David Moenning's Daily State of the Markets: 4/18

Making A Break?

Here's a link to listen to an Audio Version of the report: http://PlayAudioMessage.com/play.asp?m=498135&f=JVUGKU&ps=13&c=FFFFFF&pm=2&h=25

With the major indices back at the top of the trading range once again, one might have expected weak economic data and a couple of crummy earnings reports to put the bears back in business yesterday. But, somehow, some way, the bulls were able to hang in there during Thursday’s session so as to remain in position to make a break for it on this morning’s good news.

Things didn't look good for the bull camp in the early going yesterday. Oil touched $115 intraday, Pfizer (PFE) disappointed, Nokia (NOK) was cautious about the future, and the economic data was a little discouraging. For example, the Philly Fed General Business Activity Index fell 7.5 points to -24.9 in April, which was below the expectations for a slight uptick, a level only seen during recessions, and the lowest reading since February 2001.

However, the prevailing sentiment on Wall Street seems to be that we have seen the worst in the credit crisis. And while no one is suggesting that it’s time to bomb into stocks with everything you’ve got, there is a lot of talk about the game of shorting the financials being over. How else would you explain Merrill Lynch's (MER) big pop higher yesterday on the back of more writedowns and cautious comments about the future?

Another explanation for the somewhat surprising strength recently has to do with the fact that we aren’t seeing any incremental bad news right now. Coming into earnings season, there was a fair amount of fear of the unknown. In short, no one really knew what awful things might be lurking out there with gasoline at $3.50 and the economy slowing.

However, the Wall Street Journal reported this morning that while banks and companies with direct exposure to the consumer are feeling the pain of a softer economy, many really big businesses, particularly those that sell products abroad, are actually faring better than expected. With about 20% of the companies in the S&P 500 having reported earnings so far, overall Q1 earnings are down 22.1%, which, at first blush, isn’t terribly encouraging. However, when you take out the mess in the financials, earnings are actually up +8.2%. And hey, that isn’t too bad at all -- and is nothing close to the doom and gloom that had been projected during the middle of March.

Turning to this morning, the upbeat attitude continues to prevail after the earnings from Google (GOOG), Citigroup (C), Honeywell (HON), and Caterpillar (CAT) were all better than expectations. Thus, it would appear that the bulls will be attempting to make a break for it today. So, although it is Friday and you may be tempted to hit the golf course, you may want to stay tuned because this ought to be interesting.

Running through the rest of the pre-game indicators; the foreign markets are mostly higher on the back of Google's report. Crude futures are moving down for a change with the latest quote showing oil lower by $1.84 to $113.02. Interest rates are continuing to surge higher with the 10-yr trading at a yield of 3.78% so far. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to strong open. The Dow futures are currently ahead by about 165 points; the S&P’s are up about 21 points, while the NASDAQ looks to be more than 40 points above fair value at the moment.

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:

Advanced Micro Devices (NYSE: AMD) – Reported -$0.51 vs. -$0.47
Capital One (NYSE: COF) – Reported $1.35 vs. $1.44
Evergreen Solar (Nasdaq: ESLR) – Reported $0.00 vs. -$07
E-Trade Financial (Nasdaq: ETFC) – Reported -$0.15 vs. -$0.10
Google (Nasdaq: GOOG) – Reported $4.84 vs. $4.53
Intuitive Surgical (Nasdaq: ISRG) – Reported $1.12 vs. $0.98
SanDisk (Nasdaq: SNDK) – Reported $0.21 vs. $0.27

Today's Earnings Before the Bell:

Citigroup (NYSE: C) – Reported -$1.02 vs. -$0.96
Caterpillar (NYSE: CAT) – Reported $1.45 vs. $1.33
Honeywell (NYSE: HON) – Reported $0.85 vs. $0.82
Xerox (NYSE: XRX) – Reported $0.27 vs. $0.27

News, Upgrades/Downgrades/Brokerage Research:

China Mobile (NYSE: CHL) – Mentioned positively in Barron's
Textron (NYSE: TXT) – Downgraded at Credit Suisse
Google (Nasdaq: GOOG) – Upgraded at Jefferies
Franklin Resources (NYSE: BEN) – Downgraded at JP Morgan
Nokia (NYSE: NOK) – Downgraded at JP Morgan, UBS
AstraZeneca (NYSE: AZN) – Downgraded at JP Morgan
Capital One Financial (NYSE: COF) – Downgraded at Keefe, Bruyette and Piper Jaffray
Gap Inc (NYSE: GPS) – Downgraded at Lehman
Baxter Intl (NYSE: BAX) – Upgraded at William Blair

Mr. Moenning holds Long positions in stocks mentioned: ISRG, CHL

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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

You May Also Be Interested In

• Midday movers: Travelers, JB Hunt fall; United Airlines rises
• APi Group Corporation (APG) Prices 11M Share Offering at $37.50/sh
• After-hours movers: Alcoa rises; Equifax and Las Vegas Sands fall