David Moenning�s Daily State of the Markets: 03/21
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David Moenning�s Daily State of the Markets:
The Day After
The day after quadruple-witch expirations often winds up being a bit rocky as traders like to even out some of the activity forced by the expiration.
Thus, an up expiration day tends to produce a down Monday. And often times, the reversal can be the catalyst for a trend change. However, this was most certainly not the case during Monday�s session.
Since the current rally has been driven by the perception that the Fed will be �one and done,� traders were, for the most part, killing time during the day while waiting for Mr. Bernanke�s speech to the NY Economic Club. The new Fed-Head was expected to comment on the state of the yield curve as well as monetary policy. So, in short, traders felt the speech would either confirm the current perception that the Fed was about ready to call it a day or ruin the fun by throwing some uncertainty back into the mix.
Despite a significant decline in oil prices, which was triggered by OPEC�s suggestion that demand for crude will fall this year, stocks basically ran in place during Monday�s session. This would suggest that the Fed�s intentions are indeed the focal point of that market and that traders are not entirely sure what Mr. Bernanke might have to say. This is the third time that stocks have rallied this year on the idea that the Fed is almost done raising rates. The two previous rallies were met with disappointment as Fed officials made it clear that while monetary policy is now at, or very near the targeted neutral level, future actions would be dependent on the data.
Thus, the key question right now is if Mr. Bernanke and company agree with the way the traders are interpreting the economic data. The bulls have seen fit to assume that the recent economic reports have been of the Goldilocks variety � not too hot to cause inflation and yet not too cold to indicate a slowdown. So with the game on the line, traders are anxious to see if they�ve �got it right.�
In reviewing the text of the speech, what Bernanke said was that he doesn�t believe the flattening of the yield curve currently implies a "significant economic slowdown to come." The Fed chairman instead suggested that the flattish curve could indicate investors' confidence in the economy. Continuing on the topic of the yield curve, he went on to remind listeners that that the relationship between short and long rates is not a primary factor in determining monetary policy. All in all, analysts interpreted the chairman�s remarks as leaving the door open for the possibility of more rate hikes.
Turning to this morning, the PPI report is raising some eyebrows. While the headline number came in at -1.4%, which was significantly below the consensus estimate for a decline of -0.2%, the core rate was actually higher than expectations. When you strip out food and energy, the rate of inflation during February increased by +0.3%, which is much stronger than expectations for an increase of +0.1%. On a year-over-year basis, the core rate has increased +1.7%, which represents an uptick from last month�s reading of +1.5%.
While the bulls would love to point to the big drop in the headline number as a positive, they�ve been playing the core rate game for some time now, so it would appear that the increase could be problematic for our barnyard buddies. The initial reaction by the markets has seen a downtick in both bonds and stock futures.
Running through the pre-game indicators about 45 minutes before the bell, overseas markets are mostly lower on Bernanke�s comments on rates. Oil futures are down this morning on supply speculation. It should also be noted that it is time to flip to the May contract, so this morning�s price under $60 doesn�t correlate well (there�s more than a $1 difference).
Natural Gas is trading down to $6.75 right now. Bond yields are a little higher this morning with the 10-yr currently quoted at 4.67%. And finally, stock futures in the U.S. are lower at the moment with the S&Ps ahead of fair value by about -2.0.
Stocks �In Play� This Morning:
ORCL � Reported $0.19 vs. $0.18, says quarter off to good start
AMD � DigiTimes reports company may provide chips for ultra-mobile PCs
JNY � Reportedly considering sale of co
MGM � Upgraded at Bear Stearns
SHFL � Reported $0.23 vs. $0.21, Upgraded at Bear Stearns
BRL � Upgraded at Goldman Sachs
GOOG � FT reports co is expected to launch new financial site today
AAPL � Pending French legislation would open iTunes platform to competitors
COP � Increasing stake in Russia�s LUKOY by more than $2B
ESRX � B of A reiterates Buy Rating, also CMX
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: CSCO, UNH, AMAT, SUN The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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.
The Day After
The day after quadruple-witch expirations often winds up being a bit rocky as traders like to even out some of the activity forced by the expiration.
Thus, an up expiration day tends to produce a down Monday. And often times, the reversal can be the catalyst for a trend change. However, this was most certainly not the case during Monday�s session.
Since the current rally has been driven by the perception that the Fed will be �one and done,� traders were, for the most part, killing time during the day while waiting for Mr. Bernanke�s speech to the NY Economic Club. The new Fed-Head was expected to comment on the state of the yield curve as well as monetary policy. So, in short, traders felt the speech would either confirm the current perception that the Fed was about ready to call it a day or ruin the fun by throwing some uncertainty back into the mix.
Despite a significant decline in oil prices, which was triggered by OPEC�s suggestion that demand for crude will fall this year, stocks basically ran in place during Monday�s session. This would suggest that the Fed�s intentions are indeed the focal point of that market and that traders are not entirely sure what Mr. Bernanke might have to say. This is the third time that stocks have rallied this year on the idea that the Fed is almost done raising rates. The two previous rallies were met with disappointment as Fed officials made it clear that while monetary policy is now at, or very near the targeted neutral level, future actions would be dependent on the data.
Thus, the key question right now is if Mr. Bernanke and company agree with the way the traders are interpreting the economic data. The bulls have seen fit to assume that the recent economic reports have been of the Goldilocks variety � not too hot to cause inflation and yet not too cold to indicate a slowdown. So with the game on the line, traders are anxious to see if they�ve �got it right.�
In reviewing the text of the speech, what Bernanke said was that he doesn�t believe the flattening of the yield curve currently implies a "significant economic slowdown to come." The Fed chairman instead suggested that the flattish curve could indicate investors' confidence in the economy. Continuing on the topic of the yield curve, he went on to remind listeners that that the relationship between short and long rates is not a primary factor in determining monetary policy. All in all, analysts interpreted the chairman�s remarks as leaving the door open for the possibility of more rate hikes.
Turning to this morning, the PPI report is raising some eyebrows. While the headline number came in at -1.4%, which was significantly below the consensus estimate for a decline of -0.2%, the core rate was actually higher than expectations. When you strip out food and energy, the rate of inflation during February increased by +0.3%, which is much stronger than expectations for an increase of +0.1%. On a year-over-year basis, the core rate has increased +1.7%, which represents an uptick from last month�s reading of +1.5%.
While the bulls would love to point to the big drop in the headline number as a positive, they�ve been playing the core rate game for some time now, so it would appear that the increase could be problematic for our barnyard buddies. The initial reaction by the markets has seen a downtick in both bonds and stock futures.
Running through the pre-game indicators about 45 minutes before the bell, overseas markets are mostly lower on Bernanke�s comments on rates. Oil futures are down this morning on supply speculation. It should also be noted that it is time to flip to the May contract, so this morning�s price under $60 doesn�t correlate well (there�s more than a $1 difference).
Natural Gas is trading down to $6.75 right now. Bond yields are a little higher this morning with the 10-yr currently quoted at 4.67%. And finally, stock futures in the U.S. are lower at the moment with the S&Ps ahead of fair value by about -2.0.
Stocks �In Play� This Morning:
ORCL � Reported $0.19 vs. $0.18, says quarter off to good start
AMD � DigiTimes reports company may provide chips for ultra-mobile PCs
JNY � Reportedly considering sale of co
MGM � Upgraded at Bear Stearns
SHFL � Reported $0.23 vs. $0.21, Upgraded at Bear Stearns
BRL � Upgraded at Goldman Sachs
GOOG � FT reports co is expected to launch new financial site today
AAPL � Pending French legislation would open iTunes platform to competitors
COP � Increasing stake in Russia�s LUKOY by more than $2B
ESRX � B of A reiterates Buy Rating, also CMX
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: CSCO, UNH, AMAT, SUN The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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