David Moenning's Daily State of the Markets: 12/04

The Other R Word

While there has been a great deal of talk this week about the R Word – as in the official ruling that the economy is in a recession – we are very pleased to report that maybe, just maybe the other R Word might be making a comeback. You see, despite lousy earnings news from Research in Motion (RIMM), the suspension of Freeport-McMoRan’s (FCX) dividend because of crummy market conditions, as well as a trifecta of lousy economic data; the stock market displayed a surprising degree of resilience yesterday.

The session got started on a rather dour note as “crackberry” maker RIMM had warned about lower earnings Tuesday night and then was pulled from the coveted Conviction Buy list at Goldman Sachs (GS). Then a couple hours before the bell, Freeport-McMoRan announced they were going to suspend their dividend, hack their spending plans by 50%, and hold off on expanding several mines in response to falling metals prices and the global recession. And while neither of these stories told of anything new, it was just another reminder that things really are bad out there.

And speaking of things being bad, at 8:15 eastern, we got a look at the ADP Employment report. While the ADP report is not really a good predictor of what we’ll get from the Labor Department on Friday, it did highlight the fact that the employment picture in the U.S. is weakening – and fast. As we reported before the bell, ADP said corporate America lost 250,000 jobs last month, which was more than analysts had been expecting.

As if that wasn’t enough bad news on the employment front, we also learned yesterday that according to Challenger, Gray & Christmas, total layoffs in November soared to 181,671. This was not only more than had been expected but also represented the largest monthly total since January 2002.

And since all of the above took place before the screens even began blinking for the day, it is little wonder that the Dow headed down 185 points in the first five minutes of trading. So when we got word that the ISM Non-Manufacturing Index tumbled 7.1 points in November to its worst reading EVER at 37.3, I began hunting for my helmet again. And for you stats fans out there, the ISM’s drop represented a 3.3 standard deviation event – which, in English means that economic activity is simply falling off a cliff.

However, after the requisite rumbles and tumbles, stocks did something they haven’t done for quite some time – they displayed some resilience. And then when the Wall Street Journal broke the story that the Treasury was cooking up a plan to push mortgage rates down, we enjoyed a good old fashioned melt-up into the closing bell.

So, where does this leave us? Unfortunately, we’re still in no man’s land from a chart perspective. The recent downtrend is still intact. But so is the very recent uptrend line. As well as the support zone around 8150ish. However, the fact that stocks did not sell off in the face of really rotten economic news for a change – must be considered a positive.

To be clear, we’re not talking about the start of a new bull move here. We’re simply suggesting that if this very recent trend of resiliency can somehow continue, there is a decent chance that we might just see a bit of a stampede higher as fund managers scramble to avoid getting left behind into the end of the year.

So in closing, be sure to watch those resistance levels, trend lines, and moving averages very closely over the next few days. You see, with only 18 pages left to turn on the calendar, it might not take much to get a year-end party started.

Turning to this morning, it’s all about the retailers as same-store-sales comparisons are starting to roll in. So far it’s only Wal-Mart (WMT) and BJ’s (BJ) reporting positive results that beat expectations.

On the news front, both the Bank of England and the ECB cut rates this morning. The BOE lowered rates by 1% as expected and the ECB cut by 0.75%, which was more than the 0.50% cut that was anticipated.

Running through the rest of the pre-game indicators, the major overseas are mixed with Asia lower and Europe higher. Crude futures are down again with the latest quote showing oil trading lower by $0.98 to $45.81 On the interest rate front, we’ve got the yield on the 10-yr currently trading at 2.64%, the yield on the 3-month T-Bill is at 0.005%, and overnight LIBOR is at 0.52%, which is down from yesterday’s 0.88%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to another lower open. The Dow futures are currently off by about 140 points; the S&P’s are down about 15 points, while the NASDAQ looks to be about 29 points below fair value at the moment.


Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

Toll Brothers (NYSE: TOL) – Reported -$0.23 vs. -$0.47

Same-Store Sales Results:

Apparel:

Gap (NYSE: GPS) – Same Store Sales for Nov -10.0% vs. -17.6%
Limited Brands (NYSE: LTD) – Same Store Sales for Nov -12% vs. -11.8%
American Eagle (NYSE: AEO) – Same Store Sales for Nov -11% vs. -15%
Aeropostale (NYSE: ARO) – Same Store Sales for Nov -5% vs. -2.2%
Pacific Sunwear (Nasdaq: PSUN) – Same Store Sales for Nov -10% vs. -14.1%

Broad line Retailers:

BJs Wholesale (NYSE: BJ) – Same Store Sales for Nov 4.1% vs. 1.9%
Costco (Nasdaq: COST) – Same Store Sales for Nov -5% vs. -1.4%
Target (NYSE: TGT) – Same Store Sales for Nov -10.4% vs. -9.8%
Wal-Mart (NYSE: WMT) – Same Store Sales for Nov 3.4% vs. 1.9%

Department Stores:

Dillard’s (NYSE: DDS) – Same Store Sales for Nov -9% vs. -10%
JC Penny (NYSE: JCP) – Same Store Sales for Nov -11.9% vs. -14%
Macys (NYSE: M) – Same Store Sales for Nov -13.3% vs. -11.8%

Pharmacy:

Walgreen (NYSE: WAG) – Same Store Sales for Nov -0.9% vs. 0.6%

News, Upgrades/Downgrades/Brokerage Research:

Interactive Corp (Nasdaq: IACI) – Downgraded at Barclays
Nokia (NYSE: NOK) – Lowers Q4 industry outlook
Blue Nile (Nasdaq: NILE) – Upgraded at Barclays
Amazon.com (Nasdaq: AMZN) – Upgraded at Barclays
Synopsis (Nasdaq: SNPS) – Upgraded at Citi
Applied Materials (Nasdaq: AMAT) – Upgraded at Citi
KLA Tencor (Nasdaq: KLAC) – Downgraded at Citi
Accenture (NYSE: ACN) – Downgraded at Goldman
Intersil (Nasdaq: ISIL) – Downgraded at Goldman
Posco (NYSE: PKX) – Upgraded at Goldman
Murphy Oil (NYSE: MUR) – Upgraded at JP Morgan
YRC Worldwide (Nasdaq: YRCW) – Upgraded at JP Morgan
General Motors (NYSE: GM) – Debt rating reduced at Moody’s
Reliant Energy (NYSE: RRI) – Upgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: WMT, BJ

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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