David Moenning's Daily State of the Markets: 6/15

Back In The Black

Although stocks finished in the green on Friday and the DJIA finally made it back into the black for the year, it would appear that the now three-month old rally has been put on hold. While there was some good news to be found – especially Japan’s pronouncement of its support for U.S. Treasuries – it feels like traders are looking for signs of actual improvement in the economy before committing to any additional upside.

As has been the case lately, the day’s outcome was ultimately decided by some last-minute programs, this time to the upside, triggered by the reported upset in the Iranian election. However, with both sides now claiming victory, and by a landslide, of course, this issue isn’t likely to carry forward.

For much of Friday’s session, sentiment was weighed down by several factors including a less-than inspiring number out of the University of Michigan’s consumer sentiment report, another selloff in semiconductors, a Wall Street Journal report that the Fed isn’t likely to expand its purchases of Treasuries, dampened momentum for the reflation trade, and a record plunge in European Industrial Production.

With everyone looking for the green shoots to begin to bloom – and soon – all eyes were on the University of Michigan’s sentiment figures on Friday. And while the index of consumer sentiment did inch up for the fourth straight month to a reading of 69 in June from 68.7 in May, the result was slightly below analyst expectations of 69.5. And while the current conditions component rose to 74.5 from 67.7 in May and the buying conditions reading was the highest in more than a year, it would appear that traders were looking for a better headline number.

Another factor leading to the overall tired feel of the market was the pullback in the reflation trade. We need to keep in mind that this trade has been helped along by two primary factors; the declining dollar and the demand from countries on the mend such as China. And while there is little question that the Chinese economy is beginning to pick up, the dollar has staged a rally of late. Although it could be considered just a bounce in the downtrend, Friday’s report that European Industrial Production plunged a record -21.6% in April helped the greenback relative to the Euro. Thus, the analogies of the U.S. being the better house in a bad neighborhood once again makes some sense.

The bottom line is stocks are currently stuck in a trading range after being, well, stuck in a trading range during much of the month of May. So, traders will be watching both lines in the sand (which currently sit at 950 and 925) carefully for a breach in either direction.

Turning to this morning, the pre-market activity has been weak and the Empire Manufacturing Index isn’t helping much as June’s number came in well below expectations at -9.41versus the consensus at -4.6.

Running through the rest of the pre-game indicators, the major overseas markets are down across the board. Crude futures are pulling back with the latest quote showing oil trading down $0.59 to $71.45. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.77%, 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 weaker open. The Dow futures are currently off by about 120 points; the S&P’s are down about 13 points, while the NASDAQ looks to be about 19 points below fair value at the moment.

Stocks "In Play" This Morning:

Upgrades/Downgrades/Brokerage Research:

Lear Corp (NYSE: LEA) – Downgraded at Barclays
Conagra (NYSE: CAG) – Downgraded at Citi
Energen (NYSE: EGN) – Downgraded at Citi
Yahoo! (Nasdaq: YHOO) – Upgraded at Citi
Astrazeneca (NYSE: AZN) – Upgraded at Citi
Meritage Homes (NYSE: MTH) – Downgraded at Credit Suisse
Rowan Companies (NYSE: RDC) – Downgraded at Credit Suisse
Noble Corp (NYSE: NE) – Upgraded at Credit Suisse
Netgear (Nasdaq: NTGR) – Upgraded at Deutsche Bank
Kimberly Clark (NYSE: KMB) – Downgraded at Goldman
KB Home (NYSE: KBH) – Downgraded at Goldman
Wal-Mart (NYSE: WMT) – Downgraded at Goldman
Clorox (NYSE: CLX) – Removed from Buy list at Goldman
Accenture (NYSE: ACN) – Upgraded at Goldman
Dell (Nasdaq: DELL) – Upgraded at Goldman
Target (NYSE: TGT) – Added to Buy list at Goldman
Affiliated Managers (NYSE: AMG) – Upgraded at Keefe, Bruyette & Woods
Abbott Labs (NYSE: ABT) – Estimate increased at Morgan Stanley
Alcon (NYSE: ACL) – Target increased at UBS

Long positions in stocks mentioned: 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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