David Moenning's Daily State of the Markets: 4/14

The End of Down Days?

After putting in the best five-week rally since 1933, it will suffice to say that the market is more than a little overbought and due for at least a ‘pause that refreshes.’ Thus, experienced traders know that in this type of situation, virtually any news item can be used as an excuse du jour to trigger a pullback. From there, the bulls, recognizing that their opponents are overdue for a day or two in the sun, usually “stand aside� and let the bears have their way for a bit.

Before the opening bell yesterday, it appeared that the newswires just might provide the bears the impetus they needed to get something going to the downside. We had the NY Times report that the Treasury was pushing GM (GM) into bankruptcy against the company’s wishes; we had a production cut at Boeing (BA); we had the International Energy Agency downgrading demand for crude oil in 2009 due to the global economic slowdown; we had some skepticism over the quality of earnings from Wells Fargo (WFC); and we had reports from the research community expressing concerns about the vast amount of capital that will still need to be raised in the banking sector.

While none of these stories would normally be enough to impact the overall market, given the overbought nature of the indices and the degree of resistance looming overhead, the combination appeared to be enough to give the bears the nudge they needed. In fact, once the opening bell rang, the Dow found itself down -120 points within a matter of minutes.

But from there, the bulls put on a fairly impressive display. While it is the +3% up days that garner the attention from the media, it is a day like yesterday that really tells the story of how strong this market is at the present time.

In short, no one would have blamed the bulls for taking the day off. No one would have cringed at a drop of a couple hundred points. And no one would have been concerned if the Dow pulled back and tested its short-term moving average.

But instead, the upbeat attitude generated from Thursday’s earnings preannouncement by Wells Fargo (WFC) carried the day. Even during the opening dive, the financials, which have had an incredible run of late (lest we forget, the Banking Index – BKX – is up 96% since March 6th), refused to yield. And this, dear readers, was the “tell� of the day for what was about to happen.

To anyone looking to buy stocks during the last week or so, it has been a frustrating time as the market is not letting buyers in and as I heard one colleague say yesterday, “It looks like we don’t have down days anymore.�

Will this trend continue? With tongue firmly implanted in cheek, my answer is: Yes, until it doesn’t. But until then, we should enjoy the ride.

Turning to this morning, we’ve got some economic data to review so let’s get to it. March’s Producer Price Index fell by -1.2%, which was well below the expectations for a flat reading. Ex-food and energy, the Core PPI came in unchanged versus expectations for an increase of +0.1%. In addition, Retail Sales for March fell by -1.1%, which was much weaker than the consensus estimate for an increase of +0.3%. Finally, February’s Retail Sales revised higher to +0.3% from -0.1%.

Running through the rest of the pre-game indicators, with the exception of Japan, which was down, the major overseas markets are higher across the board. Crude futures are moving up a bit with the latest quote showing oil trading higher by $0.41 to $50.46. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.85%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 50 points; the S&P’s are down about 6 points, while the NASDAQ looks to be about 4 points below fair value at the moment.

 Stocks “In Playâ€� This Morning:

 Today’s Earnings Before the Bell:

Fastenal (Nasdaq: FAST) – Reported $0.33 vs. $0.34; Revenue $489.3M vs. $500.6M

WW Grainger (NYSE: GWW) – Reported $1.25 vs. $1.06; Revenue $1.47B vs. $1.48B

Johnson & Johnson (NYSE: JNJ) – Reported $1.26 vs. $1.22; Revenue $15.03B vs. $15.43B; Guides full year to $4.45 - $4.55 vs. Reuters $4.48

 Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

Nabors Industries (NYSE: NBR) – Upgraded at Bank of America/Merrill Lynch

Noble Corp (NYSE: NE) – Upgraded at Bank of America/Merrill Lynch

Ensco (NYSE: ESV) – Upgraded at Bank of America/Merrill Lynch

Patterson UTI Energy (Nasdaq: PTEN) – Upgraded at Bank of America/Merrill Lynch

Pride Intl (NYSE: PDE) – Downgraded at Bank of America/Merrill Lynch

Choice Hotels (NYSE: CHH) – Upgraded at Bank of America/Merrill Lynch

Starwood Hotels (NYSE: HOT) – Downgraded at Bank of America/Merrill Lynch

Host Hotels & Resorts (NYSE: HST) – Downgraded at Bank of America/Merrill Lynch

Brocade (Nasdaq: BRCD) – Upgraded at Bank of America/Merrill Lynch

America Movil (NYSE: AMX) – Downgraded at Citi

Toll Brothers (NYSE: TOL) – Removed from Conviction Buy list at Goldman

TD Ameritrade (Nasdaq: AMTD) – Removed from Conviction Buy list at Goldman

Albemarle (NYSE: ALB) – Upgraded at Goldman

Roper Industries (NYSE: ROP) – Downgraded at Goldman

Discover Financial Services (NYSE: DFS) – Upgraded at JP Morgan, Downgraded at Stifel Nicolaus

BP Inc (NYSE: BP) – Downgraded at Oppenheimer

ConocoPhillips (NYSE: COP) – Downgraded at Oppenheimer

Chevron (NYSE: CVX) – Downgraded at Oppenheimer

Royal Dutch (NYSE: RDS.A) – Downgraded at Oppenheimer

Exxon Mobil (NYSE: XOM) – Downgraded at Oppenheimer

Lam Research (Nasdaq: LRCX) – Upgraded at Oppenheimer

Applied Materials (Nasdaq: AMAT) – Estimate and target increased at Oppenheimer

Capital One (NYSE: COF) – Downgraded at Stifel Nicolaus

American Express (NYSE: AXP) – Downgraded at Stifel Nicolaus

Dell (Nasdaq: DELL) – Estimates increased at Thomas Weisel

Disclosure: Mr. Moenning and/or related firms hold long positions in: COP, CVX, XOM

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

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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.