David Moenning's Daily State of the Markets: 4/15
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Will It Take?
With a drop of 137 points, the bears effectively sowed the seeds of a pullback yesterday. However, in light of the fact that since March 10th any and all such efforts have been trampled by a thundering herd, one has to wonder if this is the one that will finally take.
If you will recall, over the past 25 trading days, the S&P has not been down more than two days in a row. In addition, the maximum pullback during the bulls’ latest romp has been a paltry -5.44%. And since this has been one of the best runs in 75 years, even the staunchest doom-and-gloomer has to give the bulls some credit. After all, as of March 9th, most investors believed that the banking system was in big trouble and that the title “National Bank of” might soon bring on an entirely new meaning. But since then, it’s been up, up, and away.
However, anybody who has ever looked at an oscillator knows that this market has gotten overbought – very overbought. And anyone who can define the term ‘market sentiment’ knows that things have gotten a little frothy of late. During normal times, this combination is usually enough to give the ball to the bears for a week or two. But, one thing is for sure; these are most definitely not normal times.
So, after a single down day on the S&P and technically a second on the DJIA, we are left to wonder if a ‘pause that refreshes’ is finally upon us.
Yesterday’s pullback was triggered by several factors. First and foremost was the decline in Retail Sales. While analysts had projected a gain of +0.3%, sales actually fell during the month of March by -1.1%. Thus, the bears were able to argue that the much ballyhooed turnaround in the economy might be farther off in the future than those in the bull camp would have us believe.
In addition, the financials took it on the chin for a change. For example, after roaring higher with a gain of +96% over the past 5 weeks the banking index fell -8.1% yesterday. The drop was led by Goldman Sachs (GS) whose earnings had handily beaten the street by a multiple of 2. However, after a stellar run to the upside, there was some discussion about the quality of Goldman’s earnings and GS fell -11.6% on the day.
While there were several other stories that could have contributed to yesterday’s downside activity, the bottom line is stocks were overbought and due for a pullback. Thus, the only question is if the current setback will take root and stick around for a while or simply be reversed in short order again.
Turning to this morning, we’ve got some fresh economic data to review so let’s get to it. CPI for March came in with a drop of -0.1%, which was below expectations for an increase of +0.1%. When you strip out food and energy, the Core rate increased by +0.2%, which was a tenth above projections. This report continues to show that the one area of the economy nobody has to worry about right now is inflation.
We also got a piece of good news on the economic front this morning. The Empire Manufacturing Index was reported at -15, which, while still negative number, was far better than the consensus estimate for a reading of -35 and last month’s reading of -38.2.
Running through the rest of the pre-game indicators, with the exception of Japan, which was up, the major overseas markets are down fractionally across the board. Crude futures are moving up a bit with the latest quote showing oil trading higher by $0.27 to $49.68. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.78%, while the yield on the 3-month T-Bill is trading at 0.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 25 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about 11 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
CSX Corp (NYSE: CSX) – Reported $0.62 vs. $0.52; Rev: $2.2B vs. $2.24B
Intel (Nasdaq: INTC) – Reported $0.11 vs. $0.03; Rev: $7.15B vs. $6.98B
Linear Technology (Nasdaq: LLTC) – Reported $0.25 vs. $0.21; Rev: $200.9M vs. $203.2M
Today’s Earnings Before the Bell:
Abbott Labs (NYSE: ABT) – Reported $0.73 vs. $0.70
Peabody Energy (NYSE: BTU) – Reported $0.50 vs. $0.94
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Allegheny Energy (NYSE: AYE) – Upgraded at Barclays
Textron (NYSE: TXT) – Downgraded at Citi
Analog Devices (NYSE: ADI) – Initiated Buy at Citi
Fairchild Semi (NYSE: FCS) – Initiated Buy at Citi
Intl Rectifier (NYSE: IRF) – Initiated Buy at Citi
Microchip (Nasdaq: MCHP) – Initiated Buy at Citi
Realty Income (NYSE: O) – Downgraded at Credit Suisse
Teco Energy (NYSE: TE) – Downgraded at Credit Suisse
Frontier Oil (NYSE: FTO) – Downgraded at Deutsche Bank
Starbucks (Nasdaq: SBUX) – Downgraded at Deutsche Bank
Intl Paper (NYSE: IP) – Upgraded at Deutsche Bank
Coca Cola Enterprises (NYSE: CCE) – Removed from Conviction Buy list at Goldman
Pepsi Americas (NYSE: PAS) – Removed from Conviction Sell list at Goldman
Simon Property Group (NYSE: SPG) – Added to Conviction Buy list at Goldman
Dr. Pepper Snapple (NYSE: DPS) – Added to Conviction Buy list at Goldman
Essex Property (NYSE: ESS) – Added to Conviction Sell list at Goldman
Taubman Centers (NYSE: TCO) – Target increased at Goldman
Albemarle (NYSE: ALB) – Downgraded at JP Morgan
Goldman Sachs (NYSE: GS) – Downgraded at JP Morgan
Overseas Shipholding (NYSE: OSG) – Downgraded at JP Morgan
Teekay Corp (NYSE: TK) – Downgraded at JP Morgan
Sysco (NYSE: SYY) – Downgraded at JP Morgan
Yum Brands (NYSE: YUM) – Upgraded at JP Morgan
Eldorado Gold (NYSE: EGO) – Upgraded 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.TopStockPortfolios.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.
With a drop of 137 points, the bears effectively sowed the seeds of a pullback yesterday. However, in light of the fact that since March 10th any and all such efforts have been trampled by a thundering herd, one has to wonder if this is the one that will finally take.
If you will recall, over the past 25 trading days, the S&P has not been down more than two days in a row. In addition, the maximum pullback during the bulls’ latest romp has been a paltry -5.44%. And since this has been one of the best runs in 75 years, even the staunchest doom-and-gloomer has to give the bulls some credit. After all, as of March 9th, most investors believed that the banking system was in big trouble and that the title “National Bank of” might soon bring on an entirely new meaning. But since then, it’s been up, up, and away.
However, anybody who has ever looked at an oscillator knows that this market has gotten overbought – very overbought. And anyone who can define the term ‘market sentiment’ knows that things have gotten a little frothy of late. During normal times, this combination is usually enough to give the ball to the bears for a week or two. But, one thing is for sure; these are most definitely not normal times.
So, after a single down day on the S&P and technically a second on the DJIA, we are left to wonder if a ‘pause that refreshes’ is finally upon us.
Yesterday’s pullback was triggered by several factors. First and foremost was the decline in Retail Sales. While analysts had projected a gain of +0.3%, sales actually fell during the month of March by -1.1%. Thus, the bears were able to argue that the much ballyhooed turnaround in the economy might be farther off in the future than those in the bull camp would have us believe.
In addition, the financials took it on the chin for a change. For example, after roaring higher with a gain of +96% over the past 5 weeks the banking index fell -8.1% yesterday. The drop was led by Goldman Sachs (GS) whose earnings had handily beaten the street by a multiple of 2. However, after a stellar run to the upside, there was some discussion about the quality of Goldman’s earnings and GS fell -11.6% on the day.
While there were several other stories that could have contributed to yesterday’s downside activity, the bottom line is stocks were overbought and due for a pullback. Thus, the only question is if the current setback will take root and stick around for a while or simply be reversed in short order again.
Turning to this morning, we’ve got some fresh economic data to review so let’s get to it. CPI for March came in with a drop of -0.1%, which was below expectations for an increase of +0.1%. When you strip out food and energy, the Core rate increased by +0.2%, which was a tenth above projections. This report continues to show that the one area of the economy nobody has to worry about right now is inflation.
We also got a piece of good news on the economic front this morning. The Empire Manufacturing Index was reported at -15, which, while still negative number, was far better than the consensus estimate for a reading of -35 and last month’s reading of -38.2.
Running through the rest of the pre-game indicators, with the exception of Japan, which was up, the major overseas markets are down fractionally across the board. Crude futures are moving up a bit with the latest quote showing oil trading higher by $0.27 to $49.68. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.78%, while the yield on the 3-month T-Bill is trading at 0.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 25 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about 11 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
CSX Corp (NYSE: CSX) – Reported $0.62 vs. $0.52; Rev: $2.2B vs. $2.24B
Intel (Nasdaq: INTC) – Reported $0.11 vs. $0.03; Rev: $7.15B vs. $6.98B
Linear Technology (Nasdaq: LLTC) – Reported $0.25 vs. $0.21; Rev: $200.9M vs. $203.2M
Today’s Earnings Before the Bell:
Abbott Labs (NYSE: ABT) – Reported $0.73 vs. $0.70
Peabody Energy (NYSE: BTU) – Reported $0.50 vs. $0.94
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Allegheny Energy (NYSE: AYE) – Upgraded at Barclays
Textron (NYSE: TXT) – Downgraded at Citi
Analog Devices (NYSE: ADI) – Initiated Buy at Citi
Fairchild Semi (NYSE: FCS) – Initiated Buy at Citi
Intl Rectifier (NYSE: IRF) – Initiated Buy at Citi
Microchip (Nasdaq: MCHP) – Initiated Buy at Citi
Realty Income (NYSE: O) – Downgraded at Credit Suisse
Teco Energy (NYSE: TE) – Downgraded at Credit Suisse
Frontier Oil (NYSE: FTO) – Downgraded at Deutsche Bank
Starbucks (Nasdaq: SBUX) – Downgraded at Deutsche Bank
Intl Paper (NYSE: IP) – Upgraded at Deutsche Bank
Coca Cola Enterprises (NYSE: CCE) – Removed from Conviction Buy list at Goldman
Pepsi Americas (NYSE: PAS) – Removed from Conviction Sell list at Goldman
Simon Property Group (NYSE: SPG) – Added to Conviction Buy list at Goldman
Dr. Pepper Snapple (NYSE: DPS) – Added to Conviction Buy list at Goldman
Essex Property (NYSE: ESS) – Added to Conviction Sell list at Goldman
Taubman Centers (NYSE: TCO) – Target increased at Goldman
Albemarle (NYSE: ALB) – Downgraded at JP Morgan
Goldman Sachs (NYSE: GS) – Downgraded at JP Morgan
Overseas Shipholding (NYSE: OSG) – Downgraded at JP Morgan
Teekay Corp (NYSE: TK) – Downgraded at JP Morgan
Sysco (NYSE: SYY) – Downgraded at JP Morgan
Yum Brands (NYSE: YUM) – Upgraded at JP Morgan
Eldorado Gold (NYSE: EGO) – Upgraded 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.TopStockPortfolios.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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