David Moenning's Daily State of the Markets: 03/05

Let the Argument Begin

Good morning. There’s no disputing the fact that Friday’s market action was pretty darned crummy. It was the seventh loss in the last eight sessions for the Dow and S&P 500 and the fifth out of six on the NASDAQ. In addition, all the major indices dropped 1% or more, breadth was horrific, and the new closing lows would seem to suggest that the downtrend may continue.

However, there are technicians out there that will argue it was a positive that the indices did not take out the intraday lows established on Thursday and that volume actually was lighter during Friday’s session. Thus, they contend that we are now in the process of establishing a bottom.

But on the other hand, there are chart watchers who will suggest that the new closing low is much more important and that markets don’t need volume to go down. Therefore, this group will argue that we’ve got more red ink ahead.

While the techies will undoubtedly continue to duke it out over the true meaning of the chart action, we believe there may be a simpler explanation for Friday’s miserable performance. In short, during waterfall declines that are dependent on news flow, no one really wants to go home for the weekend with long positions on the books. The fear is that someone will say something or do something over the weekend to roil the markets further. And in light of the fact that a good deal of the impetus for the current decline is based in the Pacific Rim, this argument actually makes a lot of sense.

Looking ahead to this week, while all eyes will continue to be on the Yen, there is a good bit of economic data scheduled for release here in the U.S. And since at least part of the current worry in the stock market is related to a potential shift in the Goldilocks scenario, it is probably a good idea to pay close attention to the data this week.

Monday: ISM Non-Manufacturing Index

Tuesday: Unit Labor Costs, Factory Orders, and Pending Home Sales

Wednesday: ADP Employment Report

Friday: February Jobs Report and Wholesale Inventories

Turning to this morning, we don’t have any economic data to review before the bell. However, ongoing strength of the Yen is causing additional fretting over the “carry trade” this morning. Asian markets got smoked for losses in the 3% to 4% range. And while the damage isn’t quite as bad in Europe, there are losses all the same. And this means that we probably haven’t seen the last of the blood letting here in the U.S.

Running through the pre-game indicators, as we mentioned, the major overseas markets are lower once again. Gold futures are trading down by $4.30 to $639.80 right now. In the oil pits, crude futures are off $1.04 this morning and the latest quote is at $60.60. Interest rates are also moving lower this morning on the continued flight to quality. The yield on the 10-year is currently trading below 4.50% at 4.493%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open to the downside once again. The Dow futures are currently down by about 100 points; the S&P’s are about 13 points under water, while the NASDAQ looks to be about 20 points under fair value at the moment.


And with the correction being a straight-down affair so far, the question on every traders' mind is: Will we see a reversal today? Or will the Tuesday Turnaround save the day as it has so many times over the years? Stay tuned, this is going to be interesting.


Stocks “In Play” This Morning:

Chicago Mercantile Holdings (NYSE: CME) – Mentioned positively in Barron’s
Whole Foods (Nasdaq: WFMI) – Mentioned positively in Barron’s
Avalon Bay (NYSE: AVB) – Mentioned positively in Barron’s
Groupe Danone (NYSE: DA) – Upgraded at Bear Stearns
Fluor Corp (NYSE: FLR) – Upgraded at Citigroup, Credit Suisse
Seagate Technology (NYSE: STX) – Upgraded at Citigroup
Teva Pharma (Nasdaq: TEVA) – Added to Conviction Buy List at Goldman Sachs
New Century Financial (NYSE: NEW) – Downgraded at Jefferies
Humana (NYSE: HUM) – Downgraded at Jefferies
Universal Health (NYSE: UHS) – Upgraded at Jefferies
Palm Inc (Nasdaq: PALM) – Downgraded at JP Morgan
Apple (Nasdaq: AAPL) – Upgraded at Prudential

Mr. Moenning holds Long positions in stocks mentioned: BSC, GS, FLR, AVB, UHS

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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