David Moenning's Daily State of the Markets: 04/02

Another Terrific Tuesday

Here's a link to listen to an Audio Version of the report:

If yesterday's blast of nearly 400 points felt familiar, give yourself a gold star because it turns out that three of the last four Tuesday’s have been accompanied by some impressive fireworks in the stock market. Looking back, on Tuesday March 11th, the Dow gained 417 points. The very next week, the Dow surged an eye-popping 420 points. And then after taking a week off, we got another 391 point move yesterday.

While we are not at all sure what's behind the propensity for the Dow to propel itself higher by some 400 points every seven days or so, it is fairly easy to understand why yesterday's move occurred. As has been the case for the better part of a year, stocks have rallied whenever traders felt that the worst of the credit crisis was behind them. So after UBS "kitchen sinked" their report and the writedown still came in under Merrill's projection, the shorts once again began to run for cover.

Now stir in an ISM report that showed the state of the manufacturing sector to be better than expected and a Lehman Brothers offering that actually attracted more cash than they were attempting to raise, and voila, you’ve got a recipe for a rally.

While UBS's writedown of $19 Billion is hardly small potatoes, the fact that the total was below expectations gave investors hope that maybe, just maybe all the bad news is finally out. And then with Goldman Sachs, JP Morgan, Morgan Stanley, and BNP Paribas standing by UBS on their rights offering, one could argue that the ice might be starting to melt in the frozen world of big buck financing.

On the economic front though, the news was not quite as cheery. Although the ISM Manufacturing Index was better than the consensus, the rest of the headlines were a little on the bleak side yesterday. For example, the NACM Credit Manager's Index fell for the sixth time in the last seven months, Construction Spending dropped for the fifth straight month, and weekly Retail Sales figures were the lowest in eight years.

However, since it was a Tuesday, the economic data was brushed aside in favor of talk of bottoms and upside potential. But while I really do hate to rain on the Tuesday parade, the problem is that after all the pyrotechnics seen over the past month, the major averages are now right back to the top of the trading range. And with stocks now overbought and bumping into important resistance, the bulls will be looking for some follow-through and hoping that we don’t need another month of Tuesday’s in order to break out of the range.

Turning to this morning, the ADP Employment report for March came in much better than expected; showing a gain of 8,000 jobs versus consensus expectations for a loss of 45K. The report immediately pushed stock futures higher on the hope the Friday’s jobs report from the Labor Department would follow suit with a better than expected result.

Running through the rest of the pre-game indicators; the foreign markets are higher across the board with Asian markets following the US higher by 3% or so. Crude futures are moving up with the latest quote showing the front month higher by $0.61 to $101.56. Interest rates are moving up on the positive economic data with the 10-yr trading at a yield of 3.59% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a decent open. The Dow futures are currently ahead by about 25 points; the S&P’s are up by about 3 points, while the NASDAQ looks to be about 4 points above fair value at the moment.

Stocks "In Play" This Morning:

Today's Earnings Before the Bell:

Best Buy (NYSE: BBY) – Reported $1.71 vs. $1.65
Monsanto (NYSE: MON) – Reported $1.79 vs. $1.75

News, Upgrades/Downgrades/Brokerage Research:

Vodafone (NYSE: VOD) – Upgraded at Bear Stearns
China Mobile (NYSE: CHL) – Upgraded at Deutsche Bank
China Unicom (NYSE: CHU) – Downgraded at Deutsche Bank
Lukoil (OTC: LUKOY) – Downgraded at Goldman
VimpelCom (NYSE: VIP) – Upgraded at Goldman
UST Inc (NYSE: UST) – Downgraded at Goldman
Wal-Mart (NYSE: WMT) – Target increased at Lehman
Dicks Sporting Goods (NYSE: DKS) – Downgraded at UBS
AFLAC (NYSE: AFL) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: CHL, CHU, WMT

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.


David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

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