David Moenning�s Daily State of the Markets: 06/15
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Buying the News
Good morning. One of the oldest clich�s on Wall Street was at work yesterday. Although you did have to turn it upside down in order to makes sense of how traders were implementing the old saw, �Buy the rumor and then sell the news.� In this case, traders had sold the �rumor,� or more appropriately, the worry of higher inflation and another rate hike. Then yesterday they wound up buying the news that inflation is indeed creeping up in areas other than energy.
We�ve gotten an awful lot of inflation news in the last two sessions and Wednesday�s CPI report, when coupled with Tuesday�s PPI numbers, showed that the Fed�s inflation concerns may be legitimate. While the headline CPI came in right on target, the Core rate was once again a tenth higher than expectations. And this time the inflation issues weren�t limited to oil. For example, rents and equivalent rents shot up 0.6%, which was the most since 1990 and even household furnishings and appliances rose a hefty 0.5% last month. And on a year-over-year basis the Core came in at 2.4%, which was a tenth hotter than expectations and the highest level in four years.
Turning to stocks, while it was indeed a pleasure to see a triple digit gain for a change, we need to recognize that the move was triggered largely by short-covering. With the majority of the rally coming in the last hour, the action had all the markings of an oversold bounce created by the short sellers cashing in some profits.
The bulls will argue that it is now their turn to run with the ball, since the bears finally failed in their attempt to once again turn a modest gain into a loss. Selling all rallies has been the trend of late, but yesterday afternoon some short covering and an upgrade in the semis gave our barnyard buddies the opportunity to effectively say �not this time.� And then in the last hour, traders decided it was time to �go the other way� (well, for a while anyway).
But for most of the session, it looked like the song would remain the same as another pair of Fed Governors felt compelled to issue statements about their current discomfort. Susan Bies said yesterday that she remains uncomfortable and that the current level of inflation is unacceptable. Then Mr. Baseball himself, Dallas Fed President Richard Fisher, piped in with the suggestion that the Fed �should take no chances� with regard inflation. And although he did admit that there is a lag between the time that the Fed tightens and when the effects of the increases actually show up in the economy, Mr. Fisher seems to be singing a party line about the idea of more rate hikes.
The bulls also got some help from influential analyst, Abby Cohen who said that, according to her models, stocks were about 12% undervalued at the present time. And while on the subject of the big picture, the bulls were quick to point out that the market has been acting like the economy was going to stumble badly. Yet according to yesterday�s Beige Book report; this just isn�t the case right now.
So the bulls finally got a break from the selling, but with interest rates spiking on the inflation data, we will want to watch the coming sessions very closely. In short, the bears currently have a great deal of ammunition, and they may not stand aside for too long here.
Turning to this morning, the results from the Empire Manufacturing survey were largely positive and indicate that at least in the New York region, there is no evidence of an economic slowdown at the present time. This, coupled with a slightly better report on weekly jobless claims is continuing to push rates higher.
Running through the rest of pre-game indicators, overseas markets are sporting green screens this morning. Gold is attempting to continue its rebound a bit is trading higher by $8.50 to $575 at the moment. Oil is also a bit higher this morning as crude futures are currently trading up by $0.51 to $69.65. As we mentioned, interest rates are moving up on the economic news, with the 2-year currently trading at 5.16% while the 10-yr is quoted at 5.09% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving modestly higher. The Dow futures are currently up 19 points; the S&Ps are ahead by 4, while the NASDAQ is sporting an advance of about 10 points.
So will the bounce continue or will higher rates bring the bears back to the forefront? Stay tuned, this is going to be interesting.
Stocks �In Play� This Morning:
General Mills (GIS) � Downgraded at C
Circuit City (CC) � Upgraded at UBS
Anglo American (AAUK) � Upgraded at Merrill Lynch
Motorola (MOT) � Initiated Buy at Jeffries
Sierra Wireless (SWIR) � Initiated Buy at Jeffries
Staples (SPLS) � Upgraded at Bernstein
Black & Decker (BCK) � Upgraded at Citigroup
Fifth Third Bancorp (FITB) � Upgraded at Citigroup
3 Com (COMS) � Upgraded at Morgan Stanley
KB Home (KBH) � Downgraded at Morgan Stanley, Also LEN, PHM
Nvidia (NVDA) � Upgraded at UBS
CTRIP Com (CTRP) � Mentioned Positively in Barron�s, Also TOMO
CR Bard (BCR) � Announces increase in dividend
Fluor (FLR) � Wins $2B project in Calgary
Target (TGT) � Raises Dividend
AngloGold (AU) � Upgraded at BMO Nesbitt
Coca Cola Enterprises (CCE) � Upgraded at HSBC
Positions in stocks mentioned: CC, CCE
** 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.
Good morning. One of the oldest clich�s on Wall Street was at work yesterday. Although you did have to turn it upside down in order to makes sense of how traders were implementing the old saw, �Buy the rumor and then sell the news.� In this case, traders had sold the �rumor,� or more appropriately, the worry of higher inflation and another rate hike. Then yesterday they wound up buying the news that inflation is indeed creeping up in areas other than energy.
We�ve gotten an awful lot of inflation news in the last two sessions and Wednesday�s CPI report, when coupled with Tuesday�s PPI numbers, showed that the Fed�s inflation concerns may be legitimate. While the headline CPI came in right on target, the Core rate was once again a tenth higher than expectations. And this time the inflation issues weren�t limited to oil. For example, rents and equivalent rents shot up 0.6%, which was the most since 1990 and even household furnishings and appliances rose a hefty 0.5% last month. And on a year-over-year basis the Core came in at 2.4%, which was a tenth hotter than expectations and the highest level in four years.
Turning to stocks, while it was indeed a pleasure to see a triple digit gain for a change, we need to recognize that the move was triggered largely by short-covering. With the majority of the rally coming in the last hour, the action had all the markings of an oversold bounce created by the short sellers cashing in some profits.
The bulls will argue that it is now their turn to run with the ball, since the bears finally failed in their attempt to once again turn a modest gain into a loss. Selling all rallies has been the trend of late, but yesterday afternoon some short covering and an upgrade in the semis gave our barnyard buddies the opportunity to effectively say �not this time.� And then in the last hour, traders decided it was time to �go the other way� (well, for a while anyway).
But for most of the session, it looked like the song would remain the same as another pair of Fed Governors felt compelled to issue statements about their current discomfort. Susan Bies said yesterday that she remains uncomfortable and that the current level of inflation is unacceptable. Then Mr. Baseball himself, Dallas Fed President Richard Fisher, piped in with the suggestion that the Fed �should take no chances� with regard inflation. And although he did admit that there is a lag between the time that the Fed tightens and when the effects of the increases actually show up in the economy, Mr. Fisher seems to be singing a party line about the idea of more rate hikes.
The bulls also got some help from influential analyst, Abby Cohen who said that, according to her models, stocks were about 12% undervalued at the present time. And while on the subject of the big picture, the bulls were quick to point out that the market has been acting like the economy was going to stumble badly. Yet according to yesterday�s Beige Book report; this just isn�t the case right now.
So the bulls finally got a break from the selling, but with interest rates spiking on the inflation data, we will want to watch the coming sessions very closely. In short, the bears currently have a great deal of ammunition, and they may not stand aside for too long here.
Turning to this morning, the results from the Empire Manufacturing survey were largely positive and indicate that at least in the New York region, there is no evidence of an economic slowdown at the present time. This, coupled with a slightly better report on weekly jobless claims is continuing to push rates higher.
Running through the rest of pre-game indicators, overseas markets are sporting green screens this morning. Gold is attempting to continue its rebound a bit is trading higher by $8.50 to $575 at the moment. Oil is also a bit higher this morning as crude futures are currently trading up by $0.51 to $69.65. As we mentioned, interest rates are moving up on the economic news, with the 2-year currently trading at 5.16% while the 10-yr is quoted at 5.09% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving modestly higher. The Dow futures are currently up 19 points; the S&Ps are ahead by 4, while the NASDAQ is sporting an advance of about 10 points.
So will the bounce continue or will higher rates bring the bears back to the forefront? Stay tuned, this is going to be interesting.
Stocks �In Play� This Morning:
General Mills (GIS) � Downgraded at C
Circuit City (CC) � Upgraded at UBS
Anglo American (AAUK) � Upgraded at Merrill Lynch
Motorola (MOT) � Initiated Buy at Jeffries
Sierra Wireless (SWIR) � Initiated Buy at Jeffries
Staples (SPLS) � Upgraded at Bernstein
Black & Decker (BCK) � Upgraded at Citigroup
Fifth Third Bancorp (FITB) � Upgraded at Citigroup
3 Com (COMS) � Upgraded at Morgan Stanley
KB Home (KBH) � Downgraded at Morgan Stanley, Also LEN, PHM
Nvidia (NVDA) � Upgraded at UBS
CTRIP Com (CTRP) � Mentioned Positively in Barron�s, Also TOMO
CR Bard (BCR) � Announces increase in dividend
Fluor (FLR) � Wins $2B project in Calgary
Target (TGT) � Raises Dividend
AngloGold (AU) � Upgraded at BMO Nesbitt
Coca Cola Enterprises (CCE) � Upgraded at HSBC
Positions in stocks mentioned: CC, CCE
** 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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