David Moenning's Daily State of the Markets: 11/07
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One In A Row
One of my absolute favorite Wall Street-isms describes the short-term nature of the thought process amongst traders in the stock market. I know that I’ve mentioned it before, but this one always makes me smile. As the saying goes, “Once is a trend, twice is a tradition, and three times is a commandment!”
Therefore, it was hardly surprising yesterday to see the stock market advance heartily on the back on the first day lacking of bad news on the credit crisis in what seems like an eternity. In fact, we heard nary a report of multi-billion dollar bank write-downs. There were no discussions of American institutions being forced to can their dividends. And for the first time in a couple of weeks, no heads rolled at the top of a major bank or brokerage firm.
In short, the fact that nothing bad happened put traders in a downright upbeat mood. So much so that our heroes in horns were able to turn oil’s rude run through $97 intraday into a positive (and by the way, the December contract closed at $96.70). Although the argument might be a little thin these days, the thinking was that yesterday’s big rally in crude and raw materials put the spotlight back on the underlying strength of the global economy.
Okay, we’ll admit that this argument sounds like a stretch with all the talk of economic calamity these days, but with the bulls regularly being beaten about the head and chest with negative after negative on the credit mess, the glass-is-half-full gang will take anything they can get. But to be fair, the rally in oil probably had more to do with trading momentum and the pull of the $100 mark, the storm in the North Sea, geopolitical issues, and the worry that today’s inventory numbers will come in on the light side.
So despite overriding concerns that the credit crisis will soon spillover into credit cards and auto loans (don’t look now, but we’re hearing reports that banks are tightening lending standards) as well as the worry that inflation could soon surface due to the relentless combination of dollar weakness and rising commodity prices, the bulls were able to put on a show yesterday afternoon. However, with talk this morning of China diversifying their foreign currency holdings, it looks like the bulls’ fun may be halted at one in a row.
Turning to this morning, as we mentioned China announced that it will begin diversifying its $1.4 Trillion in foreign currency holdings. A senior political figure said that China will favor stronger currencies over weaker ones by buying more Euros in the future. Next, the Financial Times reports that there is a potential fire sale coming in CDO’s due to the fact that most are technically in default thanks to the recent rating agency downgrades from Moody’s and S&P. And it will suffice to say that neither issue is sitting well with traders at the moment as the futures are currently giving back all of yesterday’s gains.
On the economic front, the report on Q3 Non-Farm Productivity came in stronger than expected and the 4.9% gain was the best since 2003. On the inflation side, Unit Labor Costs actually fell -0.2% in the third quarter, which was well below the 1% rate that had been expected.
Running through the rest of the pre-game indicators; while Hong Kong rebounded slightly from Monday’s shelling, the rest of the overseas markets are lower this morning. Crude futures are heading higher again with the latest quote showing the December contract up $1.07 to $97.77.
Interest rates are lower this morning with the 10-yr trading at a yield of 4.34% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking ugly again. The Dow futures are currently off by about 130 points; the S&Ps are down by about 16 points, while the NASDAQ looks to be about 22 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
BMC Software (NYSE: BMC) – Reported $0.48 vs. $0.43
Chesapeake Energy (NYSE: CHK) – Reported $0.72 vs. $0.61
Today’s Earnings Before the Bell:
American Tower (NYSE: AMT) – Reported $0.04 vs. $0.07
Devon Energy (NYSE: DVN) – Reported $1.55 vs. $1.40
Fluor Corp (NYSE: FLR) – Reported $1.07 vs. $1.09
General Motors (NYSE: GM) – Reported ($2.88) vs. ($0.36)
Time Warner (NYSE: TWX) – Reported $0.24 vs. $0.24
News, Upgrades/Downgrades/Brokerage Research:
Campbell Soup (NYSE: CPB) – Downgraded at BofA
Hercules (NYSE: HPC) – Upgraded at Bear Stearns
Sun Microsystems (Nasdaq: JAVA) – Upgraded at Bernstein
Allstate (NYSE: ALL) – Upgraded at Citi
PetroChina (NYSE: PTR) – Downgraded at Credit Suisse
UBS (NYSE: UBS) – Upgraded at JP Morgan
Sysco (NYSE: SYY) – Upgraded at JP Morgan
Northrop Grumman (NYSE: NOC) – Upgraded at UBS
UnitedHealth Group (NYSE: UNH) – Upgraded at UBS
Mr. Moenning holds Long positions in stocks mentioned: FLR
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.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.
One of my absolute favorite Wall Street-isms describes the short-term nature of the thought process amongst traders in the stock market. I know that I’ve mentioned it before, but this one always makes me smile. As the saying goes, “Once is a trend, twice is a tradition, and three times is a commandment!”
Therefore, it was hardly surprising yesterday to see the stock market advance heartily on the back on the first day lacking of bad news on the credit crisis in what seems like an eternity. In fact, we heard nary a report of multi-billion dollar bank write-downs. There were no discussions of American institutions being forced to can their dividends. And for the first time in a couple of weeks, no heads rolled at the top of a major bank or brokerage firm.
In short, the fact that nothing bad happened put traders in a downright upbeat mood. So much so that our heroes in horns were able to turn oil’s rude run through $97 intraday into a positive (and by the way, the December contract closed at $96.70). Although the argument might be a little thin these days, the thinking was that yesterday’s big rally in crude and raw materials put the spotlight back on the underlying strength of the global economy.
Okay, we’ll admit that this argument sounds like a stretch with all the talk of economic calamity these days, but with the bulls regularly being beaten about the head and chest with negative after negative on the credit mess, the glass-is-half-full gang will take anything they can get. But to be fair, the rally in oil probably had more to do with trading momentum and the pull of the $100 mark, the storm in the North Sea, geopolitical issues, and the worry that today’s inventory numbers will come in on the light side.
So despite overriding concerns that the credit crisis will soon spillover into credit cards and auto loans (don’t look now, but we’re hearing reports that banks are tightening lending standards) as well as the worry that inflation could soon surface due to the relentless combination of dollar weakness and rising commodity prices, the bulls were able to put on a show yesterday afternoon. However, with talk this morning of China diversifying their foreign currency holdings, it looks like the bulls’ fun may be halted at one in a row.
Turning to this morning, as we mentioned China announced that it will begin diversifying its $1.4 Trillion in foreign currency holdings. A senior political figure said that China will favor stronger currencies over weaker ones by buying more Euros in the future. Next, the Financial Times reports that there is a potential fire sale coming in CDO’s due to the fact that most are technically in default thanks to the recent rating agency downgrades from Moody’s and S&P. And it will suffice to say that neither issue is sitting well with traders at the moment as the futures are currently giving back all of yesterday’s gains.
On the economic front, the report on Q3 Non-Farm Productivity came in stronger than expected and the 4.9% gain was the best since 2003. On the inflation side, Unit Labor Costs actually fell -0.2% in the third quarter, which was well below the 1% rate that had been expected.
Running through the rest of the pre-game indicators; while Hong Kong rebounded slightly from Monday’s shelling, the rest of the overseas markets are lower this morning. Crude futures are heading higher again with the latest quote showing the December contract up $1.07 to $97.77.
Interest rates are lower this morning with the 10-yr trading at a yield of 4.34% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking ugly again. The Dow futures are currently off by about 130 points; the S&Ps are down by about 16 points, while the NASDAQ looks to be about 22 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
BMC Software (NYSE: BMC) – Reported $0.48 vs. $0.43
Chesapeake Energy (NYSE: CHK) – Reported $0.72 vs. $0.61
Today’s Earnings Before the Bell:
American Tower (NYSE: AMT) – Reported $0.04 vs. $0.07
Devon Energy (NYSE: DVN) – Reported $1.55 vs. $1.40
Fluor Corp (NYSE: FLR) – Reported $1.07 vs. $1.09
General Motors (NYSE: GM) – Reported ($2.88) vs. ($0.36)
Time Warner (NYSE: TWX) – Reported $0.24 vs. $0.24
News, Upgrades/Downgrades/Brokerage Research:
Campbell Soup (NYSE: CPB) – Downgraded at BofA
Hercules (NYSE: HPC) – Upgraded at Bear Stearns
Sun Microsystems (Nasdaq: JAVA) – Upgraded at Bernstein
Allstate (NYSE: ALL) – Upgraded at Citi
PetroChina (NYSE: PTR) – Downgraded at Credit Suisse
UBS (NYSE: UBS) – Upgraded at JP Morgan
Sysco (NYSE: SYY) – Upgraded at JP Morgan
Northrop Grumman (NYSE: NOC) – Upgraded at UBS
UnitedHealth Group (NYSE: UNH) – Upgraded at UBS
Mr. Moenning holds Long positions in stocks mentioned: FLR
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.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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