David Moenning's Daily State of the Markets: 06/01

Finding New Reasons?

Good morning. The bears have been complaining for some time now that this market is getting a little frothy. Our furry friends argue that stocks seem to be losing touch with reality as all news is good news and that the M&A game just might be starting to get out of hand. And while no one will argue the fact that the bulls have been on a roll and the game has been very enjoyable of late, yesterday it appeared that the bull camp may have run out of reasons to move higher. Well, for one day, at least.

One day after the S&P finally made it back to new high territory, stocks put in a rather blah session. Although the bulls did seem to have the ammunition to continue their romp and stocks did open higher at the outset, the enthusiasm seemed to wane rather quickly yesterday morning.

One might have expected stocks to simply blast higher. After all, the bulls had an abundance of green screens around the world, they got a GDP report that reinforced the idea that Goldilocks is alive and well, they got another batch of M&A activity – which, this time, included a deal in the financial sector, they got better than expected data from the Chicago Purchasing Managers index, and finally, they even got good news in the area of Construction Spending.

However, despite what would appear to be a plethora of reasons to keep hitting the buy button, the DJIA finished in the red. And while the S&P closed at a new all-time high, you needed a microscope to spot the advance on a chart.

The good news is that the troops, including technology shares, wound up with a pretty decent day as the NASDAQ, Russell 2000, and S&P Small and Mid Cap indices all finished with gains of around 0.5%. And from a technical perspective, it was a positive that breadth was solid volume picked up.

Turning to this morning, traders are bracing for a barrage of economic data starting with the Big Kahuna, the Employment Report. The Labor Department has reported that the economy created a total of 157,000 new jobs in May, which was higher than analyst expectations for job growth of 134,000. However, it is important to note that the job gains all came from the services sector as manufacturing jobs actually fell this month.

The Unemployment Rate came in at 4.5%, which was in line with expectations as was the average Hourly Earnings number.

In addition, we also got the Personal Income and Spending numbers to review before the bell. Personal Income actually fell a tenth, which was below expectations for an increase of +0.3%, while Personal Spending showed a healthy increase of +0.5%, which was a bit stronger than the estimates of +0.4%.

All in all, the markets like what they see so far as both stocks and bonds are rallying on the news.

Running through the rest of the pre-game indicators, with the exception of Japan, the major foreign markets are higher across board. Gold futures are moving up by $6.80 to $673.50. In the oil pits, crude futures are lower by $0.11 with the latest quote at $63.90. Interest rates are moving down a smidge this morning with the yield on the 10-year currently trading at 4.88%. And finally, with about 45 minutes before the bell, it looks like the bulls have found a new reason to buy as stock futures in the U.S. are looking to move higher at the open. The Dow futures are currently up by about 55 points; the S&P’s are 8 points ahead, while the NASDAQ looks to be 9 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Activision (NASDAQ: ATVI) – Reported <$0.04> vs. <$0.03>
Dell (NASDAQ: DELL) – Reported $0.34 vs. $0.26
Quanex (NYSE: NX) – Reported $0.84 vs. $0.76

News, Upgrades/Downgrades/Brokerage Research:*

Dell (NASDAQ: DELL) – Target raised at Bear Stearns, Credit Suisse, Downgraded at Merrill Lynch, Morgan Stanley
MPS Group (MPS) – Downgraded at Bear Stearns
Ciena (NASDAQ: CIEN) – Target increased at Goldman Sachs
Radio Shack (NYSE: RSH) – Downgraded at Goldman Sachs
NASDAQ Stock Market (NASDAQ: NDAQ) – Downgraded at Lehman
Norsk Hydro (NYSE: NHY) – Upgraded at UBS
Boyd Gaming (NYSE: BYD) – Upgraded at Wachovia

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

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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