David Moenning's Daily State of the Markets: 02/07
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Sideways IS a Good Thing
Good morning. Every time the market stalls out for even the briefest period of time, the debate begins as to whether the sideways action is a positive or a negative. The bears argue that the sideways movement is indicative of a loss in upside momentum. But on the other side of the aisle, the bulls are usually quick to point out that they’re just resting and at this time, have definitely earned a break.
Yesterday, the indices floundered around during the session for the second straight day and finished the day only modestly higher. In short, without any economic data to guide them, traders basically found little reason to take action.
Sure, earnings reports continue to flood in but the tone of the season has already been set. Generally speaking, the earnings reports have been solid. And as far as guidance going forward is concerned, while the view could be considered a little cautious, there doesn’t appear to be any real reason to worry. Therefore, while individual names can certainly catch fire on a big surprise, the impact of the earnings season on the overall market appears to be waning.
But getting back to the question at hand, in our humble opinion, the sideways action we’ve seen lately IS a good thing. First and foremost on our list of reasons why involves an apparent lack of selling pressure. We’ve said it before and we’ll say it again; everybody and their brother knows that stocks are a little extended right now and that the bears haven’t managed so much as a 2% pullback in more than six months. Thus, it would be logical to assume that the bears should be chomping at the bit for their turn to run with the ball right now.
However, a check of the action lately offers a different view. So the very fact that the market is moving sideways instead of down has to be considered a good thing.
Not even speeches by Bernanke and friends or testimony by Treasury Secretary Paulson could convince traders to take action yesterday. But in all fairness, no one said anything about the future of monetary policy, so it looks like no news remains good news at the present time.
Turning to this morning, we’ve got the week’s only real economic data to sift through so let’s get to it. The government reported that Non-Farm Productivity for the fourth quarter grew by 3.0%, which was better than anticipated 1.9% level. On the inflation front, Unit Labor Costs actually came in lower than expected at 1.7% versus a consensus estimate for an increase of 2.1%.
And speaking of inflation, Philadelphia Fed President Charles Plosser has just hit the wires with a statement that he believes inflation remains the main risk for 2007. Plosser says he is not convinced that inflation is moving lower and that the Fed may need to raise rates again.
The markets have not moved much on either news item so far this morning and are currently looking to open to the upside.
Running through the rest of pre-game indicators, with the exception of Japan, the major overseas markets are modestly higher. Gold is trading up $0.40 to $659.80 right now. In the oil pits, crude futures are higher this morning with the latest quote showing the March contract up $0.54 to $59.48. Surprisingly, interest rates are fairly steady again this morning with the yield on the 10-year currently trading at 4.77%. And finally, with an hour before the bell, stock futures in the U.S. are looking to open a little higher. The Dow futures are currently up by about 12 points; the S&P’s are 2.90 above board, while the NASDAQ looks to be about 8 points ahead of fair value at the moment on the back of Cisco’s strong earnings report.
Stocks “In Play” This Morning:
Cisco Systems (CSCO) – Reported $0.33 vs. $0.31
Cigna (CI) – Reported $2.61 vs. $2.27
Devon Energy (DVN) – Reported $1.38 vs. $1.36
Moodys (MCO) – Reported $0.64 vs. $0.59
Medimmune (MEDI) – Reported $0.50 vs. $0.53
Nabors Inds (NBR) – Reported $0.97 vs. $1.01
Whirlpool (WHR) – Reported $1.67 vs. $1.47
Level 3 Comm (LVLT) – Price Target increased at Bear Stearns
Marriott Intl (MAR) – Upgraded at AG Edwards
Alltel (AT) – Downgraded at BofA
Equity Residential (EQR) – Downgraded at Citigroup
Forest Labs (FRX) – Downgraded at Citigroup
Tyco (TYC) – Downgraded at Deutsche Bank
Gilead Sciences (GILD) – Added to Conviction Buy List at Goldman Sachs
Ingersoll Rand (IR) – Downgraded at Merrill Lynch
Broadcom (BRCM) – Upgraded at Morgan Stanley
Intl Business Machines (IBM) – Earnings estimates raised at BofA
Mr. Moenning holds Long positions in stocks mentioned: BSC, GS, MER, MS, CSCO, CI, LVLT, IBM
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. Every time the market stalls out for even the briefest period of time, the debate begins as to whether the sideways action is a positive or a negative. The bears argue that the sideways movement is indicative of a loss in upside momentum. But on the other side of the aisle, the bulls are usually quick to point out that they’re just resting and at this time, have definitely earned a break.
Yesterday, the indices floundered around during the session for the second straight day and finished the day only modestly higher. In short, without any economic data to guide them, traders basically found little reason to take action.
Sure, earnings reports continue to flood in but the tone of the season has already been set. Generally speaking, the earnings reports have been solid. And as far as guidance going forward is concerned, while the view could be considered a little cautious, there doesn’t appear to be any real reason to worry. Therefore, while individual names can certainly catch fire on a big surprise, the impact of the earnings season on the overall market appears to be waning.
But getting back to the question at hand, in our humble opinion, the sideways action we’ve seen lately IS a good thing. First and foremost on our list of reasons why involves an apparent lack of selling pressure. We’ve said it before and we’ll say it again; everybody and their brother knows that stocks are a little extended right now and that the bears haven’t managed so much as a 2% pullback in more than six months. Thus, it would be logical to assume that the bears should be chomping at the bit for their turn to run with the ball right now.
However, a check of the action lately offers a different view. So the very fact that the market is moving sideways instead of down has to be considered a good thing.
Not even speeches by Bernanke and friends or testimony by Treasury Secretary Paulson could convince traders to take action yesterday. But in all fairness, no one said anything about the future of monetary policy, so it looks like no news remains good news at the present time.
Turning to this morning, we’ve got the week’s only real economic data to sift through so let’s get to it. The government reported that Non-Farm Productivity for the fourth quarter grew by 3.0%, which was better than anticipated 1.9% level. On the inflation front, Unit Labor Costs actually came in lower than expected at 1.7% versus a consensus estimate for an increase of 2.1%.
And speaking of inflation, Philadelphia Fed President Charles Plosser has just hit the wires with a statement that he believes inflation remains the main risk for 2007. Plosser says he is not convinced that inflation is moving lower and that the Fed may need to raise rates again.
The markets have not moved much on either news item so far this morning and are currently looking to open to the upside.
Running through the rest of pre-game indicators, with the exception of Japan, the major overseas markets are modestly higher. Gold is trading up $0.40 to $659.80 right now. In the oil pits, crude futures are higher this morning with the latest quote showing the March contract up $0.54 to $59.48. Surprisingly, interest rates are fairly steady again this morning with the yield on the 10-year currently trading at 4.77%. And finally, with an hour before the bell, stock futures in the U.S. are looking to open a little higher. The Dow futures are currently up by about 12 points; the S&P’s are 2.90 above board, while the NASDAQ looks to be about 8 points ahead of fair value at the moment on the back of Cisco’s strong earnings report.
Stocks “In Play” This Morning:
Cisco Systems (CSCO) – Reported $0.33 vs. $0.31
Cigna (CI) – Reported $2.61 vs. $2.27
Devon Energy (DVN) – Reported $1.38 vs. $1.36
Moodys (MCO) – Reported $0.64 vs. $0.59
Medimmune (MEDI) – Reported $0.50 vs. $0.53
Nabors Inds (NBR) – Reported $0.97 vs. $1.01
Whirlpool (WHR) – Reported $1.67 vs. $1.47
Level 3 Comm (LVLT) – Price Target increased at Bear Stearns
Marriott Intl (MAR) – Upgraded at AG Edwards
Alltel (AT) – Downgraded at BofA
Equity Residential (EQR) – Downgraded at Citigroup
Forest Labs (FRX) – Downgraded at Citigroup
Tyco (TYC) – Downgraded at Deutsche Bank
Gilead Sciences (GILD) – Added to Conviction Buy List at Goldman Sachs
Ingersoll Rand (IR) – Downgraded at Merrill Lynch
Broadcom (BRCM) – Upgraded at Morgan Stanley
Intl Business Machines (IBM) – Earnings estimates raised at BofA
Mr. Moenning holds Long positions in stocks mentioned: BSC, GS, MER, MS, CSCO, CI, LVLT, IBM
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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