David Moenning's Daily State of the Markets: 4/24

April 24, 2009 9:31 AM EDT

Is There a Message Here?

If you haven't done so recently, pull up a daily chart of the Dow or S&P 500 over the past 3 - 6 months. What is now clear is the two blue-chip indices have been going sideways for the past couple of weeks. Thus, it is easy to argue that we have a consolidation phase going at the current time.

However, with the recent rally now on pause and just about every analyst still looking for a pullback of 5% or so, it is interesting that we haven't seen more downside pressure. Sure, we had a scary day on Monday as everyone freaked out about the banks again. But since then, the Dow has gained about
+1.5%, the S&P is up +2.4%, and the NASDAQ is back to within spitting distance of its cycle highs.

This despite the fact that we've had some bad news hit the tape and there remains a fair amount of uncertainty in at least a couple of areas. For example, stocks have advanced since Monday despite the fact that that the banks are about to receive their report cards on the "stress tests" today. Stocks are up despite the fact that we've seen some economic data which puts a damper on the idea that the turn is here. And stocks have avoided further decline despite the fact that the earnings season has been a mixed bag and companies are providing virtually no visibility with regard to the coming quarter.

So, what does this tell us, if anything? From our perch, the bottom line appears to be that our heroes in horns are continuing to get the benefit of the doubt right now.

Yes, stocks were overbought and the rally was extended. However, let's keep in mind that there are two ways to work off an overbought condition - stocks can go down or go sideways for a period of time. And while this game can always change on a moment's notice, it looks like the latter is occurring
right now.

We will get into the data in more detail in our weekend report, however history shows that we should be looking for a correction of more than -5% in the first three to six months after a bear market bottom. It is also important to note that this early correction tends to be the largest of the entire run for the roses.

So, the point to this morning's missive is this: With the bulls still getting the benefit of the doubt, it is time to put away the fear and recognize that the coming correction should be used to increase exposure.

Turning to this morning, the news of the day is the bank stress tests. But unfortunately, we won't get any public report on the subject until May 4th. However, there are bound to be some whispers on the subject between now and then.

On the economic front, orders for durable goods in March came in a bit better than expectations at -0.8% versus -1.5%. When you strip out transportations, the song remains the same with orders off -0.6% versus expectations for a larger decline of -1.2%.

Running through the rest of the pre-game indicators, with the exception of Japan, the major overseas markets are higher. Crude futures are moving higher with the latest quote showing oil trading up $0.94 to $50.56. On the interest rate front, we've got the yield on the 10-yr currently at 2.97%, while the yield on the 3-month T-Bill is trading at 0.09%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 13 points; the S&P's are up about 2 points, while the NASDAQ looks to be about 9 points above fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:
AmeriCredit (NYSE: ACF) - Reported $0.07 vs. -$0.30
Align Technology (Nasdaq: ALGN) - Reported $0.05 vs. $0.00
Amgen (Nasdaq: AMGN) - Reported $1.08 vs. $1.14
Amazon.com (Nasdaq: AMZN) - Reported $0.41 vs. $0.31
American Express (NYSE: AXP) - Reported $0.32 vs. $0.14
Burlington Northern (NYSE: BNI) - Reported $1.13 vs. $0.96
Bucyrus (Nasdaq: BUCY) - Reported $0.76 vs. $0.67
Cheesecake Factory (Nasdaq: CAKE) - Reported $0.17 vs. $0.10
Chubb (NYSE: CB) - Reported $1.43 vs. $1.38
CF Industries (NYSE: CF) - Reported $1.28 vs. $0.43
Con-way (NYSE: CNW) - Reported -$0.42 vs. -$0.24
Columbia Sportswear (Nasdaq: COLM) - Reported $0.20 vs. $0.07
DeVry (NYSE: DV) - Reported $0.74 vs. $0.67
Eastman Chemical (NYSE: EMN) - Reported $0.25 vs. $0.14
Federated Investors (NYSE: FII) - Reported $0.47 vs. $0.48
Host Hotels & Resorts (NYSE: HST) - Reported $0.10 vs. $0.11
Juniper Networks (Nasdaq: JNPR) - Reported $0.17 vs. $0.17
KLA-Tencor (Nasdaq: KLAC) - Reported -$0.34 vs. -$0.27
Lattice Semiconductor (Nasdaq: LSCC) - Reported -$0.03 vs. -$0.03
Mohawk (NYSE: MHK) - Reported -$1.55 vs. -$0.85
Microsoft (MSFT) - Reported $0.39 vs. $0.39
Netflix (Nasdaq: NFLX) - Reported $0.37 vs. $0.35
PMC-Sierra (Nasdaq: PMCS) - Reported -$0.02 vs. $0.00
SunPower (Nasdaq: SPWRA) - Reported $0.05 vs. $0.23
Western Digital (NYSE: WDC) - Reported $0.39 vs. $0.12
MEMC Electronic Materials (NYSE: WFR) - Reported $0.01 vs. -$0.04
YRC Worldwide (Nasdaq: YRCW) - Reported -$2.63 vs. -$1.77

Today's Earnings Before the Bell:
American Electric Power (NYSE: AEP) - Reported $0.89 vs. $0.81
Ford NYSE: (NYSE: F) - Reported -$0.75 vs. -$1.23
Honeywell (NYSE: HON) - Reported $0.54 vs. $0.56
ITT Corp (NYSE: ITT) - Reported $0.72 vs. $0.60
3M (NYSE: MMM) - Reported $0.81 vs. $0.86
Schlumberger (NYSE: SLB) - Reported $0.78 vs. $0.73
Stake 'n Shake (NYSE: SNS) - Reported $0.08 vs. -$0.10
Stanley Works (NYSE: SWK) - Reported $0.48 vs. $0.49
Xerox (NYSE: XRX) - Reported $0.05 vs. $0.04

Upgrades/Downgrades/Brokerage Research:
Quicksilver Resources (NYSE: KWK) - Upgraded at BAC/MER
Newell Rubbermaid (NYSE: NWL) - Downgraded at BAC/MER
Diamond Offshore (NYSE: DO) - Downgraded at BAC/MER
CIT Group (NYSE: CIT) - Downgraded at Barclays, Credit Suisse
Research in Motion (Nasdaq: RIMM) - Upgraded at Citi
United Parcel Service (NYSE: UPS) - Downgraded at Credit Suisse
NII Holdings (Nasdaq: NIHD) - Downgraded at Credit Suisse
Prudential (NYSE: PRU) - Upgraded at Goldman
Hess Corp (NYSE: HES) - Upgraded at Goldman
EOG Resources (NYSE: EOG) - Upgraded at Goldman
CBL & Assoc Properties (NYSE: CBL) - Upgraded at Goldman
Abbott Labs (NYSE: ABT) - Upgraded at Goldman
Petrobras (NYSE: PBR) - Downgraded at Goldman
Simon Property Group (NYSE: SPG) - Downgraded at Goldman
Charles River Labs (NYSE: CRL) - Downgraded at Goldman
PetroChina NYSE: (NYSE: PTR) - Downgraded at JP Morgan
Microsoft (Nasdaq: MSFT) - Upgraded at Morgan Stanley
Marriott (NYSE: MAR) - Downgraded at Oppenheimer, Wachovia
MEMC Electronic Materials (NYSE: WFR) - Downgraded at RBC Capital
IMS Health (NYSE: RX) - Downgraded at RW Baird
DeVry (NYSE: DV) - Downgraded at RW Baird
Amgen (AMGN) - Upgraded at RW Baird
Chipotle Mexican Grill (NYSE: CMG) - Downgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: AMZN

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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