David Moenning's Daily State of the Markets: 5/29

Still Touch and Go

Here's a link to listen to an Audio Version of the report

The market ultimately took off to the upside yesterday, but it was definitely touch and go there for a while as investors were forced to sift through conflicting news for most of the day. And for the first time in a while, stocks and oil actually went the same direction albeit for completely different reasons.

Stocks headed higher out of the gate on the back of the Durable Goods report that was significantly better than expected. While most analysts have been espousing doom and gloom on the economic front lately, thanks in no small part to the never ending rise in crude, the report on the sales of goods designed to last three years or more was a breath of fresh air. At first blush, the drop of -0.5% didn’t sound all that great, especially when you consider that orders had fallen for five straight months. But when you consider that the drop was just one third of analysts’ expectations and that the all-important orders for nondefense capital goods ex-aircraft number climbed 4.2%, the data has to be considered a good thing (this number is a proxy for the level of capital investments businesses are making).

However, after jumping higher at the opening bell, things cooled off and the market see-sawed on both sides of breakeven through much of the session. Part of the problem for stocks was the barrage of headlines from the financial sector which reminded investors that the credit crisis is still hanging around. For example, KeyBank (KEY) doubled its forecast for net loan writeoffs this year. AIG (AIG) had its price target cut by Citi. Finally, JP Morgan (JPM) jumped on its competitors with a downgrade of the brokers.

Outside of the mess in the financials, traders also had to deal with an upside reversal in oil. In the early going, it looked like the oil bears were going to take crude down another few bucks. Let’s face it; the move in oil had gotten more than a little frothy and crude was due for a pullback. But with Iran reporting that it would reduce exports and then the Nigerian militant group MEND threatening more attacks on pipelines in the coming days; it wasn’t surprising to see the selling in the oil pits turn to buying. Crude futures finished the day up $2.18 to $131.03.

Finally, the worries about inflation got a boost from a report out of Dow Chemical (DOW) who said it would soon raise prices on all of its products by up to 20% in response to the increases in raw-material costs it is experiencing..

But through it all, the bulls were able to focus on the positives. The bottom line here was that the better-than expected economic data appeared trump the old news in the financials and the negatives on the oil and inflation fronts. And at the end of the day, the Dow had finished with a gain of 46 points.

Turning to this morning, oil is moving lower in the early going, which is helping equities a bit. On the economic front, all eyes are on the GDP numbers, so let’s get right to them. While there has been a great deal of concern about the economy, the Q1 GDP came in as expected with a gain of +0.9%. Personal Consumption rose by 1.0%, which was in line with expectations. And the inflation components were also either in line or slightly better than the consensus numbers. And while traders may be a little disappointed with the number, those calling for a recession will take note that there is a plus sign in front of the GDP result.

Running through the rest of the pre-game indicators; the foreign markets are higher across the board. Crude futures are moving down with the latest quote showing oil trading lower by $1.20 to $129.83. Interest rates are breaking out and are higher once again this morning as the yield on the 10-yr is currently trading at 4.04%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a modestly lower open at the moment. The Dow futures are currently off by about 25 points; the S&P’s are down by about 2 points, while the NASDAQ looks to be about a single point below fair value at the moment.

Stocks "In Play" This Morning:

Today's Earnings Before the Bell:

Big Lots (NYSE: BIG) – Reported $0.42 vs. $0.37
Costco (Nasdaq: COST) – Reported $0.67 vs. $0.65
Heinz (NYSE: HNZ) – Reported $0.61 vs. $0.61
Sears Holdings (Nasdaq: SHLD) – Reported -$0.53 vs. $0.15

News, Upgrades/Downgrades/Brokerage Research:

Chicos (NYSE: CHS) – Downgraded at Citi
American Axle (NYSE: AXL) – Upgraded at Deutsche Bank
CEMEX (NYSE: CX) – Downgraded at JP Morgan
Applied Materials (Nasdaq: AMAT) – Mentioned positively at JP Morgan
Eagle Materials (NYSE: EXP) – Estimates reduced at JP Morgan
Vulcan Materials (NYSE: VMC) – Estimates reduced at JP Morgan
General Motors (NYSE: GM) – Estimates reduced at Lehman
Invitrogen (Nasdaq: IVGN) – Upgraded at Merrill Lynch
Norfolk Southern (NYSE: NSC) – Upgraded at Merrill Lynch
Crane Co (NYSE: CR) – Upgraded at Merrill Lynch
Juniper Networks (Nasdaq: JNPR) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: BIG, AMAT, IVGN

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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

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