David Moenning�s Daily State of the Markets: 01/26
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Good morning. The markets have taken investors on a roller coaster ride this week. It�s been down on Monday, up on Tuesday, up big on Wednesday, and then down hard on Thursday. The problem is that the big moves on both Wednesday and Thursday seemed to have solid support, yet merely reversed the action from the day prior, which makes it especially difficult to determine which moves are for real.
Adding to investor�s angst is the fact that the reasons behind both big moves were certainly viable. On Wednesday, stocks rallied in response to an improved outlook for earnings in general and tech in particular. And then on Thursday, the action turned ugly once the boys in the bond pits pushed the yield on the 10-year up through an important resistance area.
Though the catalyst for the move in bonds was not entirely clear, Thursday�s closing yield on the 10-year of 4.87% is definitely worthy of note. Not only did traders push prices of the T-Note through the ever-popular 200 day moving average, the closing yield also marked the highest level since August 15th. And since the idea of interest rates remaining low is one of the primary themes often uttered from the bull camp, traders wound up being spooked by the move up in rates.
However, one of the primary reasons for the increased volatility has more to do with the machinations of traders than with the overall fundamental picture. You see, in our humble opinion, both Wednesday and Thursday�s big moves were highlighted by players standing aside once the moves became energetic.
The analogy we like to use to help understand the situation requires us to envision the action in a bull fight. For example, when the bull gets up a head of steam and appears ready to attack its enemy holding the red cape, the bullfighter simply pulls the cape back, stands aside, and lets the beast charge right on by. Obviously, from the bullfighter�s perspective, it makes little sense to stand and fight the bull when it is charging hard in his direction. Thus, bullfighters have learned to stand aside and let the bull cool down before mounting a counter-attack.
The same concept can be applied to trading. Currently, everyone on the planet knows that the market is due for at lease some sort of a pullback. Therefore whenever the bears manage to dig up a good reason to justify some selling, they've been charging hard at their opponents with sell programs blazing.
However, armed with the knowledge that the game has been lopsided for a very long time and that the overall market picture remains positive, our heroes in horns recognize what's happening. Thus, the bulls probably decided that it was more prudent to effectively pull back the cape and stand aside during the early phase of a decline than to defend every inch of their turf. So, in short, the idea is to let the sellers have their way for a while before fighting back. And this is one of the reasons that stocks appeared to sink with no apparent support on Thursday afternoon.
Turning to this morning, we�ve got some more economic data to review, so let�s get to it. The government reported this morning that orders for Durable Goods rose 3.1% in December, which appears to be below the consensus estimate of 3.5%. However, the big story in this report is found when you strip out transportation. The numbers for orders for Durable Goods ex-Transportations were surprisingly strong at 2.3%, which is well above the expectations for an increase of 0.5%. And although the report�s headline appears weak, the ex-transports component is causing the market to view the report as a healthy sign for the economy.
Running through the rest of the pre-game indicators, the foreign markets followed the lead from yesterday�s U.S. trading and were lower across the board. Gold futures are lower this morning with the last trade off $4.60 to $643.50. In the oil pits, crude futures are a little higher again so far with the latest quote showing the March contract up $0.35 to $54.58. Interest rates are also continuing to move up this morning as the 10-year is currently trading with a yield of 4.89%. And finally, with about an hour before the bell, stock futures in the U.S. are looking higher. The Dow futures are currently higher by 24 points; the S&P�s are 2.60 above breakeven, while the NASDAQ looks to be about 4 points ahead of fair value at the moment.
Stocks �In Play� This Morning:
Amgen (AMGN) � Reported $0.90 vs. $0.94
Hartford Financial (HIG) � Reported $2.59 vs. $2.26
Microsoft (MSFT) � Reported $0.26 vs. $0.24, Mentioned positively at Goldman
MEMC Electronic Mat (WFR) � Reported $0.68 vs. $0.59
Fortune Brands (FO) � Reported $1.39 vs. $1.35
Halliburton (HAL) � Reported $0.65 vs. $0.61
Honeywell (HON) � Reported $0.72 vs. $0.72
Gap Inc. (GPS) � Mentioned positively in Business Week
Louisiana Pacific (LPX) � Mentioned positively in Business Week
Wachovia (WB) � Upgraded at BofA
Murphy Oil (MUR) � Upgraded at Bear Stearns
Juniper Networks (JNPR) � Upgraded at Citigroup
Cisco (CSCO) � Downgraded at Citigroup
Nokia (NOK) � Upgraded at Deutsche Bank
Lockheed Martin (LMT) � Upgraded at Friedman, Billings
Imclone (IMCL) � Upgraded at Friedman, Billings
Continental Air (CAL) � Downgraded at Goldman Sachs
Caterpillar (CAT) � Reported $1.32 vs. $1.34
FirstEnergy (FE) � Upgraded at Lehman
Altria (MO) � Goldman expects Kraft spin-off on 1-31
Commerce Bancorp (CBH) � Upgraded at Oppenheimer
Disclosure: Long positions is stocks mentioned: LMT, BSC, GS, LEH, WFR, HAL, CSCO, MO
Note: All earnings reports compared to Reuters consensus estimates
** For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.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.
Good morning. The markets have taken investors on a roller coaster ride this week. It�s been down on Monday, up on Tuesday, up big on Wednesday, and then down hard on Thursday. The problem is that the big moves on both Wednesday and Thursday seemed to have solid support, yet merely reversed the action from the day prior, which makes it especially difficult to determine which moves are for real.
Adding to investor�s angst is the fact that the reasons behind both big moves were certainly viable. On Wednesday, stocks rallied in response to an improved outlook for earnings in general and tech in particular. And then on Thursday, the action turned ugly once the boys in the bond pits pushed the yield on the 10-year up through an important resistance area.
Though the catalyst for the move in bonds was not entirely clear, Thursday�s closing yield on the 10-year of 4.87% is definitely worthy of note. Not only did traders push prices of the T-Note through the ever-popular 200 day moving average, the closing yield also marked the highest level since August 15th. And since the idea of interest rates remaining low is one of the primary themes often uttered from the bull camp, traders wound up being spooked by the move up in rates.
However, one of the primary reasons for the increased volatility has more to do with the machinations of traders than with the overall fundamental picture. You see, in our humble opinion, both Wednesday and Thursday�s big moves were highlighted by players standing aside once the moves became energetic.
The analogy we like to use to help understand the situation requires us to envision the action in a bull fight. For example, when the bull gets up a head of steam and appears ready to attack its enemy holding the red cape, the bullfighter simply pulls the cape back, stands aside, and lets the beast charge right on by. Obviously, from the bullfighter�s perspective, it makes little sense to stand and fight the bull when it is charging hard in his direction. Thus, bullfighters have learned to stand aside and let the bull cool down before mounting a counter-attack.
The same concept can be applied to trading. Currently, everyone on the planet knows that the market is due for at lease some sort of a pullback. Therefore whenever the bears manage to dig up a good reason to justify some selling, they've been charging hard at their opponents with sell programs blazing.
However, armed with the knowledge that the game has been lopsided for a very long time and that the overall market picture remains positive, our heroes in horns recognize what's happening. Thus, the bulls probably decided that it was more prudent to effectively pull back the cape and stand aside during the early phase of a decline than to defend every inch of their turf. So, in short, the idea is to let the sellers have their way for a while before fighting back. And this is one of the reasons that stocks appeared to sink with no apparent support on Thursday afternoon.
Turning to this morning, we�ve got some more economic data to review, so let�s get to it. The government reported this morning that orders for Durable Goods rose 3.1% in December, which appears to be below the consensus estimate of 3.5%. However, the big story in this report is found when you strip out transportation. The numbers for orders for Durable Goods ex-Transportations were surprisingly strong at 2.3%, which is well above the expectations for an increase of 0.5%. And although the report�s headline appears weak, the ex-transports component is causing the market to view the report as a healthy sign for the economy.
Running through the rest of the pre-game indicators, the foreign markets followed the lead from yesterday�s U.S. trading and were lower across the board. Gold futures are lower this morning with the last trade off $4.60 to $643.50. In the oil pits, crude futures are a little higher again so far with the latest quote showing the March contract up $0.35 to $54.58. Interest rates are also continuing to move up this morning as the 10-year is currently trading with a yield of 4.89%. And finally, with about an hour before the bell, stock futures in the U.S. are looking higher. The Dow futures are currently higher by 24 points; the S&P�s are 2.60 above breakeven, while the NASDAQ looks to be about 4 points ahead of fair value at the moment.
Stocks �In Play� This Morning:
Amgen (AMGN) � Reported $0.90 vs. $0.94
Hartford Financial (HIG) � Reported $2.59 vs. $2.26
Microsoft (MSFT) � Reported $0.26 vs. $0.24, Mentioned positively at Goldman
MEMC Electronic Mat (WFR) � Reported $0.68 vs. $0.59
Fortune Brands (FO) � Reported $1.39 vs. $1.35
Halliburton (HAL) � Reported $0.65 vs. $0.61
Honeywell (HON) � Reported $0.72 vs. $0.72
Gap Inc. (GPS) � Mentioned positively in Business Week
Louisiana Pacific (LPX) � Mentioned positively in Business Week
Wachovia (WB) � Upgraded at BofA
Murphy Oil (MUR) � Upgraded at Bear Stearns
Juniper Networks (JNPR) � Upgraded at Citigroup
Cisco (CSCO) � Downgraded at Citigroup
Nokia (NOK) � Upgraded at Deutsche Bank
Lockheed Martin (LMT) � Upgraded at Friedman, Billings
Imclone (IMCL) � Upgraded at Friedman, Billings
Continental Air (CAL) � Downgraded at Goldman Sachs
Caterpillar (CAT) � Reported $1.32 vs. $1.34
FirstEnergy (FE) � Upgraded at Lehman
Altria (MO) � Goldman expects Kraft spin-off on 1-31
Commerce Bancorp (CBH) � Upgraded at Oppenheimer
Disclosure: Long positions is stocks mentioned: LMT, BSC, GS, LEH, WFR, HAL, CSCO, MO
Note: All earnings reports compared to Reuters consensus estimates
** For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.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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