David Moenning's Daily State of the Markets: 6/5

June 5, 2009 10:03 AM EDT

Not Entirely Logical, But...

While it may have been logical to assume that Thursday would be a quiet day in front of the all-important jobs report, I think everyone will agree that logic doesn’t always have a place in the stock market. Instead of quivering in front of the Big Kahuna of economic reports or recoiling after the very long list of retailers that turned in numbers for May that were nothing short of dismal, stocks actually advanced smartly on Thursday. And so just like that, the Dow and the NASDAQ are back to within… no wait, scratch that… both actually finished at new cycle highs yesterday.

So, with some lousy data on the state of the shopping mall and a big economic number on tap, the question of the day yesterday was: Why the heck did stocks go up?

In short, there were four not-so straightforward reasons for the rally. First, the weekly Jobless Claims were NOT worse than expected. Shake your head if you’d like, but let’s face it folks; we’re at that point in the cycle where if a number isn’t bad, it is considered to be good.

Next up, the word on the Street was that this morning’s jobs report could actually come in a bit better than expected. The thinking is that since the ADP report was a smidge better than expectations and then everybody knows that the government added to the payrolls, there might be a chance that the expectations for the Jobs report are a little too negative. So, when we dive into the report in a matter of minutes, we should remember that there is the consensus number and then the “whisper number.”

And if those two reasons aren’t enough to make a bear tear their hair out, our third reason for yesterday’s jaunt to new highs most assuredly will. Goldman Sachs (GS) published a report saying that oil is heading to $85 by the end of the year. I know what you’re thinking; how exactly is this good, again?

Although there is a bit of economic gymnastics involved, the idea of oil heading higher is purported to be a good thing for the stock market. The logical argument is that higher oil prices would be a bad thing for the consumer. And since the consumer makes up two-thirds of GDP…

However, what traders see here is that projections for higher oil prices indicate both increasing demand due to global growth and an improving economy here in the U.S. All within six short months. Or as Goldman put it: The recent rally has been largely a function of an unwinding of dislocations caused by the credit crisis. Thus, an improving economy should drive additional upside.

And finally, while also not entirely logical, the renowned Rogers told CNBC viewers that he doesn’t have any shorts in the stock market right now. And since, in his words, “there have only been a few times in my career when I don’t have any shorts on,” traders also took this to mean that the deep thinking Mr. Rogers is upbeat on the prospects for the market going forward – well, at least for the short-term.

Turning to this morning, let’s get right to the data. In short, the jobs report was a stunner. Nonfarm Payrolls for May fell by just 345,000, which was WELL below the consensus estimate for job losses of 520,000 and also below the whisper numbers down at 400ish. In addition, April’s job losses were revised lower to 504K vs. 539K. However, the Unemployment Rate jumped to 9.4%. But, the good news is the country’s job losses were the smallest since last September.

Running through the rest of the pre-game indicators, the major overseas markets are higher across the board. Crude futures are moving higher with the latest quote showing oil trading up $1.28 at $70.09. On the interest rate front, we’ve got the yield on the 10-yr trading way up to 3.88%, while the yield on the 3-month T-Bill is trading at 0.14%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a strong open. The Dow futures are currently ahead by about 120 points; the S&P’s are up about 15 points, while the NASDAQ looks to be about 13 points above fair value at the moment.

Stocks “In Play” This Morning:

Upgrades/Downgrades/Brokerage Research:

DuPont (NYSE: DD) – Downgraded at BofA/Merrill
Spirit Aerosystems (NYSE: SPR) – Upgraded at BofA/Merrill
Vail Resorts (NYSE: MTN) – Upgraded at Barclays
Harley Davidson (NYSE: HOG) – Downgraded at Citi
Applied Materials (Nasdaq: AMAT) – Downgraded at Citi
Lam Research (Nasdaq: LRCX) – Downgraded at Citi
Teradyne (NYSE: TER) – Downgraded at Citi
Pulte Home (NYSE: PHM) – Upgraded at Credit Suisse
NVR Inc (NYSE: NVR) – Downgraded at Credit Suisse
Temple Inland (NYSE: TIN) – Upgraded at Deutsche Bank
CNOOC (NYSE: CEO) – Added to Conviction Buy list at Goldman
Barry Petroleum (NYSE: BRY) – Upgraded at Goldman
Questar Corp (NYSE: STR) – Downgraded at Goldman
Gap Inc (NYSE: GPS) – Downgraded at Goldman
Axsys Technologies (Nasdaq: AXYS) – Downgraded at JP Morgan
Wind River (Nasdaq: WIND) – Downgraded at JP Morgan
UAL Corp (Nasdaq: UAUA) – Downgraded at JP Morgan
Chipotle Mexican Grill (NYSE: CMG) – Downgraded at Oppenheimer
McDonalds (NYSE: MCD) – Target increased at UBS

Long positions in stocks mentioned: 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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• Goldman Sachs Conviction Buy List
• Credit Suisse
• Deutsche Bank
• UBS
• JPMorgan
• Nonfarm Payrolls
• Goldman Sachs
• Citi
• Banc of America
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• David Moenning
• Crude Oil
• Layoffs
• EIM Group

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