David Moenning's Daily State of the Markets: 07/02

GM To The Rescue?

Here’s a link to listen to an Audio Version of the report:

General Motors has been in the headlines a lot lately, but not in a good way as the auto maker’s stock price has been diving to levels not seen in twenty or thirty years (sorry to be so vague, but my data only goes back to 1992). Some analysts have even gone so far as to say the company is no longer even relevant as its market cap now just a little over $6 billion. This is kind of sad when you consider that GM was once a proxy for the health of the overall market. However, yesterday it was none other than the much maligned GM that helped rescued the market from yet another triple-digit problem.

In the early going, it looked like the new quarter was going to be an instant replay of the last one as stocks dove in response to higher oil prices and a never ending string of bad news in the banking sector. This time, it was word that the problems in the housing market across the pond was pressuring the banks and that things weren’t likely to get better anytime soon.

But with the Dow down more than 100 points in the first half-hour, the bulls finally got something to work with. Everybody knew that the stock market was oversold and was due for a bounce. However, the news flow had been so gosh-awful lately, many had given up hope for a rebound.

At 10:00 am Eastern time though, the ISM released their manufacturing composite. Formerly referred to as the Purchasing Managers Index, the composite rose +0.6 point in June, which, believe it or not was actually better than the consensus estimate for a decline of -1.6 points. What’s more, the advance caused the index to poke its head back over the all-important 50 mark, which is intended to be the line of demarcation between expansion and contraction in the manufacturing sector. And since this was the first reading over 50 since January, traders began to rethink the theory that the sky is falling on the economy.

Unfortunately, the good news didn’t last as oil prices and a simply abysmal report from Ford (F) continued to pressure the market. That is until GM reported their sales, anyway. With Ford’s sales dropping more than 28%, investors weren’t exactly optimistic as they awaited the numbers from GM. So, when GM reported that their sales were down only 8.3% - which was far better than the expectations for a decline of -19.3% - traders started to celebrate.

More accurately, traders probably spent the remainder of the afternoon covering shorts in front of the long holiday weekend. But after the shellacking that the bulls have taken lately, moving up 200 points off the bottom felt like a good thing.

Turning to this morning, ADP reported that private sector jobs fell by -79K last month, which was a bit higher than the expectations for a drop of -20K. In addition, the ECB continues to ratchet up the rhetoric on inflation in front of tomorrow’s expected rate hike. Trichet said, "We central banks have a big responsibility, if we're not decisive, there's a risk of inflation exploding.”

Running through the rest of the pre-game indicators; foreign markets are mixed by region with Asia down and Europe up. Crude futures are flat this morning with the latest quote showing oil trading higher by $0.07 to $141.04. Interest rates are up a bit this morning with the yield on the 10-yr currently trading at 4.00%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a slightly higher open. The Dow futures are currently ahead by about 20 points; the S&P’s are up by about 5 points, while the NASDAQ looks to be about 10 points above fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Exxon Mobil (NYSE: XOM) – Upgraded at Bernstein
JM Smucker (NYSE: SJM) – Upgraded at Deutsche Bank
UAL Corp (Nasdaq: UAUA) – Upgraded at Goldman
BJ Wholesale Club (NYSE: BJ) – Upgraded at JP Morgan
General Motors (NYSE: GM) – Downgraded at Merrill
Reynolds American (NYSE: RAI) – Upgraded at Morgan Stanley
Denbury Resources (NYSE: DNR) – Downgraded at Morgan Stanley
Plains Exploration (NYSE: PXP) – Downgraded at Morgan Stanley
Pioneer Natural Resources (NYSE: PXD) – Upgraded at Morgan Stanley
Allied Waste (NYSE: AW) – Downgraded at UBS
Merrill Lynch (NYSE: MER) – estimates reduced at UBS
Brown Forman (NYSE: BF.B) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

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]

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