David Moenning's Daily State of the Markets: 04/23

Better Than Expected

Good morning. Now that all the worries responsible for the scary "subprime decline" seem to have blown over, the bulls appear to be back in business as the Dow closed at a new all-time high for the third consecutive week. The venerable market index blasted higher by more than 150 points on Friday and has now posted green numbers in fifteen of the last sixteen days, which is definitely a winning streak worthy of note.

While large is in charge at the moment, the Dow was joined on Friday by the NYSE and S&P Mid-Cap, as both indices also closed at fresh record highs. And while the NASDAQ, which was the poster-child for irrational exuberance in the late 1990’s, needs to gain more than 98% from Friday’s close to return to the Promised Land, the S&P 500 closed just 2.56% shy of its previous record set on August 23, 2000.

The reasons for Friday’s blast higher were not completely clear as there was no obvious catalyst for the move. However, when you combine another batch of better than expected earnings with a breakout on the charts and an options expiration Friday, something good will usually take place. And good was the operative word as Dow components Caterpillar (CAT) and Honeywell (HON) beat earnings estimates and spiked higher on the day.

Speaking of earnings, corporate America is playing the game quite well right now. Everybody knows that companies have been doing their best to knock down expectations lately. Everybody also knows that the growth rate of earnings is expected to slow down this quarter before reaccelerating later in the year. And yet, when company after company exceeds the reduced estimates, they continue to be rewarded by traders with higher prices.

While this may sound a bit counterintuitive, reporting numbers that are “better than expected” is how the game is played. And so far, with 16 of the Dow components having reported earnings, 10 out of 16, or 62.5%, have been better than expected. So, it’s little wonder that the Dow finds itself approaching another round number and just a stone’s throw away from another new milestone.

Turning to this morning, there is no economic data scheduled for release before the bell. However, it is a Monday, so naturally we expect to see the fruits of the dealmakers’ weekend labor. And sure enough we are not disappointed, as we’ve got no fewer than three new M&A deals to review. For example Barclays has announced that it will acquire ABN Amro (ABN) for $91.6 Billion (yep, that’s a B) in the biggest bank deal ever.

However, so far at least, traders are curbing their enthusiasm as the markets are on the flat side in the early going.

Running through the rest of the pre-game indicators, the major foreign markets are mixed. Gold futures are moving lower this morning and are trading down by $2.80 to $693.00. In the oil pits, crude futures are higher by $0.25 with the latest quote at $64.36. Interest rates are doing little this morning as the yield on the 10-year is currently trading at 4.66%. And finally, with about an hour before the bell, stock futures in the U.S. are flat. The Dow futures are currently off by 4 points; the S&P’s are about a point underwater, while the NASDAQ looks to be about 3 points ahead of fair value at the moment

Today’s Earnings Before the Bell:

Hasbro (HAS) – Reported $0.19 vs. $0.00
Kimberly-Clark (KMB) – Reported $1.03 vs. $1.01
L-3 Comm (LLL) – Reported $1.29 vs. $1.28


News, Upgrades/Downgrades/Brokerage Research:

Medimmune (NASDAQ: MEDI) – To be acquired by Astrazeneca
ABN Amro (NYSE: ABN) – To be acquired by Barclays
Waste Management (NYSE: WMI) – Mentioned positively in Barron’s
Joy Global (NASDAQ: JOYG) – Mentioned positively in Barron’s
TD Ameritrade (NASDAQ: AMTD) – Mentioned positively in Barron’s
Kroger (NYSE: KR) – Estimates increased at Bear Stearns
Safeway (NYSE: SWY) – Estimates increased at Bear Stearns
Coventry Health Care (NYSE: CVH) – Downgraded at CIBC
Zion Bancorp (NASDAQ: ZION) – Upgraded at Citigroup
EOG Resources (NYSE: EOG) – Downgraded at Citigroup
Xerox (NYSE: XRX) – Downgraded at Citigroup
ConocoPhillips (NYSE: COP) – Downgraded at Deutsche Bank
Chevron Corp (NYSE: CVX) – Downgraded at Deutsche Bank
Exxon Mobil (NYSE: XOM) – Downgraded at Deutsche Bank
Nasdaq Stock Market (NASDAQ: NDAQ) – Upgraded at Goldman Sachs
Valero (NYSE: VLO) – Upgraded at Goldman Sachs
Taubman Centers (NYSE: TCO) – Downgraded at JP Morgan
AT&T (NYSE: T) – Price Target increased at Prudential
International Business Machines (NYSE: IBM) – Upgraded at Lehman
Bear Stearns (NYSE: BSC) – Upgraded at Merrill Lynch
Goldman Sachs (NYSE: GS) – Upgraded at Merrill Lynch
Lehman Bros (NYSE: LEH) – Upgraded at Merrill Lynch
Morgan Stanley (NYSE: MS) – Upgraded at Merrill Lynch
Caterpillar (NYSE: CAT) – Upgraded at Morgan Stanley
Amazon.com (NASDAQ: AMZN) – Downgraded at Piper

Mr. Moenning holds Long positions in stocks mentioned: GS, VLO, TCO, IBM

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.

You May Also Be Interested In

• After-Hours Movers: AMAT, DLO, GLOB, YSS, ETON
• After-Hours Movers: P, RIOT, BW, RKLB, HIMS, UPWK
• After-Hours Movers: CSCO, COHR, HLIT, CBRS, STUB, ENS