David Moenning's Daily State of the Markets: 1/16

Charts Rule

It is always interesting to hear the explanations made by the popular press regarding the market action on days like yesterday. In case you missed it, the Dow started to the downside once again in response to more bad economic news and more worry about the state of the banking industry. And before anybody was even thinking about a lunch locale, the Dow found itself down more than 200 points and more importantly, was clearly flirting with the December lows.

Technicians suggested that a breach of 817 on the S&P 500 would represent a breakdown on the charts and would trigger a freefall to the November 20th lows in the major indices. However, by the time the closing bell rang, the Dow had reversed the losses and there was enough green on the screens to generate a collective sigh of relief from anyone holding stocks.

In light of the fact that the move up off the bottom appeared to come out of nowhere and wound up being a fairly dramatic pop higher, the question of “why?” began to crop up just about everywhere you turned. While there were a few small positive data points available around the time the rally began, none appeared to be a worthy “trigger” to such a move.

So, although there is always a mutual fund manager or brokerage analyst willing to tell staff reporters at the big news outlets that stocks simply represented good values and it was “bargain hunting” that started things higher or that traders had suddenly (and without much reason) become optimistic, the real story is that yesterday’s upside surprise was driven by “technical factors.”

Before you accuse me of being the pot poking fun at the black kettle, allow me to explain. You see, the only people “in the market” these days are traders. And one thing you have to know about traders is they are almost all qualified in the art of reading a stock chart. So, given the facts that (1) the Dow was staring at a seventh straight down day, (2) the market had become very oversold, (3) fear had returned to the corner of Broad and Wall, (4) the indices were flirting with very important support levels, (5) there was nothing really “new” on the fundamental front, (6) it is an options expiration week, (7) there is a long weekend ahead, (8) the shorts were guilty of “piling on,” and finally (9) the inauguration, which is widely expected to usher in a time of hope and new beginnings, occurs on Tuesday, it doesn’t take a stock market wizard to see that we were due for a bounce.

And in short, a bounce is what we got yesterday… and right on schedule. Stocks basically tested the critical support levels and when the indices didn’t cut through the support like a hot knife through butter, the shorts may have realized that they could be accused of being a little greedy and ran for cover. So, will the move continue? To be honest, this is really anybody’s guess. But from a technical standpoint, the textbooks tell us that we could easily see some additional upside – especially if we were to see a “follow through” day today.

Turning to this morning, traders appear to be pleased that Bank of America (BAC) is going to get the $20 billion they need from the TARP and that Citi (C) is breaking up into a “good bank/bad bank” structure.

On the economic front, the Consumer Price Index wasn’t really a market mover as the CPI fell by -0.7% in December, which was a smidge below the estimates for -0.9%. Then when you strip out food and energy the so-called Core Rate came in unchanged versus expectations for an increase of +0.1%.

Running through the rest of the pre-game indicators, the major foreign markets all followed Wall Street’s lead and moved up a bit. Crude futures are higher with the latest quote showing oil futures trading up by $0.27 to $35.65. On the interest rate front, we’ve got the yield on the 10-yr currently up smartly at 2.36%, while overnight LIBOR is at 0.14%, and the yield on the 3-month T-Bill is at 0.11%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing higher. The Dow futures are currently ahead by about 100 points; the S&P’s are up by about 12 points, while the NASDAQ looks to be about 7 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Intel (Nasdaq: INTC) – Reported $0.04 vs. $0.04

Today’s Earnings Before the Bell:

Bank of America (NYSE: BAC) – Reported -$0.48 vs. -$0.21
Citi (NYSE: C) – Reported -$2.44 vs. -$1.32
First Horizon National (NYSE: FHN) – Reported -$0.27 vs. -$0.32
Johnson Controls (NYSE: JCI) – Reported -$0.14 vs. $0.01

Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

Bank of America (NYSE: BAC) - US to invest $20B in Bank of America from TARP
Citi (NYSE: C) – To break up into “Good Bank/Bad Bank” structure
JB Hunt Trans Svcs (Nasdaq: JBHT) – Downgraded at Bank of America Merrill Lynch
CH Robinson Worldwide (Nasdaq: CHRW) – Downgraded at Bank of America Merrill Lynch
Forward Air (Nasdaq: FWRD) – Downgraded at Bank of America Merrill Lynch
Omnicare (NYSE: OCR) – Upgraded at Barclays
Tenet Healthcare (NYSE: THC) – Downgraded at Barclays
Health Mgmt Assoc (NYSE: HMA) – Downgraded at Barclays
Kindred Healthcare (NYSE: KND) – Downgraded at Barclays
ABB Ltd (NYSE: ABB) – Downgraded at Goldman
Intel (Nasdaq: INTC) – Target reduced at Goldman
Agnico Mines (NYSE: AEM) – Downgraded at JP Morgan
Goldcorp (NYSE: GG) – Downgraded at JP Morgan
Kinross Gold (NYSE: KGC) – Downgraded at JP Morgan
Barnes & Noble (NYSE: BKS) – Upgraded at JP Morgan
Seagate Technology (NYSE: STX) – Downgraded at Moody’s
Tellabs (Nasdaq: TLAB) – Downgraded at Morgan Stanley
Vimpel Communications (NYSE: VIP) – Downgraded at Morgan Stanley
Mobile TeleSystems (NYSE: MBT) – Downgraded at Morgan Stanley
Forest Oil (NYSE: FST) – Downgraded at Morgan Stanley
Apache (NYSE: APA) – Downgraded at Morgan Stanley
Pioneer Nat Resources (NYSE: PXD) – Downgraded at Morgan Stanley
Dell (Nasdaq: DELL) – Mentioned cautiously at UBS
Hewlett Packard (NYSE: HPQ) – Mentioned cautiously at UBS
Cypress Semiconductor (NYSE: CY) – Mentioned cautiously at UBS
Viacom (NYSE: VIA.B) – Downgraded at UBS
News Corp (Nasdaq: NWSA) – Downgraded at UBS
Kellogg (NYSE: K) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: KGC

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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