David Moenning�s Daily State of the Markets 06/09
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A Key Reversal Day!
Good morning. Yesterday�s action had all the markings of what is referred to by technicians as a key reversal day. This type of session typically starts very badly with a whoosh down, and with the Dow off more than -170 in the early going, we can definitely make a checkmark there. Next, at some point in the session (usually later in the day) the market indices suddenly and furiously reverse upwards and often times actually finish higher. And since the DJIA finished with an advance of +7, we can make another checkmark here. And finally, it is important for a key reversal to occur on much stronger than normal volume, and the total of 2.5 billion shares definitely qualifies.
The idea here is that the action signifies at least a temporary end to an extended downtrend. The final blast lower represents capitulation by anyone still looking to sell and thus, uses up all the remaining selling pressure. The shorts then suddenly recognize that they have been caught leaning and a cascade of buying ensues as the shorts run for cover, traders do some nibbling, funds do some bargain hunting in their favorite names, and the hedgies reverse course and go the other way. Therefore, before too long, the bulls wind up running the show.
For a while yesterday morning, it felt as if the world was coming to an end and the fear was palpable. And with the PPI/CPI data still days away, the thinking was that there was no hope of buyers returning until there was some kind of data induced reason to do so. However, it is when fear reaches an extreme level (make another checkmark here) that the bears become the most susceptible to a reversal. It is when the bear case become obvious to everyone (yep, another checkmark) that the opportunity for a key reversal finally arises. And finally, it is when you yourself start to think about selling anything and everything (uh huh, another checkmark) that you can usually bet on some kind of move higher.
Before we leave the subject of the key reversal day, there are two important things to remember about such technical events. First, they are widely recognized by the pros, and as such, the event becomes self fulfilling (i.e. the bulls know it is ok to buy and the bears know that its time to take a break). Second, we will need to see some sort of follow through to the move soon. However, we do NOT need to see this much anticipated follow through day right away. Thus, technicians will be on the lookout for a �confirmation day� sometime in the next 5-7 days, where the indices finish higher by 1% or more on volume that is greater than the day prior.
So while a key reversal day does not erase all of the concerns about higher interest rates, the Fed wrecking the economy, or the impact of higher oil prices, it does give the bulls a chance to state their case. It is also important to note that the key to the next move is contained in the rebound. If the move up occurs on lackluster enthusiasm, you can bet that the bears will be back for a return engagement. However, if the bulls can put some oomph behind the move, they may be able to run with the ball for a while. And the bottom line is that all of these issues will be resolved next week with the inflation data.
Turning to this morning, stocks are modestly higher on the back of solid rebounds in the overseas markets. This morning�s economic data was a mixed bag as the Trade Deficit numbers came in a bit better than expected while the Import Prices data was hotter than analysts were looking for and has thrown some cold water on the fun.
Running through the pre-game indicators, as we mentioned, overseas markets are all higher. Oil futures are moving up a bit this morning with Crude currently trading higher by $0.52 to $70.87. Interest rates are also moving a little higher and it should be noted that the curve has become slightly inverted this morning. The yield on the 2-year is currently trading at 5.02% and the 10-yr is quoted at 5.00% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving up a bit. The Dow futures are currently ahead by 20 points; the S&Ps are gaining 3.10, and the NASDAQ is sporting an advance of about 11 points on an upgrade to the semis at Prudential.
Stocks �In Play� This Morning:
Emerson Electric (EMR) � Upgraded at Citigroup
National Semi (NSM) � Reported $0.41 vs. $0.38, Upgraded at JMP and Merrill
Texas Instruments (TXN) � Upped low end of guidance range
Amgen (AMGN) � Mentioned positively in Barron�s
Gilead Sciences (GILD) � Mentioned positively in Barron�s
Alcoa (AA) � Upgraded at Prudential
Advanced Micro Devices (AMD) � Upgraded at HSBC, Pru upgrades sector
Newmont Mining (NEM) � Upgraded at Merrill
Invitrogen (IVGN) � Upgraded at Bear Stearns
Paychex (PAYX) � Upgraded at Bernstein
ING Groep (ING) � WSJ reports accusations by New Hampshire regulators
Motorola (MOT) � Adjust handset order projections higher
Coldwater Creek (CWTR) � Delays 10-Q Filing
Blue Nile (NILE) � Upgraded at Stifel
Coca Cola (KO) � Upgraded at Bear Stearns
Positions in stocks mentioned: GILD, BSC
** 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�s action had all the markings of what is referred to by technicians as a key reversal day. This type of session typically starts very badly with a whoosh down, and with the Dow off more than -170 in the early going, we can definitely make a checkmark there. Next, at some point in the session (usually later in the day) the market indices suddenly and furiously reverse upwards and often times actually finish higher. And since the DJIA finished with an advance of +7, we can make another checkmark here. And finally, it is important for a key reversal to occur on much stronger than normal volume, and the total of 2.5 billion shares definitely qualifies.
The idea here is that the action signifies at least a temporary end to an extended downtrend. The final blast lower represents capitulation by anyone still looking to sell and thus, uses up all the remaining selling pressure. The shorts then suddenly recognize that they have been caught leaning and a cascade of buying ensues as the shorts run for cover, traders do some nibbling, funds do some bargain hunting in their favorite names, and the hedgies reverse course and go the other way. Therefore, before too long, the bulls wind up running the show.
For a while yesterday morning, it felt as if the world was coming to an end and the fear was palpable. And with the PPI/CPI data still days away, the thinking was that there was no hope of buyers returning until there was some kind of data induced reason to do so. However, it is when fear reaches an extreme level (make another checkmark here) that the bears become the most susceptible to a reversal. It is when the bear case become obvious to everyone (yep, another checkmark) that the opportunity for a key reversal finally arises. And finally, it is when you yourself start to think about selling anything and everything (uh huh, another checkmark) that you can usually bet on some kind of move higher.
Before we leave the subject of the key reversal day, there are two important things to remember about such technical events. First, they are widely recognized by the pros, and as such, the event becomes self fulfilling (i.e. the bulls know it is ok to buy and the bears know that its time to take a break). Second, we will need to see some sort of follow through to the move soon. However, we do NOT need to see this much anticipated follow through day right away. Thus, technicians will be on the lookout for a �confirmation day� sometime in the next 5-7 days, where the indices finish higher by 1% or more on volume that is greater than the day prior.
So while a key reversal day does not erase all of the concerns about higher interest rates, the Fed wrecking the economy, or the impact of higher oil prices, it does give the bulls a chance to state their case. It is also important to note that the key to the next move is contained in the rebound. If the move up occurs on lackluster enthusiasm, you can bet that the bears will be back for a return engagement. However, if the bulls can put some oomph behind the move, they may be able to run with the ball for a while. And the bottom line is that all of these issues will be resolved next week with the inflation data.
Turning to this morning, stocks are modestly higher on the back of solid rebounds in the overseas markets. This morning�s economic data was a mixed bag as the Trade Deficit numbers came in a bit better than expected while the Import Prices data was hotter than analysts were looking for and has thrown some cold water on the fun.
Running through the pre-game indicators, as we mentioned, overseas markets are all higher. Oil futures are moving up a bit this morning with Crude currently trading higher by $0.52 to $70.87. Interest rates are also moving a little higher and it should be noted that the curve has become slightly inverted this morning. The yield on the 2-year is currently trading at 5.02% and the 10-yr is quoted at 5.00% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving up a bit. The Dow futures are currently ahead by 20 points; the S&Ps are gaining 3.10, and the NASDAQ is sporting an advance of about 11 points on an upgrade to the semis at Prudential.
Stocks �In Play� This Morning:
Emerson Electric (EMR) � Upgraded at Citigroup
National Semi (NSM) � Reported $0.41 vs. $0.38, Upgraded at JMP and Merrill
Texas Instruments (TXN) � Upped low end of guidance range
Amgen (AMGN) � Mentioned positively in Barron�s
Gilead Sciences (GILD) � Mentioned positively in Barron�s
Alcoa (AA) � Upgraded at Prudential
Advanced Micro Devices (AMD) � Upgraded at HSBC, Pru upgrades sector
Newmont Mining (NEM) � Upgraded at Merrill
Invitrogen (IVGN) � Upgraded at Bear Stearns
Paychex (PAYX) � Upgraded at Bernstein
ING Groep (ING) � WSJ reports accusations by New Hampshire regulators
Motorola (MOT) � Adjust handset order projections higher
Coldwater Creek (CWTR) � Delays 10-Q Filing
Blue Nile (NILE) � Upgraded at Stifel
Coca Cola (KO) � Upgraded at Bear Stearns
Positions in stocks mentioned: GILD, BSC
** 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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