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

Going It Alone

Good morning. Stocks enjoyed another round of green screens yesterday on the back of more solid earnings reports and a couple new M&A deals. The Dow marched to a new high for the second straight day and has actually scored fresh all-time highs in ten of the last eleven sessions.

This time around though, things are a little different as the DJIA continues to go it alone into new high territory. Up until the recent pullback, the Dow 30 was usually joined by a host of other indices in the rarified air including the NYSE, Russell 2000, and S&P Small Cap and Mid Cap indexes. And for right now anyway, this remains something to watch very closely.

Don’t get me wrong, this is obviously a situation that can be quickly remedied as most of the aforementioned indices are within a stone’s throw of new highs. However, this type of negative divergence would become a concern if it persists. So, while it is fine to enjoy the green screens, it might be best to do so right now with a skeptical eye.

And while we’re in whining mode, there has been some concern expressed lately that the volume on the recent new highs has been less than robust. The bears suggest that we should also be worried about the fact that some of the former leaders are being treated less than kindly right now. But, the bulls argue that this is just the way it goes during earnings season and that the volume totals can easily be a result of some hesitancy in front of this week’s important economic data.

And so it goes whenever stocks get extended and the market doesn’t quite seem to be hitting on all eight cylinders. But, there is an age-old cliché that reminds us that the most bullish thing a market can do is go up. So, for now at least, we’re going to quit whining and try to enjoy the ride.

Turning to this morning, we’ve got some economic data to sift through, so let’s get to it. While tomorrow’s employment report is always the big Kahuna of data points, today’s reports on the state of the economy are definitely encouraging.

Nonfarm Productivity came in much better than expected with an increase of +1.7% versus the consensus expectations for +0.7%. Last month’s data was also revised higher from 1.6% to 2.1%.

Next up, Unit Labor Costs, which the Fed watches very closely for signs of inflation in the work force, came in significantly below estimates with an increase of just +0.6% versus analyst estimates for a number in the 3.8% range.

Stocks obviously like both sets of numbers and have improved a good bit in the pre-market. However, with the jobs report looming and stocks in an overbought condition, traders may not jump for joy just yet.

Running through the rest of the pre-game indicators, the major foreign markets were mixed overnight. Gold futures are moving up this morning by $2.00 and are trading at $677.10. In the oil pits, crude futures are higher by $0.01 with the latest quote at $63.69. Interest rates are right at unchanged this morning with the yield on the 10-year currently trading at 4.64%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 20 points; the S&P’s are about 3 points above fair value, while the NASDAQ looks to be about 4 points ahead of fair value at the moment

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:

Crown Castle (NYSE: CCI) – Reported <$0.18> vs. <$0.20>
JDS Uniphase (Nasdaq: JDSU) – Reported $0.06 vs. $0.09
Prudential (NYSE: PRU) – Reported $1.85 vs. $1.64
Sunoco (NYSE: SUN) – Reported $1.44 vs. $1.38
Symantec (Nasdaq: SYMC) – Reported $0.24 vs. $0.20

Today’s Earnings Before the Bell:

CBS Corp (NYSE: CBS) – Reported $0.33 vs. $0.32
Dean Foods (NYSE: DF) – Reported $0.50 vs. $0.45
Estee Lauder (NYSE: EL) – Reported $0.45 vs. $0.46
General Motors (NYSE: GM) – Reported $0.17 vs. $0.87
Gartner (NYSE: IT) – Reported $0.08 vs. $0.07
Kimco Realty Corp (NYSE: KIM) – Reported $0.78 vs. $0.65
OfficeMax (NYSE: OMX) – Reported $0.77 vs. $0.94
Reliant Resources (NYSE: RRI) – Reported $0.75 vs. <$0.14>
Tesoro (NYSE: TSO) – Reported $1.67 vs. $1.84

News, Upgrades/Downgrades/Brokerage Research:

Brocade Comm (Nasdaq: BRCD) – Downgraded at Goldman Sachs
Symantec (Nasdaq: SYMC) – Upgraded at Jefferies, Merrill Lynch
Comverse Technologies (Nasdaq: CMVT) – Upgraded at JP Morgan
Raytheon (NYSE: RTN) – Upgraded at Lehman
UBS (NYSE: UBS) – Downgraded at Morgan Stanley
JB Hunt Transport (Nasdaq: JBHT) – Upgraded at RW Baird
Intercontinental Exchange (NYSE: ICE) – Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: GS, CBG, JLL

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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