David Moenning's Daily State of the Markets 11/08
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Gridlock Ahead
Good morning. Yesterday was one of those days where if you don�t have a solid understanding of the machinations of the market machine, the results made little sense. First, there were no obvious catalysts for the Dow�s return to new high territory � well, on an intraday basis anyway. Next, there was no economic news to speak of which would encourage buying. In addition, while oil prices did drop, the timing didn�t correlate well with the pop in stocks. There were also no real earnings surprises to spur traders. And finally, with the polls open for voting and the outcome in question, one might have expected traders to sit on their hands.
In short, the market�s resumption of the November rally could easily have produced a good bit of head scratching - so let�s spend a moment to think this through. As you know, the real key to understanding the day-to-day activity in stocks is to be able to identify the focus of the markets on an ongoing basis. And with no economic data to guide them the focus of traders has shifted.
With earnings season winding down and the Fed off the table for now, most of the focus is on the election at the present time. Everybody knows that Republicans are generally pro-business and Democrats tend to favor raising taxes. Thus, logic would suggest that the markets would prefer that the Republicans continue to control the House. And yet, with most political analysts predicting that the Democrats would wrestle the House away from their opponents, the reasons for a rally in stocks might seem elusive.
However, what is important to understand is that, in the big picture, the stock market actually prefers that neither team have control. This political gridlock assures investors that the people in Washington aren�t likely to cook up any ideas that would interfere with the concept of free markets. Therefore, if the Democrats would win control of the house, the people have made their voice heard regarding their distaste for the war in Iraq, but not really have the ability to impact anything in the way of earnings.
The important thing is that we wouldn�t likely see any runaway spending increases with the Republicans still in the White House and in control of the Senate. Nor would we see a repeal of Bush�s tax cuts or any legislative changes that would upset big business.
Let�s also remember that traders like to follow patterns. So, in keeping with the recent trend, stocks rallied in front of the election. And that, in conjunction with a nice drop in bond yields was the reason for yesterday�s advance.
However, this morning�s reaction to the reality that the Democrats did indeed win control of the House and were within a whisker of gaining control of the Senate is a different story. While it is early and there is a long trading day ahead, it would appear traders are voicing their displeasure with the tightness of the race by taking futures prices lower.
Running through the rest of the pre-game indicators, the major overseas markets are down across the board this morning. Gold futures are moving down and are quoted at $621.00 right now. Crude futures are moving a little higher with the latest quote showing oil up $0.27 to $59.20. Interest rates are pulling back a bit this morning with the 2-year currently quoted at 4.77% while the 10-yr is trading with a yield of 4.65% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking lower. The Dow futures are currently 20 points below fair value, the S&Ps are off by 4 points, while the NASDAQ is sporting a loss of about 6 points at the moment.
Stocks �In Play� This Morning:
Barr Pharma (BRL) � Reported $0.78 vs. $0.74
OSI Pharma (OSIP) � Downgraded at BofA, Bear Stearns, Citigroup
Leap Wireless (LEAP) � Upgraded at Bear Stearns
Harrah�s Ent (HET) � Downgraded at Bear Stearns
Intl Game Tech (IGT) � Upgraded at Bear Stearns
Urban Outfitters (URBN) � Upgraded at CIBC Capital
Wyeth (WYE) � Upgraded at Credit Suisse
CVS Corp (CVS) � Upgraded at Goldman Sachs
Whole Foods (WFMI) � Upgraded at JP Morgan
Broadcom (BRCM) � Upgraded at Raymond James
Toll Brothers (TOL) � Downgraded at Wachovia
Activision (ATVI) � Mentioned positively in Barron�s
Microsoft (MSFT) � WSJ reports company will launch online version of Office
Google (GOOG) � WSJ reports company to expand radio ad efforts
Hovnanian (HOV) � Guides full year lower
Long positions in stocks mentioned: BSC, GS, ITG
** 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.
Good morning. Yesterday was one of those days where if you don�t have a solid understanding of the machinations of the market machine, the results made little sense. First, there were no obvious catalysts for the Dow�s return to new high territory � well, on an intraday basis anyway. Next, there was no economic news to speak of which would encourage buying. In addition, while oil prices did drop, the timing didn�t correlate well with the pop in stocks. There were also no real earnings surprises to spur traders. And finally, with the polls open for voting and the outcome in question, one might have expected traders to sit on their hands.
In short, the market�s resumption of the November rally could easily have produced a good bit of head scratching - so let�s spend a moment to think this through. As you know, the real key to understanding the day-to-day activity in stocks is to be able to identify the focus of the markets on an ongoing basis. And with no economic data to guide them the focus of traders has shifted.
With earnings season winding down and the Fed off the table for now, most of the focus is on the election at the present time. Everybody knows that Republicans are generally pro-business and Democrats tend to favor raising taxes. Thus, logic would suggest that the markets would prefer that the Republicans continue to control the House. And yet, with most political analysts predicting that the Democrats would wrestle the House away from their opponents, the reasons for a rally in stocks might seem elusive.
However, what is important to understand is that, in the big picture, the stock market actually prefers that neither team have control. This political gridlock assures investors that the people in Washington aren�t likely to cook up any ideas that would interfere with the concept of free markets. Therefore, if the Democrats would win control of the house, the people have made their voice heard regarding their distaste for the war in Iraq, but not really have the ability to impact anything in the way of earnings.
The important thing is that we wouldn�t likely see any runaway spending increases with the Republicans still in the White House and in control of the Senate. Nor would we see a repeal of Bush�s tax cuts or any legislative changes that would upset big business.
Let�s also remember that traders like to follow patterns. So, in keeping with the recent trend, stocks rallied in front of the election. And that, in conjunction with a nice drop in bond yields was the reason for yesterday�s advance.
However, this morning�s reaction to the reality that the Democrats did indeed win control of the House and were within a whisker of gaining control of the Senate is a different story. While it is early and there is a long trading day ahead, it would appear traders are voicing their displeasure with the tightness of the race by taking futures prices lower.
Running through the rest of the pre-game indicators, the major overseas markets are down across the board this morning. Gold futures are moving down and are quoted at $621.00 right now. Crude futures are moving a little higher with the latest quote showing oil up $0.27 to $59.20. Interest rates are pulling back a bit this morning with the 2-year currently quoted at 4.77% while the 10-yr is trading with a yield of 4.65% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking lower. The Dow futures are currently 20 points below fair value, the S&Ps are off by 4 points, while the NASDAQ is sporting a loss of about 6 points at the moment.
Stocks �In Play� This Morning:
Barr Pharma (BRL) � Reported $0.78 vs. $0.74
OSI Pharma (OSIP) � Downgraded at BofA, Bear Stearns, Citigroup
Leap Wireless (LEAP) � Upgraded at Bear Stearns
Harrah�s Ent (HET) � Downgraded at Bear Stearns
Intl Game Tech (IGT) � Upgraded at Bear Stearns
Urban Outfitters (URBN) � Upgraded at CIBC Capital
Wyeth (WYE) � Upgraded at Credit Suisse
CVS Corp (CVS) � Upgraded at Goldman Sachs
Whole Foods (WFMI) � Upgraded at JP Morgan
Broadcom (BRCM) � Upgraded at Raymond James
Toll Brothers (TOL) � Downgraded at Wachovia
Activision (ATVI) � Mentioned positively in Barron�s
Microsoft (MSFT) � WSJ reports company will launch online version of Office
Google (GOOG) � WSJ reports company to expand radio ad efforts
Hovnanian (HOV) � Guides full year lower
Long positions in stocks mentioned: BSC, GS, ITG
** 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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