 vs. $0.95

News, Upgrades/Downgrades/Brokerage Research:

Sirius Satellite Radio (Nasdaq: SIRI) – Downgraded at Credit Suisse
Reliant Energy (NYSE: RRI) – Upgraded at Credit Suisse
Gap Stores (NYSE: GPS) – Downgraded at Credit Suisse
Dell (Nasdaq: DELL) – Downgraded at Goldman
Citigroup (NYSE: C) – JP Morgan expects Q1 writedowns of $8 - $8.5B
Loews – Carolina Group (NYSE: CG) – Target reduced at Lehman
Prudential (NYSE: PRU) – Upgraded at Lehman
CSX Inc (NYSE: CSX) – Downgraded at Merrill
Yamana Gold (NYSE: AUY) – Upgraded at UBS
Kansas City Southern (NYSE: KSU) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: MOS

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.

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

Related Categories

Contributors
Special Reports

Stocks Mentioned

Related Entities

• Credit Suisse
• UBS
• JPMorgan
• Nonfarm Payrolls
• Ben S. Bernanke
• Citi
• Merrill Lynch
• John A. Thain

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?