David Moenning's Daily State of the Markets: 07/13

All Frets Are Off

Good morning. Everybody knows that all good things must come to an end eventually. So, with a market that was at all-time highs, overbought, and running into problems, it is little wonder that short interest (the total amount of short sales) had also reached an all-time high recently. And frankly, those investors betting that the problems with subprime mortgages, real estate, and inflation would eventually hurt the economy, and in turn, the stock market, actually had a pretty solid case. So, with the summer months upon us, legions of traders began to bet that the best we could hope for was a consolidation period during the vacation season.

But yesterday morning, the scenario changed as investors realized that we suddenly have nothing really to fear but fear itself. You see, on Wednesday we had been told by Fed Governor Warsch that fretting over subprime mortgages was silly because the issue did not pose a systemic risk to the financial system. Then, Philly Fed President Plosser also told us that the fretting over the real estate market was a waste of time because the economy should return to its normal growth rate by the end of 2007.

While this was all well and good, the bears could still be heard arguing that the consumer was surely in trouble with real estate in the tank and oil prices back over $70. But, yesterday morning we learned that the consumer doesn’t appear to be phased by the gentle pullback in the price of their homes (heck, it’s been a darn good run and no one expected it to last forever) or the price at the pump because the public is still hitting the malls at a pretty good clip.

In all fairness, the June Same-Store Sales numbers weren’t exactly stellar. But, they were better than expected at places like Wal-Mart and JC Penney and you know how this game works; it’s not really the news itself that matters, but rather whether the news is better or worse than expectations.

So with deals still getting done in M&A-Land, the Fed telling us not to fret over such things as the real estate market and subprime mortgages, no inflation to speak of, and a fairly happy consumer, the short sellers decided it was time to run for cover. And before you could confirm my definition of the word systemic, stocks were off to the races.

The Dow wound up with a whopping gain of 284 points, which represented the best point gain since October 2002 and the best percentage gain since October 2003. This time the Dow was not alone as just about every major index saw gains of more than 1.5%. And even the techies were happy because yesterday’s breakout on the charts to new all-time highs occurred on strong volume and was confirmed by several indices.

Turning to this morning, we've got some economic data to review as well as a big earnings report from GE to sift through. On the economic front, Import Prices for June rose by 1%, which was higher than the estimates for an increase of 0.7% and May’s numbers were also revised higher. Next up, Retail Sales for June conflicted with yesterday’s reports from Wal-Mart as sales fell by -0.9%. This was a much larger decline than the -0.1% drop that had been anticipated.

Running through the rest of the pre-game indicators, as expected, all the foreign markets followed Wall Street higher overnight. In the oil pits, crude futures are moving higher with the latest quote up $0.30 at $72.80. Interest rates are moving down a bit this morning with the yield on the 10-year currently trading at 5.10%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are looking for direction at the moment.

And after yesterday’s blast, it will be interesting if the bulls can rally the troops again today or if everyone will decide to head to the beach early.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

General Electric (GE) – Reported $0.52 vs. $0.52, Increases stock buyback


News, Upgrades/Downgrades/Brokerage Research:*
RadioShack (RSH) – Downgraded at BofA
Shaw Group (SGR) – Upgraded at Citi
Halliburton (HAL) – Upgraded at Credit Suisse
99 Cents Only Stores (NDN) – Upgraded at Deutsche Bank
Chemed (CHE) – Downgraded at Deutsche Bank
Verisign (VRSN) – Upgraded at Jefferies
Carnival Cruise Lines (CCL) – Upgraded at JP Morgan
BJS Wholesale Club (BJ) – Upgraded at Lehman
Safeway (SWY) – Upgraded at Lehman
Allstate (ALL) – Downgraded at Merrill Lynch
Black & Decker (BDK) – Downgraded at Merrill Lynch
Frontline (FRO) – Downgraded at UBS

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

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: TEAM, NET, TWLO, DOCS, FROG, DV, TTD, ABNB, DKNG, SG, RKT
• After-Hours Movers: CSCO, COHR, HLIT, CBRS, STUB, ENS