David Moenning�s Daily State of the Markets: 07/14
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Tension Mounts
The key to Thursday�s session was the phrase �mounting geopolitical tensions,� as headlines from Israel, Iran, and Nigeria dominated trading. The escalation of a conflict between Hezbollah and Israel, another rebel attack on Nigerian pipelines, and the fact that Iran will be referred to the UN Security Council for sanction put the bears squarely in charge. Stocks plunged across the board and the Dow�s loss of -167 marked the second straight day of triple-digit losses.
With geopolitical tensions mounting, the price of oil once again became a focal point. Frankly, it takes only minor extrapolations to see how an interruption in the supply of oil could come about. And in response, crude traders took prices higher by $1.75 to another new record high close of $76.40. The increase marked the third straight day of gains in the oil pits, with prices rising almost 5% this week alone.
This in turn, causes concerns about inflation, the consumer, and the economy, which of course, brings us back to the question of when the Fed will stop being the enemy.
With oil prices at record highs, a rather slow start to earnings season so far, and some pretty high profile downgrades lately (with Disney and Wal-Mart becoming the latest victims), the headlines were simply more than the bulls could handle. One look at the board really tells the whole story as most indices wound up losing more than -1.5%, volume picked up on the second straight down day, and breadth was decidedly negative. In short, the bears appear to be retesting the June lows and if some solid earnings don�t come in to save the day pretty soon, there is likely to be more bear market talk in the near future.
The good news is that one can easily make the argument that stocks are currently pricing in a worst-case scenario. Let�s remember that the boys in the oil pits do NOT have any shortages to deal with at the present time, so the current pop in prices has to be considered a risk premium, which can easily be removed should peace break out on any front.
In addition, the mood has turned from optimistic to downright ugly in short order recently, which tells us that the shorts are once again pressing their bets and a bounce can�t be too far away. And with S&P earnings expected to rise by more than 9% this quarter, there is bound to be some good news to be found somewhere soon.
Turning to this morning, there are more headlines to deal with including the fact that the Bank of Japan raised interest rates by 0.25%, Israel has continued to pound away at Beirut with air strikes, and Nigerian militants attacked an oil company convoy, killing four.
In addition, we finally have some economic data to sift through. June Retail Sales came in with a decline of -0.1%, which was weaker than the expectations for a gain of +0.4%. When you strip out autos, the number was better at +0.3%, but still below the consensus of +0.4%. In addition, the report on Import Prices for June, which came in at +0.1%, was also a bit below expectations and well below May�s increase of +1.7%.
The bulls will argue that these weaker than expected reports will mean �less Fed� in the future, but the bears are quick to counter that the retail sales numbers show that consumer spending is thus far unencumbered by rising rates and a slowing housing market.
Running through the pre-game indicators, overseas markets are again down across the board. Gold is moving higher again this morning and is up by more than $10 to $664.50 on what appears to be a flight to quality. Oil continues to move higher on the geopolitical tensions and is currently trading up by $0.77 to $77.47. Interest rates are moving the opposite direction as the 2-year is currently trading at 5.09% while the 10-yr is trading with a yield at 5.06% right now. And finally, with about an hour before the bell, stock futures in the U.S. are lower, but not dramatically so. The Dow futures are currently off by 6 points; the S&Ps are down by 0.30, and the NASDAQ is hovering around breakeven.
Stocks �In Play� This Morning:
Apple Computer (AAPL) � Price target reduced at UBS
Biogen Idec (BIIB) � Downgraded at Bernstein
Safeco (SAFC) � Downgraded at Stifel, Nicolaus
SAP (SAP) � Upgraded at Citigroup
Intl Paper (IP) � Upgraded at Citigroup
Monster Worldwide (MNST) � Upgraded at Citigroup
Temple Inland (TIN) � Upgraded at Lehman
Baidu (BIDU) � Upgraded at Piper
General Electric (GE) � Reported $0.47 vs. $0.47, Revenues $39.9B vs. $39.41
Allstate (ALL) � Mentioned positively in Business Week
Abercrombie & Fitch (ANF) � Mentioned positively in Business Week
Shaw Group (SGR) � Mentioned positively in Barron�s relating to insider buying
EMC (EMC) � Reported $0.15 vs. 7/10 preannouncement of $0.15
Viacom (VIA) � Price target lowered at UBS
Caterpillar (CAT) � Mentioned positively at Credit Suisse
McClatchy (MNI) � Upgraded at Prudential
Positions in stocks mentioned: none
** 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.
The key to Thursday�s session was the phrase �mounting geopolitical tensions,� as headlines from Israel, Iran, and Nigeria dominated trading. The escalation of a conflict between Hezbollah and Israel, another rebel attack on Nigerian pipelines, and the fact that Iran will be referred to the UN Security Council for sanction put the bears squarely in charge. Stocks plunged across the board and the Dow�s loss of -167 marked the second straight day of triple-digit losses.
With geopolitical tensions mounting, the price of oil once again became a focal point. Frankly, it takes only minor extrapolations to see how an interruption in the supply of oil could come about. And in response, crude traders took prices higher by $1.75 to another new record high close of $76.40. The increase marked the third straight day of gains in the oil pits, with prices rising almost 5% this week alone.
This in turn, causes concerns about inflation, the consumer, and the economy, which of course, brings us back to the question of when the Fed will stop being the enemy.
With oil prices at record highs, a rather slow start to earnings season so far, and some pretty high profile downgrades lately (with Disney and Wal-Mart becoming the latest victims), the headlines were simply more than the bulls could handle. One look at the board really tells the whole story as most indices wound up losing more than -1.5%, volume picked up on the second straight down day, and breadth was decidedly negative. In short, the bears appear to be retesting the June lows and if some solid earnings don�t come in to save the day pretty soon, there is likely to be more bear market talk in the near future.
The good news is that one can easily make the argument that stocks are currently pricing in a worst-case scenario. Let�s remember that the boys in the oil pits do NOT have any shortages to deal with at the present time, so the current pop in prices has to be considered a risk premium, which can easily be removed should peace break out on any front.
In addition, the mood has turned from optimistic to downright ugly in short order recently, which tells us that the shorts are once again pressing their bets and a bounce can�t be too far away. And with S&P earnings expected to rise by more than 9% this quarter, there is bound to be some good news to be found somewhere soon.
Turning to this morning, there are more headlines to deal with including the fact that the Bank of Japan raised interest rates by 0.25%, Israel has continued to pound away at Beirut with air strikes, and Nigerian militants attacked an oil company convoy, killing four.
In addition, we finally have some economic data to sift through. June Retail Sales came in with a decline of -0.1%, which was weaker than the expectations for a gain of +0.4%. When you strip out autos, the number was better at +0.3%, but still below the consensus of +0.4%. In addition, the report on Import Prices for June, which came in at +0.1%, was also a bit below expectations and well below May�s increase of +1.7%.
The bulls will argue that these weaker than expected reports will mean �less Fed� in the future, but the bears are quick to counter that the retail sales numbers show that consumer spending is thus far unencumbered by rising rates and a slowing housing market.
Running through the pre-game indicators, overseas markets are again down across the board. Gold is moving higher again this morning and is up by more than $10 to $664.50 on what appears to be a flight to quality. Oil continues to move higher on the geopolitical tensions and is currently trading up by $0.77 to $77.47. Interest rates are moving the opposite direction as the 2-year is currently trading at 5.09% while the 10-yr is trading with a yield at 5.06% right now. And finally, with about an hour before the bell, stock futures in the U.S. are lower, but not dramatically so. The Dow futures are currently off by 6 points; the S&Ps are down by 0.30, and the NASDAQ is hovering around breakeven.
Stocks �In Play� This Morning:
Apple Computer (AAPL) � Price target reduced at UBS
Biogen Idec (BIIB) � Downgraded at Bernstein
Safeco (SAFC) � Downgraded at Stifel, Nicolaus
SAP (SAP) � Upgraded at Citigroup
Intl Paper (IP) � Upgraded at Citigroup
Monster Worldwide (MNST) � Upgraded at Citigroup
Temple Inland (TIN) � Upgraded at Lehman
Baidu (BIDU) � Upgraded at Piper
General Electric (GE) � Reported $0.47 vs. $0.47, Revenues $39.9B vs. $39.41
Allstate (ALL) � Mentioned positively in Business Week
Abercrombie & Fitch (ANF) � Mentioned positively in Business Week
Shaw Group (SGR) � Mentioned positively in Barron�s relating to insider buying
EMC (EMC) � Reported $0.15 vs. 7/10 preannouncement of $0.15
Viacom (VIA) � Price target lowered at UBS
Caterpillar (CAT) � Mentioned positively at Credit Suisse
McClatchy (MNI) � Upgraded at Prudential
Positions in stocks mentioned: none
** 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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