David Moenning's Daily State of the Markets: 5/8

May 8, 2009 10:09 AM EDT

Another One Day Wonder?

The bulls took a breather yesterday and don’t look now, but the S&P 500 has actually finished lower two of the last three days. So, is this a reason for panic? Is it a sign that the much ballyhooed retest of the lows is about to begin? Is the bull dead?

The answer to all three questions, which were written with tongue firmly implanted in cheek, is: Of course not. Everyone who has ever looked at an oscillator knows that stocks have become overbought, that sentiment has become more than a little frothy in certain areas, and that a pullback lasting more than a couple hours was likely to crop up at some point. Thus, it seemed all the bears needed was a reason to get the selling party started.

So, yesterday morning when Ben Bernanke talked about the importance of the Fed removing its programs that were put in place to save the banking system and NOT to usher in the next great bubble, it was as if a collective shiver went down the spines of the freshly minted optimists.

You see, the brand new bulls seem to think that this move up is going to last many years and that they’d best drop everything and buy stocks all day, every day. However, the problem with this scenario – besides the fact that it’s not a real scenario – is that economic stabilization is not the same thing as actual improvement in the economy. Job losses that are not as bad as expected are not the same as jobs being added to the economy. In other words, the idea of the economy “sucking less” is phase one of the new bull and can only take the market so far. So, if the Fed is already thinking about pulling the punchbowl…well, maybe it’s time to rethink the idea that the stock market is a one-decision game again.

So with all cynicism, skepticism – and any other ‘ism for that matter – aside; the point is that stocks were due for a pullback. And a garden variety pullback is what we got yesterday. There was no real damage done to the indices as the Dow and S&P fell all the way back to where they stood at the beginning of Wednesday. And since there was nary a moving average, support level, or trendline broken, the technical picture is still golden.

In all likelihood, traders were either locking down some big profits in the financial and tech stocks or they were a little nervous in front of the big-bad-events: I.E. the report card from the stress tests and this morning’s jobs report.

Speaking of the report cards, I’m guessing that by now everyone has heard that the government issued 10 F’s to their students and will require about $75 billion in extra credit in order to pass the class. But in reality, this was, dare I say it, better than expected and the banks actually rallied in after hours trading in response to a fair amount of uncertainty being removed from the mix.

And speaking of the jobs report, this is always a big number so let’s get to it. The labor department reported that the economy dropped 539,000 jobs in April, which was much less than the expectations for a loss of 600,000 jobs. Next, the Unemployment Rate jumped, as expected, to 8.9% from 8.5%

Running through the rest of the pre-game indicators, the major overseas markets are up nicely across the board. Crude futures are moving up with the latest quote showing oil trading higher by $1.24 to $57.95. On the interest rate front, we’ve got the yield on the 10-yr continuing to soar at 3.36%, while the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to, what else, a higher open. The Dow futures are currently ahead by about 100 points; the S&P’s are up about 12 points, while the NASDAQ looks to be about 16 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

American Intl Group (NYSE: AIG) – Reported -$097. vs. -$0.06
Allstate (NYSE: ALL) – Reported $0.84 vs. $1.23
Activision Blizzard (ATVI) – Reported $0.08 vs. $0.05
Allied World Assurance (NYSE: AWH) – Reported $2.69 vs. $1.83
CBS Corp (NYSE: CBS) – Reported -$0.08 vs. $0.07
Crocs (Nasdaq: CROX) – Reported -$0.27 vs. -$0.27
Genworth Financial (NYSE: GNW) – Reported $0.03 vs. $0.23
Hansen Natural (Nasdaq: HANS) – Reported $0.44 vs. $0.37
Microchip (Nasdaq: MCHP) – Reported $0.12 vs. $0.11
Nvidia (Nasdaq: NVDA) – Reported $0.09 vs. -$0.09
Ralcorp Holdings (NYSE: RAH) – Reported $1.23 vs. $0.91
Standard Pacific (NYSE: SPF) – Reported -$0.01 vs. -$0.35
TreeHouse Foods (NYSE: THS) – Reported $0.41 vs. $0.36
Verisign (Nasdaq: VRSN) – Reported $0.32 vs. $0.28

Today’s Earnings Before the Bell:

Beazer Homes (NYSE: BZH) – Reported -$2.77 vs. -$2.00
El Paso Corp (NYSE: EP) – Reported $0.47 vs. $0.27
MDC Holdings (NYSE: MDC) – Reported -$0.88 vs. -$0.91
Windstream (NYSE: WIN) – Reported $0.20 vs. $0.23

Upgrades/Downgrades/Brokerage Research:

Whole Foods (Nasdaq: WFMI) – Downgraded at Argus Research
Activision Blizzard (Nasdaq: ATVI) – Upgraded at BofA/Merrill
Eaton Vance (NYSE: EV) – Downgraded at BofA/Merrill
Sonic (Nasdaq: SONC) – Downgraded at BofA/Merrill
Ternium (NYSE: TX) – Upgraded at BofA/Merrill
State Street (NYSE: STT) – Upgraded at BofA/Merrill
Fifth Third Bancorp (Nasdaq: FITB) – Upgraded at Bernstein
Baker Hughes (NYSE: BHI) – Downgraded at Credit Suisse
Nabors Inds (NYSE: NBR) – Downgraded at Credit Suisse
Pride Intl (NYSE: PDE) – Downgraded at Credit Suisse
Schlumberger (NYSE: SLB) – Downgraded at Credit Suisse
Patterson UTI (Nasdaq: PTEN) – Downgraded at Credit Suisse
Smith Intl (NYSE: SII) – Downgraded at Credit Suisse
BJ Services (NYSE: BJS) – Downgraded at Credit Suisse
International Rectifier (NYSE: IRF) – Downgraded at Citi
Gap Inc (NYSE: GPS) – Removed from Buy list at Goldman
Murphy Oil (NYSE: MUR) – Downgraded at Goldman
Marathon Oil (NYSE: MRO) – Downgraded at Goldman
Biogen Idec (Nasdaq: BIIB) – Downgraded at Goldman
Celgene (Nasdaq: CELG) – Downgraded at Goldman
Target (NYSE: TGT) – Upgraded at JP Morgan, Credit Suisse
Lamar Advertising (Nasdaq: LAMR) – Downgraded at Piper Jaffray
ADC Telecom (Nasdaq: ADCT) – Downgraded at UBS
Bank of America (NYSE: BAC) – Upgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: HANS, MUR, BIIB, BAC

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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