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

The Sky Is Not Falling

Good morning. Much to the chagrin of the glass-is-half-empty gang, yesterday’s report on Pending Home Sales illustrated that the sky isn’t falling after all in the housing market. If you will recall, much of the reason for recent decline, which began in late February, was tied to fears that the problems in subprime mortgages would spill over into the rest of the mortgage market, which, in turn, would spill over into the economy and send us spiraling into recession.

Despite the fact that the subprime market is a small fraction of the overall mortgage market and the reassurances provided by the Fed that the problems would likely be contained, the bears simply wouldn’t let go of the idea that these high risk mortgages were going to result in economic ruin.

However, yesterday’s data from the National Association of Realtors showed that low and behold, banks are still lending and people are still buying houses. Sure, the pace has slowed, but this is old news as everybody with a pulse knows the housing market has cooled from the torrid pace seen a couple of years back.

The NAR told us that despite a dreadful month for weather, Pending Home Sales for February actually rose by +0.7%. The two keys here are that (1) expectations were for a decline of -0.5% and (2) the number represented a solid rebound from January’s dismal showing of -4.2%. And although one month does not a trend make, the fact that the index has remained in a narrow range for the past six months or so means that we are probably seeing a stabilization in housing market activity.

The bulls also got some help yesterday from easing tensions with regard to the detained British sailors. With Iran stating that they’d like to see a speedy diplomatic solution to the situation, some of the risk premium came off the price of oil as crude futures finished down -$1.30 to $64.64.

So, armed with the realization that the sky is not falling in the housing market, lower oil prices, and less geopolitical strife, the bulls were able to win another round of the bout yesterday. The Dow moved up by 128 points and broke through some short-term resistance in the process. However, buyers should take note that there remains some overhead resistance on the charts of both the NASDAQ and S&P.

Turning to this morning, ADP reported 106,000 new jobs in March, which is below the estimates for an increase for 135k. In addition, the February totals were revised higher by 10k to 65,000. While this data series has come under fire recently for some pretty big misses, the Labor Department is set to report their Employment numbers on Friday, so the fact that the ADP numbers were on the light side might give traders a reason to pause today.

Running through the rest of the pre-game indicators, the major overseas markets are higher most everywhere except in London. Gold futures are trading higher by $2.50 this morning to $672.20. In the oil pits, crude futures are lower by $0.04 with the latest quote at $64.60. Interest rates are moving a little lower this morning, with the yield on the 10-year currently trading at 4.65%. And finally, with about an hour before the bell, stock futures in the U.S. are down fractionally. The Dow futures are currently down -9; the S&P’s are -1.30 under water, while the NASDAQ looks to be about 1 point below fair value at the moment

Stocks "In Play" This Morning:

DaimlerChrylser (NYSE: DCX) – Formal bids for Chrysler made by Blackstone, Cerebus, and Magna
Best Buy (NYSE: BBY) – Reported $1.55 vs. $1.52
Circuit City (NYSE: CC) – Reported ($0.09) after charges
Coldwater Creek (Nasdaq: CWTR) – Upgraded at BofA
Sonic Corp (Nasdaq:SONC) – Upgraded at Bear Stearns
Telefonica (NYSE: TEF) – Upgraded at Bear Stearns
Corinthian Colleges (COCO) – Upgraded at Citigroup
Intl Paper (NYSE: IP) – Downgraded at Citigroup
TheStreet.com (Nasdaq: TSCM) – Downgraded at First Albany
Comp Vale Do Rio (NYSE: RIO) – Upgraded at Goldman Sachs
Avis Budget (NYSE: CAR) – Downgraded at Morgan Stanley
KLA Tencor (Nasdaq: KLAC) – Upgraded at Stifel Nicolaus
Lam Research (Nasdaq: LRCX) – Upgraded at Stifel Nicolaus
Weyerhaeuser (NYSE: WY) – Upgraded at UBS
First Data Corp (NYSE: FDC) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: GS

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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