David Moenning's Daily State of the Markets: 6/8

It Isn’t the News…

As the saying goes, “It isn’t the news; it’s how the market reacts to the news that counts.” So, the fact that the market reacted poorly to a pretty darn good economic headline on Friday causes us to raise an eyebrow – as well as our odds of a pullback in the near-term.

While one day does not a trend make, this market’s modus operandi has been to rally on any hint of good economic news. The thinking has been that with traders looking for a turn in the economy, any data that wasn’t an abject disaster has been viewed as good news. However, Friday’s action could represent the first step in a change in that thought process.

The very first thought that jumped into my head after seeing the market dive on what is arguably the best piece of economic data we’ve had so far in this cycle is that traders were simply implementing the age-old strategy of “selling the news.” It was no secret that the market had been looking for a jobs number that was better than the consensus. With the ADP report coming in a bit better than expected and the knowledge that the government had hired a bunch of people to start doing the census, the whisper number for the Nonfarm Payroll report was down in the mid to low 400’s.

However, when the news hit the wires that the economy had lost just 345,000 jobs, logic would dictate that the bulls should have had reason to celebrate. So, the second thing that came to mind was that we were seeing a character change in the market. After all, the glass-is-half-empty crowd has been howling lately about the market having gone too far, too fast and that stocks simply cannot go any higher.

To a certain degree and especially in some stocks, our furry friends may have a point. Take a peek at a daily chart of Apple (AAPL), Research in Motion (RIMM), Joy Global (JOYG), or Google (GOOG) over the last 3 months and the bear case becomes fairly evident. However, the bulls suggest a quick glance at a weekly chart of the Dow, S&P, and NASDAQ as evidence that this “mini bull” still has some room to roam to the upside.

The final thing that occurred to us on Friday was the fact that it was, well, Friday. While stocks are overbought and probably due for a pullback of sorts, it is commonly accepted that Fridays are weak days when the bulls are in charge and strong days when the bears have the ball. (Think about what you would or wouldn’t want to hold over the weekend if you were a trader for an explanation of this phenomenon.)

So, while the session wasn’t a disaster – the Dow did gain a few points after all – we will want to watch the 920 area on the S&P and the 8600 zone on the Dow very carefully. A pullback to “test” last week’s breakout would be logical about now and perfectly acceptable. However, if stocks reenter the old trading range, we’ll have a “breakout fakeout” on our hands and probably some more downside to endure. But remember, we continue to be of the mind that the dips are to be used for buying these days.

Turning to this morning, we don’t have any economic news to review before the bell and so far at least, it looks like the bears are picking up where they left off on Friday.

Running through the rest of the pre-game indicators, with the exception of Japan, the major overseas markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading off $0.86 at $67.58. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.82%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a weaker open. The Dow futures are currently off by about 80 points; the S&P’s are down about 9 points, while the NASDAQ looks to be about 15 points below fair value at the moment.

Stocks “In Play” This Morning:

Upgrades/Downgrades/Brokerage Research:

Apple (Nasdaq: AAPL) – Target increased to $160 from $145 at Argus
Qwest (NYSE: Q) – Downgraded at Argus after Company announced it will not sell long-distance business (Note: the Fab 5 Portfolio sold Q on Thursday)
TriQuint Semiconductor (Nasdaq: TQNT) – Estimates and target increased at Barclays
Google (Nasdaq: GOOG) – Downgraded at Benchmark
Oracle (Nasdaq: ORCL) – Target increased at Citi
Lam Research (Nasdaq: LRCX) – Removed from Recommended List at Citi
Blackrock (NYSE: BLK) – Added to Conviction Buy list at Goldman
AT&T (NYSE: T) – Removed from Conviction Buy list at Goldman
WYNN Resorts (Nasdaq: WYNN) – Target reduced at Janney Montgomery Scott
Las Vegas Sands (NYSE: LVS) – Target increased at Janney Montgomery Scott
Corning (NYSE: GLW) – Estimate increased at Oppenheimer
StatoilHydro (NYSE: STO) – Downgraded at UBS
Hovnanian (NYSE: HOV) – Downgraded at Wachovia

Long positions in stocks mentioned: AAPL

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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