David Moenning's Daily State of the Markets: 08/01
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Too Much To Take
Another volatile day ended badly for the bulls as there was simply too much negative news for even the most upbeat investors to handle. Much better-than-expected GDP numbers coupled with a strong rally in Europe lifted stocks at the open and commentators could be heard talking of the recent pullback in the past tense. But before you could get the second dose of caffeine going, the gains were faltering and the bears were on the prowl.
The problems started when American Home Mortgage (NYSE: AHM) and a little-known mortgage affiliate of MGIC Investment (NYSE: MTG) reminded investors that the subprime problems have not gone away. The subprime monster reared its ugly head as AHM reported it was unable to borrow on its credit line and was seeking assistance for "the orderly liquidation of assets." Needless to say, traders had a problem with the plan and the company saw its shares plunge -90.07%.
Standard & Poors added fuel to subprime fire by saying it may downgrade another $1 Billion of collateralized debt obligations tied to subprime and second-mortgage bonds. You may recall that S&P had already dropped the hammer on some $2 Billion in CDO's earlier this month.
Next, St. Louis Fed President William Poole put a damper on the day as he all but removed the hope that the Fed would come to the market's rescue any time soon. While the idea that Mr. Bernanke would care about a relatively normal correction in stock prices is folly, speculation had been growing that the bulls had a friend at the Fed who would bail them out in the near-term if needed.
And while the rumor that Apple (NASDAQ: AAPL) was cutting back production of both the iPhone and the iPod could not be confirmed, it provided our furry friends with enough ammo to hit the tech poster child for a drop of -7% and create a little angst in four-letter-land.
It was also discouraging to see oil prices close at a record high. Although the move up in oil has been steady lately, it has been largely ignored by traders. But with September futures closing up +$1.38 to $78.21, people began to notice and leaned on the sell button some more.
And finally, the big story of the day, the one that was responsible for the tank-job we saw in the final hour, was that a third hedge fund at Bear Stearns, this one with $900 Million in assets, was facing margin calls, was not allowing redemptions, and was in serious trouble. This was simply the straw that broke the camel's back and stocks plunged into the close.
The technicians will argue that yesterday qualified as a retest of the lows, which is normal. However, the late-day dive actually took out the lows on the DJIA and NASDAQ, which the readers of the charts argue is a precursor of more selling to come.
Turning to this morning, it looks like the techies may have it right as things are fairly ugly in the early going. Talk of another hedge fund in trouble, this one out of Australia, has kept the subprime problems at the forefront and the futures are deep in the red once again.
Running through the rest of the pre-game indicators, foreign markets are down hard across the board. In the oil pits, crude futures are moving down a bit with the latest quote off $0.26 to $77.95. Interest rates are lower this morning as the flight to quality resumes. The yield on the 10-year is currently trading at 4.74%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to lower open. The Dow futures are currently down by about 50 points; the S&P's are below fair value by about 8 points, while the NASDAQ looks to be about 10 points under fair value at the moment.
Stocks "In Play" This Morning:
Yesterday's Earnings After the Bell:
Aon Corp (NYSE: AOC) - Reported $0.74 vs. $0.67
Avalon Bay (NYSE: AVB) - Reported $1.17 vs. $1.16
Crown Castle (NYSE: CCI) - Reported $0.13 vs. $0.31
Chipotle Mexican Grill (NYSE: CMG) - Reported $0.60 vs. $0.44
MetLife (NYSE: MET) - Reported $1.72 vs. $1.33
Ruth's Chris Steakhouse (NASDAQ: RUTH) - Reported $0.23 vs. $0.24
Tupperware (NYSE: TUP) - Reported $0.58 vs. $0.49
Whole Foods (NASDAQ: WFMI) - Reported $0.35 vs. $0.33
Dentsply (NASDAQ: XRAY) - Reported $0.44 vs. $0.43
Today's Earnings Before the Bell:
Alltel Corp (NYSE: AT) - Reported $0.56 vs. $0.71
Cigna (NYSE: CI) - Reported $0.96 vs. $0.88
Devon Energy (NYSE: DVN) - Reported $1.87 vs. $1.46
Jones Apparel (NYSE: JNY) - Reported $0.17 vs. $0.31
Kraft Foods (NYSE: KFT) - Reported $0.50 vs. $0.47
MasterCard (NYSE: MA) - Reported $1.43 vs. $1.34
Moody's (NYSE: MCO) - Reported $0.76 vs. $0.69
OfficeMax (NYSE: OMX) - Reported $0.35 vs. $0.32
Qwest (NYSE: Q) - Reported $0.13 vs. $0.15
Transocean (NYSE: RIG) - Reported $1.84 vs. $1.71
Teva Pharmaceutical (NASDAQ: TEVA) - Reported $0.63 vs. $0.55
Time Warner (NYSE: TWX) - Reported $0.22 vs. $0.20
News, Upgrades/Downgrades/Brokerage Research:*
NVR Inc (NYSE: NVR) - Upgraded at Banc of America
AGCO (NYSE: AG) - Upgraded at Bear Stearns
Apple (NASDAQ: AAPL) - Upgraded at Citigroup
HSBC Holdings (NYSE: HBC) - Upgraded at Citi
Sempra Energy (NYSE: SRE) - Upgraded at Goldman Sachs, JP Morgan
First Marblehead (NYSE: FMD) - Downgraded at JP Morgan
DeVry Inc (NYSE: DV) - Upgraded at Merrill Lynch
Exelon (NYSE: EXC) - Upgraded at Morgan Stanley
Reliant Energy (NYSE: RRI) - Upgraded at Morgan Stanley
Mr. Moenning holds Long positions in stocks mentioned: MER, AG, AAPL, RRI
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.
Another volatile day ended badly for the bulls as there was simply too much negative news for even the most upbeat investors to handle. Much better-than-expected GDP numbers coupled with a strong rally in Europe lifted stocks at the open and commentators could be heard talking of the recent pullback in the past tense. But before you could get the second dose of caffeine going, the gains were faltering and the bears were on the prowl.
The problems started when American Home Mortgage (NYSE: AHM) and a little-known mortgage affiliate of MGIC Investment (NYSE: MTG) reminded investors that the subprime problems have not gone away. The subprime monster reared its ugly head as AHM reported it was unable to borrow on its credit line and was seeking assistance for "the orderly liquidation of assets." Needless to say, traders had a problem with the plan and the company saw its shares plunge -90.07%.
Standard & Poors added fuel to subprime fire by saying it may downgrade another $1 Billion of collateralized debt obligations tied to subprime and second-mortgage bonds. You may recall that S&P had already dropped the hammer on some $2 Billion in CDO's earlier this month.
Next, St. Louis Fed President William Poole put a damper on the day as he all but removed the hope that the Fed would come to the market's rescue any time soon. While the idea that Mr. Bernanke would care about a relatively normal correction in stock prices is folly, speculation had been growing that the bulls had a friend at the Fed who would bail them out in the near-term if needed.
And while the rumor that Apple (NASDAQ: AAPL) was cutting back production of both the iPhone and the iPod could not be confirmed, it provided our furry friends with enough ammo to hit the tech poster child for a drop of -7% and create a little angst in four-letter-land.
It was also discouraging to see oil prices close at a record high. Although the move up in oil has been steady lately, it has been largely ignored by traders. But with September futures closing up +$1.38 to $78.21, people began to notice and leaned on the sell button some more.
And finally, the big story of the day, the one that was responsible for the tank-job we saw in the final hour, was that a third hedge fund at Bear Stearns, this one with $900 Million in assets, was facing margin calls, was not allowing redemptions, and was in serious trouble. This was simply the straw that broke the camel's back and stocks plunged into the close.
The technicians will argue that yesterday qualified as a retest of the lows, which is normal. However, the late-day dive actually took out the lows on the DJIA and NASDAQ, which the readers of the charts argue is a precursor of more selling to come.
Turning to this morning, it looks like the techies may have it right as things are fairly ugly in the early going. Talk of another hedge fund in trouble, this one out of Australia, has kept the subprime problems at the forefront and the futures are deep in the red once again.
Running through the rest of the pre-game indicators, foreign markets are down hard across the board. In the oil pits, crude futures are moving down a bit with the latest quote off $0.26 to $77.95. Interest rates are lower this morning as the flight to quality resumes. The yield on the 10-year is currently trading at 4.74%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to lower open. The Dow futures are currently down by about 50 points; the S&P's are below fair value by about 8 points, while the NASDAQ looks to be about 10 points under fair value at the moment.
Stocks "In Play" This Morning:
Yesterday's Earnings After the Bell:
Aon Corp (NYSE: AOC) - Reported $0.74 vs. $0.67
Avalon Bay (NYSE: AVB) - Reported $1.17 vs. $1.16
Crown Castle (NYSE: CCI) - Reported $0.13 vs. $0.31
Chipotle Mexican Grill (NYSE: CMG) - Reported $0.60 vs. $0.44
MetLife (NYSE: MET) - Reported $1.72 vs. $1.33
Ruth's Chris Steakhouse (NASDAQ: RUTH) - Reported $0.23 vs. $0.24
Tupperware (NYSE: TUP) - Reported $0.58 vs. $0.49
Whole Foods (NASDAQ: WFMI) - Reported $0.35 vs. $0.33
Dentsply (NASDAQ: XRAY) - Reported $0.44 vs. $0.43
Today's Earnings Before the Bell:
Alltel Corp (NYSE: AT) - Reported $0.56 vs. $0.71
Cigna (NYSE: CI) - Reported $0.96 vs. $0.88
Devon Energy (NYSE: DVN) - Reported $1.87 vs. $1.46
Jones Apparel (NYSE: JNY) - Reported $0.17 vs. $0.31
Kraft Foods (NYSE: KFT) - Reported $0.50 vs. $0.47
MasterCard (NYSE: MA) - Reported $1.43 vs. $1.34
Moody's (NYSE: MCO) - Reported $0.76 vs. $0.69
OfficeMax (NYSE: OMX) - Reported $0.35 vs. $0.32
Qwest (NYSE: Q) - Reported $0.13 vs. $0.15
Transocean (NYSE: RIG) - Reported $1.84 vs. $1.71
Teva Pharmaceutical (NASDAQ: TEVA) - Reported $0.63 vs. $0.55
Time Warner (NYSE: TWX) - Reported $0.22 vs. $0.20
News, Upgrades/Downgrades/Brokerage Research:*
NVR Inc (NYSE: NVR) - Upgraded at Banc of America
AGCO (NYSE: AG) - Upgraded at Bear Stearns
Apple (NASDAQ: AAPL) - Upgraded at Citigroup
HSBC Holdings (NYSE: HBC) - Upgraded at Citi
Sempra Energy (NYSE: SRE) - Upgraded at Goldman Sachs, JP Morgan
First Marblehead (NYSE: FMD) - Downgraded at JP Morgan
DeVry Inc (NYSE: DV) - Upgraded at Merrill Lynch
Exelon (NYSE: EXC) - Upgraded at Morgan Stanley
Reliant Energy (NYSE: RRI) - Upgraded at Morgan Stanley
Mr. Moenning holds Long positions in stocks mentioned: MER, AG, AAPL, RRI
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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