David Moenning's Daily State of the Markets: 10/28

Should It Count?

Although the Dow wound up with a loss of 203 points and the S&P 500 fell another 3.2% on the session, the key question from yesterday’s trading, at least in my mind is: Should it really count as a bad day? After all, there were several positives and frankly, the decline didn’t really occur until the last 30 minutes of the session.

First of all, it was once again a positive that the U.S. market didn’t implode in the face of some pretty substantial declines in the overnight markets. Then it was encouraging that sales of new homes actually came in better than expected with an increase of 2.7% versus expectations for a drop of 2.2%. And finally, it was nice to see the market showing some semblance of stability yesterday – well, until the last 30 minutes that is.

That’s when the forced selling kicked in. The Dow fell 264 points in the last half-hour and 192 of those points in the last 10 minutes. And since there was no news and really no rumors to speak of, we have to assume that this was simply another round of margin calls being executed.

So, since the selling was artificial in nature – meaning that those selling didn’t really want to sell, they simply had no choice – should we be terribly concerned about the results? The technicians tell us that it is bad news that the major indices moved to fresh closing lows. But again, since we understand why the move occurred, should it really count? Or should we be more concerned that this type of selling is still happening?

Frankly, I’m inclined to look at the bright side here since (1) October is almost over and (2) there is a decent chance that some good news might come along at some point soon. For example, we should be cognizant of the fact that the Fed is meeting today and Wednesday and that Mr. Bernanke is expected to provide the markets with a Halloween treat in the form of lower interest rates. I know that the bears are telling anyone that will listen that the Fed is out of bullets. But, lower interest rates certainly couldn’t hurt anything here. Speaking of rates, those of the shorter-term variety are starting to behave a little better. And then lest we forget, the government is going to start throwing around some pretty serious money very soon as $157 Billion is about to fly out the door this week alone.

So, while it is a bear market and things have been exceptionally ugly lately, we’re going to put an asterisk next to yesterday’s decline with a footnote that it probably shouldn’t count.

Turning to this morning, once again we don’t have any economic data to review, but we are happy to report that the mood seems to be surprisingly upbeat so far.

Running through the rest of the pre-game indicators, the major overseas markets are a bright shade of green this morning. Crude futures are rising with the latest quote showing oil trading higher by $1.81 to $65.03. On the interest rates front, we’ve got the yield on the 10-yr currently trading higher at 3.80% while the yield on the 3-month T-Bill is at 0.854% and overnight LIBOR is at 1.24% which is down from yesterday’s rate of 1.27%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to an up open – at least for now. The Dow futures are currently ahead by about 200 points; the S&P’s are up by about 24 points, while the NASDAQ looks to be about 36 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

American Financial (NYSE: AFG) – Reported $0.98 vs. $0.95
Albemarle (NYSE: ALB) – Reported $0.61 vs. $0.65
Buffalo Wild Wings (Nasdaq: BWLD) – Reported $0.25 vs. $0.31
CF Industries (NYSE: CF) – Reported $3.70 vs. $3.54
Choice Hotels (NYSE: CHH) – Reported $0.57 vs. $0.56
Crane (NYSE: CR) – Reported $0.60 vs. $0.86
Hercules (NYSE: HPC) – Reported $0.38 vs. $0.40
Meritage Home (NYSE: MTH) – Reported -$2.90 vs. -$0.53
Plum Creek (NYSE: PCL) – Reported $0.40 vs. $0.39
Parexel (Nasdaq: PRXL) – Reported $0.23 vs. $0.23
Universal Health (NYSE: UHS) – Reported $0.73 vs. $0.77

Today’s Earnings Before the Bell:

Ashland (NYSE: ASH) – Reported -$0.01 vs. $0.09
Boyd Gaming (NYSE: BYD) – Reported $0.16 vs. $0.19
Check Point Software (Nasdaq: CHKP) – Reported $0.44 vs. $0.43
Estee Lauder (NYSE: EL) – Reported $0.26 vs. $0.22
Entergy (NYSE: ETR) – Reported $2.50 vs. $2.49
Fresh Del Monte (NYSE: FDP) – Reported $0.46 vs. $0.26
Health Mgmt Assoc (NYSE: HMA) – Reported $0.07 vs. $0.08
Honda Motor (NYSE: HMC) – Reported $0.66 vs. $0.68
Masco (NYSE: MAS) – Reported $0.13 vs. $0.18
Occidental Petroleum (NYSE: OXY) – Reported $2.78 vs. $2.73
Sepracor (Nasdaq: SEPR) – Reported $0.10 vs. $0.13
Smith Intl (NYSE: SII) – Reported $1.01 vs. $0.98
Valero (NYSE: VLO) – Reported $1.86 vs. $1.50
Waddell & Reed (NYSE: WDR) – Reported $0.40 vs. $0.41
Whirlpool (NYSE: WHR) – Reported $2.15 vs. $1.69
US Steel (NYSE: X) – Reported $7.79 vs. $7.14

News, Upgrades/Downgrades/Brokerage Research:

Oracle (Nasdaq: ORCL) – Target reduced at Citi
Pulte Homes (NYSE: PHM) – Upgraded at Citi
Google (Nasdaq: GOOG) – Initiated outperform at Credit Suisse, Target $400
Disney (NYSE: DIS) – Initiated outperform at Credit Suisse
Allstate (NYSE: ALL) – Downgraded at Fitch
Nokia (NYSE: NOK) – Downgraded at Goldman
Ericsson (Nasdaq: ERIC) – Downgraded at Goldman
Sherman Williams (NYSE: SHW) – Downgraded at JP Morgan
Choice Hotels (NYSE: CHH) – Upgraded at JP Morgan
PepsiAmericas (NYSE: PAS) – Upgraded at UBS
China Telecom (NYSE: CHA) – 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.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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