David Moenning's Daily State of the Markets: 10/22
Tweet
Share
E-mailGet Alerts CAT Hot Sheet
Join SI Premium – FREE
Adding Insult to Injury
As I am quite sure you are already aware, the Dow plunged 370 points on Friday. The catalyst for the move appeared to the earnings report from Caterpillar (NYSE: CAT), which didn’t have good things to say about the economy, the housing market, or the outlook for global growth. And although one company’s opinion isn’t usually enough to turn the market, CAT’s sentiments seemed to be shared by Honeywell (HON) and 3M (MMM). And in light of the fact that the bears have been caged up for quite some time, it didn’t take our furry friends long to get something going to the downside.
However, as we reported in our weekend State of the Markets, the crummy reports from the big blue chips weren’t the entire story to Friday’s swoon. Yes, it is certainly true that the Caterpillar report, when combined with an overbought market and an expiration Friday was enough to generate some downside action. And frankly, a drop of 200 points on the Dow seemed about right at the time.
My problem with Friday’s action came in trying to explain the sudden plunge that started at about 2:00 p.m. eastern and continued right into the close. After doing some digging, we finally came upon the real reason for the late day of dive of the additional 170 points. It turns out that there was a rumor floating around the Goldman Sachs Alpha Fund, which was one of the hedge funds that was said to be trouble in the summer, was being forced to do some selling. And if you know anything about the hedge fund business, a margin call can only mean one thing – the fund is at risk of going belly up.
Although the rumor was denied by Goldman after the market close, the hint of more trouble in hedge-fund-land added insult to injury and the bulls found themselves simply overrun at the end of the day.
Another big part of the problem here is that there is a great deal of concern that we haven’t seen the worst of the subprime problems yet. For example, there are reports this morning that Merrill Lynch held an emergency board meeting Sunday night, where the discussion was said to revolve around whether or not the firm will have to add to the $5 billion write-down it spoke of in an earnings preview less than two weeks ago.
Turning to this morning’s pre-market activity, as one might have expected, the selling has continued around the globe. Hong Kong’s Hang Seng index plummeted 3.7% overnight and Japan’s Nikkei fell by -2.24%. European markets are faring a little better since they were open during Friday’s initial decline.
We don’t have any economic data to review before the bell, but the earnings parade is really rolling this week as we will see reports from no fewer than 160 S&P stocks before Friday.
Running through the rest of the pre-game indicators; as we mentioned, the overseas markets are down hard. Crude futures are heading lower again with the latest quote off $1.86 to $86.77 as worries over global growth are impacting crude as well. Interest rates are moving lower again this morning with the 10-yr trading at a yield of 4.35% at the moment. And finally, with about an hour and a half before the bell, stock futures in the U.S. are looking to open down hard. The Dow futures are currently off by about 150 points; the S&Ps are down by about 15 points, while the NASDAQ looks to be about 19 points below fair value at the moment.
Stocks "In Play" This Morning:
Today’s Earnings Before the Bell:
Kimberly Clark (KMB) – Reported $1.07 vs. $1.06
Merck (MRK) – Reported $0.75 vs. $0.69, Increases earnings guidance for year
Schering Plough (SGP) – Reported $0.28 vs. $0.30
Weatherford Intl (WFT) – Reported $0.85 vs. $0.84
News, Upgrades/Downgrades/Brokerage Research:
Robert Half Intl (NYSE: RHI) – Downgraded at BofA
Anglo American (Nasdaq: AAUK) – Downgraded at Citi
BHP Billiton (NYSE: BHP) – Downgraded at Citi
Rio Tinto (NYSE: RTP) – Downgraded at Citi
Xerox (NYSE: XRX) – Upgraded at Citi
DuPont (NYSE: DD) – Downgraded at Citi
Citrix Systems (Nasdaq: CTXS) – Upgraded at Deutsche Bank
Occidental Petroleum (NYSE: OXY) – Downgraded at Deutsche Bank
Stericycle (Nasdaq: SRCL) – Upgraded at JP Morgan
Dollar Tree Stores (Nasdaq: DLTR) – Downgraded at JP Morgan
American Express (NYSE: AXP) – Downgraded at Lehman
Capital One Financial (NYSE: COF) – Downgraded at Lehman
Washington Mutual (NYSE: WM) – Downgraded at Lehman
Walgreen (NYSE:WAG) – Upgraded at Morgan Stanley
Altria (NYSE: MO) – Upgraded at UBS
Wal-Mart (NYSE: WMT) – Mentioned positively at UBS
Mr. Moenning holds Long positions in stocks mentioned: None
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.
As I am quite sure you are already aware, the Dow plunged 370 points on Friday. The catalyst for the move appeared to the earnings report from Caterpillar (NYSE: CAT), which didn’t have good things to say about the economy, the housing market, or the outlook for global growth. And although one company’s opinion isn’t usually enough to turn the market, CAT’s sentiments seemed to be shared by Honeywell (HON) and 3M (MMM). And in light of the fact that the bears have been caged up for quite some time, it didn’t take our furry friends long to get something going to the downside.
However, as we reported in our weekend State of the Markets, the crummy reports from the big blue chips weren’t the entire story to Friday’s swoon. Yes, it is certainly true that the Caterpillar report, when combined with an overbought market and an expiration Friday was enough to generate some downside action. And frankly, a drop of 200 points on the Dow seemed about right at the time.
My problem with Friday’s action came in trying to explain the sudden plunge that started at about 2:00 p.m. eastern and continued right into the close. After doing some digging, we finally came upon the real reason for the late day of dive of the additional 170 points. It turns out that there was a rumor floating around the Goldman Sachs Alpha Fund, which was one of the hedge funds that was said to be trouble in the summer, was being forced to do some selling. And if you know anything about the hedge fund business, a margin call can only mean one thing – the fund is at risk of going belly up.
Although the rumor was denied by Goldman after the market close, the hint of more trouble in hedge-fund-land added insult to injury and the bulls found themselves simply overrun at the end of the day.
Another big part of the problem here is that there is a great deal of concern that we haven’t seen the worst of the subprime problems yet. For example, there are reports this morning that Merrill Lynch held an emergency board meeting Sunday night, where the discussion was said to revolve around whether or not the firm will have to add to the $5 billion write-down it spoke of in an earnings preview less than two weeks ago.
Turning to this morning’s pre-market activity, as one might have expected, the selling has continued around the globe. Hong Kong’s Hang Seng index plummeted 3.7% overnight and Japan’s Nikkei fell by -2.24%. European markets are faring a little better since they were open during Friday’s initial decline.
We don’t have any economic data to review before the bell, but the earnings parade is really rolling this week as we will see reports from no fewer than 160 S&P stocks before Friday.
Running through the rest of the pre-game indicators; as we mentioned, the overseas markets are down hard. Crude futures are heading lower again with the latest quote off $1.86 to $86.77 as worries over global growth are impacting crude as well. Interest rates are moving lower again this morning with the 10-yr trading at a yield of 4.35% at the moment. And finally, with about an hour and a half before the bell, stock futures in the U.S. are looking to open down hard. The Dow futures are currently off by about 150 points; the S&Ps are down by about 15 points, while the NASDAQ looks to be about 19 points below fair value at the moment.
Stocks "In Play" This Morning:
Today’s Earnings Before the Bell:
Kimberly Clark (KMB) – Reported $1.07 vs. $1.06
Merck (MRK) – Reported $0.75 vs. $0.69, Increases earnings guidance for year
Schering Plough (SGP) – Reported $0.28 vs. $0.30
Weatherford Intl (WFT) – Reported $0.85 vs. $0.84
News, Upgrades/Downgrades/Brokerage Research:
Robert Half Intl (NYSE: RHI) – Downgraded at BofA
Anglo American (Nasdaq: AAUK) – Downgraded at Citi
BHP Billiton (NYSE: BHP) – Downgraded at Citi
Rio Tinto (NYSE: RTP) – Downgraded at Citi
Xerox (NYSE: XRX) – Upgraded at Citi
DuPont (NYSE: DD) – Downgraded at Citi
Citrix Systems (Nasdaq: CTXS) – Upgraded at Deutsche Bank
Occidental Petroleum (NYSE: OXY) – Downgraded at Deutsche Bank
Stericycle (Nasdaq: SRCL) – Upgraded at JP Morgan
Dollar Tree Stores (Nasdaq: DLTR) – Downgraded at JP Morgan
American Express (NYSE: AXP) – Downgraded at Lehman
Capital One Financial (NYSE: COF) – Downgraded at Lehman
Washington Mutual (NYSE: WM) – Downgraded at Lehman
Walgreen (NYSE:WAG) – Upgraded at Morgan Stanley
Altria (NYSE: MO) – Upgraded at UBS
Wal-Mart (NYSE: WMT) – Mentioned positively at UBS
Mr. Moenning holds Long positions in stocks mentioned: None
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: CRWV, NBIS, SMCI, LITE, CAVA, HRB
- After-Hours Movers: CSCO, COHR, HLIT, CBRS, STUB, ENS
Create E-mail Alert Related Categories
Contributors, Special ReportsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
