David Moenning's Daily State of the Markets: Calmer, But Not Necessarily Better
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Calmer, But Not Necessarily Better
Market technicians will tell you that a picture is worth a thousand words and that the tape tells all. I will concede that technical analysis has considerable value in trying to divine buy and sell points when trading individual stocks. But, I will also have to admit that I struggle mightily with the idea of blindly trusting a chart to help me gauge the state of the market's big-picture environment.
Although the above statement is likely to generate an objection from one of my oldest friends (who also just happens to be the guy who taught me how to draw a trendline in 1981), I will use yesterday's action (or lack thereof) as a case in point. You see, if one simply looked at the chart, you would likely conclude that it was a typical Thursday in late August, where nothing much happened and spending time in the office was a waste of time.
However, in our humble opinion, this assumption couldn't be more wrong. Yes, the market indices did do next to nothing on the session. But that doesn't mean that nothing of importance occurred. In fact, just the opposite is true and the day actually told us a lot about the current environment.
Stocks looked like they were well on their way toward continuing their winning streak in the early going yesterday after Bank of America decided to invest $2 Billion into Countrywide Financial (CFC). The move provided liquidity to the company and also appeared to give traders good deal of confidence. But unfortunately, the enthusiasm quickly faded.
For those of us that weren't on the golf course, the reasons for the rally failure were worthy of note. First, there was CNBC's interview with Countrywide Financial's CEO, who said that the market environment for mortgages and commercial paper is "certainly not getting better."
Continuing on the subject of the credit crunch, Moody's chimed in on the commercial paper market by saying that firms like Countrywide are going to have difficulty obtaining further funding right now. The problem here is if Countrywide can't get short-term funding, then they can't make mortgage commitments. And a tighter mortgage market isn't going to be much help to the consumer.
Next, it is becoming obvious that a rather robust debate is developing on whether or not our economy is heading into recession. While most call it a coin flip at this point, there are some solid arguments on both sides of this one.
As if the discussions of the credit crunch and recession weren't enough, Bill Gross of PIMCO, who is the largest manager of bonds in the world, came out and said that the Government is going to need to bail out the 1 - 3 million American homeowners who are going to be squeezed out of their homes because of subprime mortgage resets.
And finally, there continues to be a great deal of discussion about the Fed and what their next move should or will be. Most analysts agree that Mr. Bernanke will definitely cut interest rates on September 18th. But, the next question is, by how much? Hmmm.
So, in sum, while the charts told us it was a calm day, it doesn't necessarily mean that things are any better - or that we are out of the woods.
Turning to this morning, we've got some economic data to review in the form of the Durable Goods report. The Government reported that orders for items that last awhile in July increased by +5.9%, which was well above the consensus estimate for a gain of +1.0%. And when you strip out transportation, the numbers show a rise of +3.7% which again, was significantly higher than the expectations for a gain of +0.6%. Whether this number is positive because it shows the economy is doing better than expectations or a negative because the Fed might not cut remains to be seen,
so stay tuned.
Running through the rest of the pre-game indicators, the overseas markets are mixed this morning as credit jitters have returned. Crude futures are higher by $0.08 with the latest quote at $69.91. Interest rates are rising this morning as the 10-yr is trading with a yield of 4.63% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking flat right now. The Dow futures are currently ahead by about 4 points; the S&Ps are up by about a point, and the NASDAQ looks to be about a point below fair value at the moment.
Stocks "In Play" This Morning:
Today's Earnings Before the Bell:
Heinz (NYSE: HNZ) - Reported $0.63 vs. $0.61
News, Upgrades/Downgrades/Brokerage Research:
Gamestop (NYSE: GME) - Upgraded at First Albany
Americredit Corp (NYSE: ACF) - Downgraded at Goldman Sachs
Pepsi Bottling Group (NYSE: PBG) - Upgraded at HSBC
Kroger (NYSE: KR) - Upgraded at HSBC
Brocade Communications (Nasdaq: BRCD) - Upgraded at JMP Securities
Foot Locker (NYSE: FL) - Downgraded at JP Morgan
Mentor Graphics (Nasdaq: MENT) - Upgraded at Merrill Lynch
Nucor (NYSE: NUE) - Upgraded at Merrill Lynch
Steel Dynamics (Nasdaq: STLD) - Upgraded at Merrill Lynch
Arcelor Mittal (NYSE: MT) - Upgraded at Merrill Lynch
RF Microdevices (Nasdaq: RFMD) - Upgraded at Morgan Stanley
Mr. Moenning holds Long positions in stocks mentioned: MER
Note: All earnings reports compared to Reuter's consensus estimates
** For More of David Moenning's Market Analysis, Stock Portfolios, and Trading Ideas, visit:
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.
Market technicians will tell you that a picture is worth a thousand words and that the tape tells all. I will concede that technical analysis has considerable value in trying to divine buy and sell points when trading individual stocks. But, I will also have to admit that I struggle mightily with the idea of blindly trusting a chart to help me gauge the state of the market's big-picture environment.
Although the above statement is likely to generate an objection from one of my oldest friends (who also just happens to be the guy who taught me how to draw a trendline in 1981), I will use yesterday's action (or lack thereof) as a case in point. You see, if one simply looked at the chart, you would likely conclude that it was a typical Thursday in late August, where nothing much happened and spending time in the office was a waste of time.
However, in our humble opinion, this assumption couldn't be more wrong. Yes, the market indices did do next to nothing on the session. But that doesn't mean that nothing of importance occurred. In fact, just the opposite is true and the day actually told us a lot about the current environment.
Stocks looked like they were well on their way toward continuing their winning streak in the early going yesterday after Bank of America decided to invest $2 Billion into Countrywide Financial (CFC). The move provided liquidity to the company and also appeared to give traders good deal of confidence. But unfortunately, the enthusiasm quickly faded.
For those of us that weren't on the golf course, the reasons for the rally failure were worthy of note. First, there was CNBC's interview with Countrywide Financial's CEO, who said that the market environment for mortgages and commercial paper is "certainly not getting better."
Continuing on the subject of the credit crunch, Moody's chimed in on the commercial paper market by saying that firms like Countrywide are going to have difficulty obtaining further funding right now. The problem here is if Countrywide can't get short-term funding, then they can't make mortgage commitments. And a tighter mortgage market isn't going to be much help to the consumer.
Next, it is becoming obvious that a rather robust debate is developing on whether or not our economy is heading into recession. While most call it a coin flip at this point, there are some solid arguments on both sides of this one.
As if the discussions of the credit crunch and recession weren't enough, Bill Gross of PIMCO, who is the largest manager of bonds in the world, came out and said that the Government is going to need to bail out the 1 - 3 million American homeowners who are going to be squeezed out of their homes because of subprime mortgage resets.
And finally, there continues to be a great deal of discussion about the Fed and what their next move should or will be. Most analysts agree that Mr. Bernanke will definitely cut interest rates on September 18th. But, the next question is, by how much? Hmmm.
So, in sum, while the charts told us it was a calm day, it doesn't necessarily mean that things are any better - or that we are out of the woods.
Turning to this morning, we've got some economic data to review in the form of the Durable Goods report. The Government reported that orders for items that last awhile in July increased by +5.9%, which was well above the consensus estimate for a gain of +1.0%. And when you strip out transportation, the numbers show a rise of +3.7% which again, was significantly higher than the expectations for a gain of +0.6%. Whether this number is positive because it shows the economy is doing better than expectations or a negative because the Fed might not cut remains to be seen,
so stay tuned.
Running through the rest of the pre-game indicators, the overseas markets are mixed this morning as credit jitters have returned. Crude futures are higher by $0.08 with the latest quote at $69.91. Interest rates are rising this morning as the 10-yr is trading with a yield of 4.63% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking flat right now. The Dow futures are currently ahead by about 4 points; the S&Ps are up by about a point, and the NASDAQ looks to be about a point below fair value at the moment.
Stocks "In Play" This Morning:
Today's Earnings Before the Bell:
Heinz (NYSE: HNZ) - Reported $0.63 vs. $0.61
News, Upgrades/Downgrades/Brokerage Research:
Gamestop (NYSE: GME) - Upgraded at First Albany
Americredit Corp (NYSE: ACF) - Downgraded at Goldman Sachs
Pepsi Bottling Group (NYSE: PBG) - Upgraded at HSBC
Kroger (NYSE: KR) - Upgraded at HSBC
Brocade Communications (Nasdaq: BRCD) - Upgraded at JMP Securities
Foot Locker (NYSE: FL) - Downgraded at JP Morgan
Mentor Graphics (Nasdaq: MENT) - Upgraded at Merrill Lynch
Nucor (NYSE: NUE) - Upgraded at Merrill Lynch
Steel Dynamics (Nasdaq: STLD) - Upgraded at Merrill Lynch
Arcelor Mittal (NYSE: MT) - Upgraded at Merrill Lynch
RF Microdevices (Nasdaq: RFMD) - Upgraded at Morgan Stanley
Mr. Moenning holds Long positions in stocks mentioned: MER
Note: All earnings reports compared to Reuter's consensus estimates
** For More of David Moenning's Market Analysis, Stock Portfolios, and Trading Ideas, visit:
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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