David Moenning�s Daily State of the Markets: 05/03
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The Real Reason
While the stock market often has a mind of its own and technicians will tell you that the only important thing to know about the market is the direction of prices on the chart, we firmly believe that there is generally a good reason behind any significant price movement. And frankly, yesterday�s gain of 73 points on the Dow didn�t appear to have such a reason.
Several analysts cited �a general optimism toward earnings� and one guy mentioned Verizon�s report as being supportive of the advance, despite the fact that VZ�s earnings were down from the year prior and the stock actually fell on the day. When analysts mention something as vague as �a general optimism toward earnings,� what they really mean to say is, �we haven�t a clue why stocks went up today.�
In reality, with the situation in Iran escalating daily, oil gaining $0.91 to $74.61, no real economic news, and more than a little confusion as to what to expect from the May 10th Fed meeting, it was a bit puzzling to see the blue chips move up to new cycle highs. In surveying the landscape, the bulls didn�t get any real help from the bond market as yields stayed fairly steady at 5.11% on the 10-year. And there was no help from the metals market either since gold gained another $7 to $667.20, which was the best close since 1980.
So, with some external concerns (oil and Iran) and a lot of talk about the Fed simply pausing instead of actually ending their tightening campaign, one might have expected stocks to do little on a day like yesterday. Thus, we have to broaden our view in order to find a reason for the move. And while there could very easily have been some unpublished reason for somebody to run programs all day long, the steady move higher makes this explanation a little thin as well.
Thus, we are left with the age-old concept of supply and demand. A couple strong moves up in high profile industrial companies such as General Motors (GM), International Paper (IP), and Honeywell (HON) certainly gave the bulls a hand. But from a bigger picture standpoint, we have to remember that the first five trading days of most months are traditionally strong. Why? Because money managers get fresh cash from qualified plans that they need to put to work. And in our humble opinion, this appears to be the real reason for the bulls holding serve on a questionable catalyst day.
But with the indices nudging their way into new cycle high territory and the small caps and mid caps lagging behind at the moment, it is clear that the pressure is on the bulls to keep the ball rolling from here. So we will need to watch the action closely going forward.
Turning to this morning, stocks are muddling along to the downside an hour before the bell. There is no economic news before the start of trading, but we will get reports on Oil Inventories and Factory Orders, as well as the ISM Non-manufacturing index at 10:00 am.
Running through the rest of the pre-game indicators, overseas markets are lower across the board as oil prices nearing all-time records weighed on trading. Oil futures are currently pulling back just a bit $74.54 but will continue to attract attention at these levels. Natural Gas is also trading a little lower to $6.70. Gold is quoted this morning at $675.70. Interest rates are little changed this morning with the 2-year currently trading at 4.93% and the 10-yr is at 5.11%. And finally, stock futures in the U.S. are pointing to a lower open with the Dow futures about 31 points below fair value, the S&Ps are off by about 2 points, while the NASDAQ futures are actually gaining 2 in response to Qualcomm�s increased guidance.
Stocks �In Play� This Morning:
Cisco Systems (CSCO) � Price target increased at Citigroup
Qwest Comm. (Q) � Reported $0.05 vs. $0.00, Revenues $3.48B vs. $3.40B
Motorola (MOT) � Upgraded at BofA, Mentioned positively at ThinkEquity
Powerwave (PWAV) � Upgraded at Deutsche Bank and First Albany
Time Warner (TWX) � Reported $0.20 vs. $0.20, Revenues $10.5B vs. $10.89B
Phelps Dodge (PD) � Upgraded at Bear Stearns
Advanced Micro Devices (AMD) � Postpones launch of 64-bit dual-core notebook processor
Omnivision Tech (OVTI) � Upgraded at ThinkEquity
Solectron (SLR) � Upgraded at Bear Stearns
IAC Interactive � Upgraded at Bear Stearns
CBOT Holdings (BOT) � Upgraded at Banc of America
Adobe (ADBE) � Upgraded at CIBC, guides to low end of range
FedEx (FDX) � Downgraded at Morgan Stanley
Yahoo (YHOO) � WSJ reports MSFT considering a stake to compete with GOOG
Cigna (CI) � Reported $2.11 vs. $1.88, Revenues $4.11B vs. $4.12B
Merck (MRK) � Study shows Vioxx increases heart attack risk in elderly w/in short time
Procter & Gamble (PG) � Reported $0.63 vs. $0.61, Revenues $17.25B vs. $17.52B
Trump Ent (TRMP) � Reported ($0.32) vs. ($0.25), Revenues $237.6M vs. $234.6
Qualcomm (QCOM) � Ups guidance for Q3
Disclosure: Long positions in stocks mentioned: CSCO, Q, PWAV, FDX, MS, BSC
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.
While the stock market often has a mind of its own and technicians will tell you that the only important thing to know about the market is the direction of prices on the chart, we firmly believe that there is generally a good reason behind any significant price movement. And frankly, yesterday�s gain of 73 points on the Dow didn�t appear to have such a reason.
Several analysts cited �a general optimism toward earnings� and one guy mentioned Verizon�s report as being supportive of the advance, despite the fact that VZ�s earnings were down from the year prior and the stock actually fell on the day. When analysts mention something as vague as �a general optimism toward earnings,� what they really mean to say is, �we haven�t a clue why stocks went up today.�
In reality, with the situation in Iran escalating daily, oil gaining $0.91 to $74.61, no real economic news, and more than a little confusion as to what to expect from the May 10th Fed meeting, it was a bit puzzling to see the blue chips move up to new cycle highs. In surveying the landscape, the bulls didn�t get any real help from the bond market as yields stayed fairly steady at 5.11% on the 10-year. And there was no help from the metals market either since gold gained another $7 to $667.20, which was the best close since 1980.
So, with some external concerns (oil and Iran) and a lot of talk about the Fed simply pausing instead of actually ending their tightening campaign, one might have expected stocks to do little on a day like yesterday. Thus, we have to broaden our view in order to find a reason for the move. And while there could very easily have been some unpublished reason for somebody to run programs all day long, the steady move higher makes this explanation a little thin as well.
Thus, we are left with the age-old concept of supply and demand. A couple strong moves up in high profile industrial companies such as General Motors (GM), International Paper (IP), and Honeywell (HON) certainly gave the bulls a hand. But from a bigger picture standpoint, we have to remember that the first five trading days of most months are traditionally strong. Why? Because money managers get fresh cash from qualified plans that they need to put to work. And in our humble opinion, this appears to be the real reason for the bulls holding serve on a questionable catalyst day.
But with the indices nudging their way into new cycle high territory and the small caps and mid caps lagging behind at the moment, it is clear that the pressure is on the bulls to keep the ball rolling from here. So we will need to watch the action closely going forward.
Turning to this morning, stocks are muddling along to the downside an hour before the bell. There is no economic news before the start of trading, but we will get reports on Oil Inventories and Factory Orders, as well as the ISM Non-manufacturing index at 10:00 am.
Running through the rest of the pre-game indicators, overseas markets are lower across the board as oil prices nearing all-time records weighed on trading. Oil futures are currently pulling back just a bit $74.54 but will continue to attract attention at these levels. Natural Gas is also trading a little lower to $6.70. Gold is quoted this morning at $675.70. Interest rates are little changed this morning with the 2-year currently trading at 4.93% and the 10-yr is at 5.11%. And finally, stock futures in the U.S. are pointing to a lower open with the Dow futures about 31 points below fair value, the S&Ps are off by about 2 points, while the NASDAQ futures are actually gaining 2 in response to Qualcomm�s increased guidance.
Stocks �In Play� This Morning:
Cisco Systems (CSCO) � Price target increased at Citigroup
Qwest Comm. (Q) � Reported $0.05 vs. $0.00, Revenues $3.48B vs. $3.40B
Motorola (MOT) � Upgraded at BofA, Mentioned positively at ThinkEquity
Powerwave (PWAV) � Upgraded at Deutsche Bank and First Albany
Time Warner (TWX) � Reported $0.20 vs. $0.20, Revenues $10.5B vs. $10.89B
Phelps Dodge (PD) � Upgraded at Bear Stearns
Advanced Micro Devices (AMD) � Postpones launch of 64-bit dual-core notebook processor
Omnivision Tech (OVTI) � Upgraded at ThinkEquity
Solectron (SLR) � Upgraded at Bear Stearns
IAC Interactive � Upgraded at Bear Stearns
CBOT Holdings (BOT) � Upgraded at Banc of America
Adobe (ADBE) � Upgraded at CIBC, guides to low end of range
FedEx (FDX) � Downgraded at Morgan Stanley
Yahoo (YHOO) � WSJ reports MSFT considering a stake to compete with GOOG
Cigna (CI) � Reported $2.11 vs. $1.88, Revenues $4.11B vs. $4.12B
Merck (MRK) � Study shows Vioxx increases heart attack risk in elderly w/in short time
Procter & Gamble (PG) � Reported $0.63 vs. $0.61, Revenues $17.25B vs. $17.52B
Trump Ent (TRMP) � Reported ($0.32) vs. ($0.25), Revenues $237.6M vs. $234.6
Qualcomm (QCOM) � Ups guidance for Q3
Disclosure: Long positions in stocks mentioned: CSCO, Q, PWAV, FDX, MS, BSC
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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