David Moenning�s Daily State of the Markets: 04/20
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Overcoming (or Ignoring) Oil
Following a big up day, the market generally likes to consolidate a bit. Traders look for a minor pullback on contracting volume as a sign that the rally is resting up for the next big move. And given that oil moved to another new all-time high, interest rates pushed back above 5%, and Janet Yellen appeared to back off of her �we�re one and done� comments, logic would have suggested that a pullback was likely to occur.
But instead, the bulls got stubborn and stood their ground. Instead of a pullback, what we got was another day of green on the screen. And while it was a seesaw affair for most of the session, the Dow managed to push higher by 10 points, the S&P rose by .2%, and the NASDAQ enjoyed a good day on the back of Yahoo�s strong earnings. However, what got lost in all the talk of oil, interest rates, and earnings was the fact that the leaders, the small caps and mid caps, bounced up more than 1% and finished at new all-time highs.
Perhaps the bulls were able to skip the pullback scenario and overcome another surge in oil prices because of Tuesday�s �9 to 1 up day,� where up volume exceeded down volume by a measure of 9 to 1. The bulls know that this has been a solid buy signal over the years as the market sees average gains of +1.6% one month after the event, a gain of +4.1% three months later, and an increase of +8.9% six months out.
Regardless of the reason, the bulls decided to completely ignore another big increase in oil prices. It was yet another week of large drawdowns in petroleum inventories that continued to keep the oil market on edge. Stockpiles of gasoline fell by a whopping 5.4 million barrels, which was more than double the expectations and the biggest deviation from average since September 2000. Obviously this data raises concerns about supplies for the summer driving season and crude futures responded with a move up of $0.82 to a close of $72.17. While gasoline futures didn�t hit record highs, they are very close.
The bulls were also able to overcome (or completely ignore) another move up in interest rates. An unexpected uptick in the Core Rate of the CPI helped keep the Fed in focus. The thinking is that with commodity inflation surely to show up in the numbers soon, the Fed may not be able to stay dormant for long once they quit. The yield on the 10-year bond finished at 5.03% on the day.
Speaking of the Fed, San Francisco Fed President Janet Yellen, who helped spark Tuesday�s big rally, appeared a bit less dovish in a CNBC interview yesterday. She said that it is important to remember that the Fed will be �data dependent� in the coming months. And on the subject of the Fed being ready to end the hike down the measured path, she mentioned that �the end of the tightening hinges on a number of assumptions that must be proven to be accurate.�
All in all, the bulls have to be encouraged with yesterday�s result and may be looking to pad their gains with some high profile earnings results.
Turning to this morning, the major economic news of the day, the Index of Leading Economic Indicators, won�t be released until 10:00 a.m. and there is sure to be some anticipation of Google�s earnings later.
Running through the rest of the pre-game indicators, overseas markets were mostly higher. Gold remains strong and is quoted at $639.9, which is up +3.90 this morning. Oil futures are currently trading lower by $0.27 to $71.90. Natural Gas is higher by $0.03 to $8.16. Interest rates are steady with the yield on the 2-year trading at 4.88% right now, while the 10-year is at 5.04%. And finally, stock futures in the U.S. are pointing to another positive open with the Dow futures sporting a gain of +12 points, the S&Ps are above fair value by about 2.3 points, and the NASDAQ futures are gaining 3.8.
Stocks �In Play� This Morning:
Apple (AAPL) � Reported $0.50 vs. $0.43, Revenues $4.36B vs. $4.52B
Qualcomm (QCOM) � Reported $0.41 vs. $0.41, Revenues $1.84B vs. $1.81B
Intel (INTC) � Reported $0.23 vs. $0.22, Revenues $8.90B vs. $8.78B, Guides lower, Morgan Stanley reduces target
Kraft (KFT) � Reported $0.45 vs. $0.42, Revenues $8.10B vs. $8.18
Steel Dynamics (STLD) � Reported $01.52 vs. $01.33, Revenues $666M vs. $603.5M
EBay (EBAY) � Reported $0.242 vs. $0.24, Revenues $1.39B vs. $1.39B
Juniper Networks (JNPR) � Reported $0.19 vs. $0.19, Revenues $566.7M vs. $571.05M
UnitedHealth (UNH) � Barron�s mentions positively, Added to Select List at Stifel
Novellus (NVLS) � Reported $0.25 vs. $0.20
Nokia (NOK) � Reported EU0.25 vs. EU0.22, Revenues EU9.507B vs. EU9.0B
Altria (MO) � Reported $1.65. vs. $1.27, Revenues $24.35B vs. $16.31B (Includes tax items)
Schering Plough (SGP) � Reported $0.22 vs. $0.14, Revenues $2.55 vs. $2.47
Southwest Airlines (LUV) � Reported $0.08 vs. $0.08, Revenues $2.02b vs. $1.99B
General Motors (GM) � WSJ expects a loss for quarter
Bank of America (BAC) � Reported $1.08 vs. $1.00, Revenues $17.94B vs. $17.20B
Citrix Systems (CTXX) � Reported $0.33 vs. $0.28, Revenues $260M vs. $247.9M, Guides higher, Upgraded at UBS
CSX Corp (CSX) � Upgraded at Credit Suisse
Michaels Stores (MIK) � Downgraded at Wachovia
Eli Lilly (LLY) � Reported $0.77 vs. $0.75, Revenues $3.72B vs. $3.90B
China Mobile (CHL) � Reported revenues of CNY65B versus CNY54.9B a year ago
Disclosure: Long positions in stocks mentioned: QCOM, CHL
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.
Following a big up day, the market generally likes to consolidate a bit. Traders look for a minor pullback on contracting volume as a sign that the rally is resting up for the next big move. And given that oil moved to another new all-time high, interest rates pushed back above 5%, and Janet Yellen appeared to back off of her �we�re one and done� comments, logic would have suggested that a pullback was likely to occur.
But instead, the bulls got stubborn and stood their ground. Instead of a pullback, what we got was another day of green on the screen. And while it was a seesaw affair for most of the session, the Dow managed to push higher by 10 points, the S&P rose by .2%, and the NASDAQ enjoyed a good day on the back of Yahoo�s strong earnings. However, what got lost in all the talk of oil, interest rates, and earnings was the fact that the leaders, the small caps and mid caps, bounced up more than 1% and finished at new all-time highs.
Perhaps the bulls were able to skip the pullback scenario and overcome another surge in oil prices because of Tuesday�s �9 to 1 up day,� where up volume exceeded down volume by a measure of 9 to 1. The bulls know that this has been a solid buy signal over the years as the market sees average gains of +1.6% one month after the event, a gain of +4.1% three months later, and an increase of +8.9% six months out.
Regardless of the reason, the bulls decided to completely ignore another big increase in oil prices. It was yet another week of large drawdowns in petroleum inventories that continued to keep the oil market on edge. Stockpiles of gasoline fell by a whopping 5.4 million barrels, which was more than double the expectations and the biggest deviation from average since September 2000. Obviously this data raises concerns about supplies for the summer driving season and crude futures responded with a move up of $0.82 to a close of $72.17. While gasoline futures didn�t hit record highs, they are very close.
The bulls were also able to overcome (or completely ignore) another move up in interest rates. An unexpected uptick in the Core Rate of the CPI helped keep the Fed in focus. The thinking is that with commodity inflation surely to show up in the numbers soon, the Fed may not be able to stay dormant for long once they quit. The yield on the 10-year bond finished at 5.03% on the day.
Speaking of the Fed, San Francisco Fed President Janet Yellen, who helped spark Tuesday�s big rally, appeared a bit less dovish in a CNBC interview yesterday. She said that it is important to remember that the Fed will be �data dependent� in the coming months. And on the subject of the Fed being ready to end the hike down the measured path, she mentioned that �the end of the tightening hinges on a number of assumptions that must be proven to be accurate.�
All in all, the bulls have to be encouraged with yesterday�s result and may be looking to pad their gains with some high profile earnings results.
Turning to this morning, the major economic news of the day, the Index of Leading Economic Indicators, won�t be released until 10:00 a.m. and there is sure to be some anticipation of Google�s earnings later.
Running through the rest of the pre-game indicators, overseas markets were mostly higher. Gold remains strong and is quoted at $639.9, which is up +3.90 this morning. Oil futures are currently trading lower by $0.27 to $71.90. Natural Gas is higher by $0.03 to $8.16. Interest rates are steady with the yield on the 2-year trading at 4.88% right now, while the 10-year is at 5.04%. And finally, stock futures in the U.S. are pointing to another positive open with the Dow futures sporting a gain of +12 points, the S&Ps are above fair value by about 2.3 points, and the NASDAQ futures are gaining 3.8.
Stocks �In Play� This Morning:
Apple (AAPL) � Reported $0.50 vs. $0.43, Revenues $4.36B vs. $4.52B
Qualcomm (QCOM) � Reported $0.41 vs. $0.41, Revenues $1.84B vs. $1.81B
Intel (INTC) � Reported $0.23 vs. $0.22, Revenues $8.90B vs. $8.78B, Guides lower, Morgan Stanley reduces target
Kraft (KFT) � Reported $0.45 vs. $0.42, Revenues $8.10B vs. $8.18
Steel Dynamics (STLD) � Reported $01.52 vs. $01.33, Revenues $666M vs. $603.5M
EBay (EBAY) � Reported $0.242 vs. $0.24, Revenues $1.39B vs. $1.39B
Juniper Networks (JNPR) � Reported $0.19 vs. $0.19, Revenues $566.7M vs. $571.05M
UnitedHealth (UNH) � Barron�s mentions positively, Added to Select List at Stifel
Novellus (NVLS) � Reported $0.25 vs. $0.20
Nokia (NOK) � Reported EU0.25 vs. EU0.22, Revenues EU9.507B vs. EU9.0B
Altria (MO) � Reported $1.65. vs. $1.27, Revenues $24.35B vs. $16.31B (Includes tax items)
Schering Plough (SGP) � Reported $0.22 vs. $0.14, Revenues $2.55 vs. $2.47
Southwest Airlines (LUV) � Reported $0.08 vs. $0.08, Revenues $2.02b vs. $1.99B
General Motors (GM) � WSJ expects a loss for quarter
Bank of America (BAC) � Reported $1.08 vs. $1.00, Revenues $17.94B vs. $17.20B
Citrix Systems (CTXX) � Reported $0.33 vs. $0.28, Revenues $260M vs. $247.9M, Guides higher, Upgraded at UBS
CSX Corp (CSX) � Upgraded at Credit Suisse
Michaels Stores (MIK) � Downgraded at Wachovia
Eli Lilly (LLY) � Reported $0.77 vs. $0.75, Revenues $3.72B vs. $3.90B
China Mobile (CHL) � Reported revenues of CNY65B versus CNY54.9B a year ago
Disclosure: Long positions in stocks mentioned: QCOM, CHL
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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