David Moenning's Daily State of the Markets: 02/14

A Sweetheart Session

Good morning and a Happy Valentine’s Day to all. Yesterday’s session can best be viewed as an early Valentine’s Day gift to all the stock market lovers out there. After three straight down days, the bulls could once again feel the love as the Dow finished with a triple-digit gain that all but erased the losses from the so-called pullback.

The source of the market’s pre-Valentines warmth came from none other than a couple of the old-guard names: General Motors (GM) and Alcoa (AA). As we reported yesterday before the bell, GM caught an upgrade from Merrill Lynch and Alcoa got a little help from some impressive M&A talk.

Regardless of whether there are two firms competing for Alcoa or just one, the $40 billion price tag that is being bandied about certainly got trader’s attention. And speaking of buyouts, more and more, this market has become all about the money (OK, on second thought, it’s probably always been all about the money). Everyone knows that the earnings have been very good for 13 straight quarters. And yes, the valuations aren’t bad right now at all. And, it is true that the monetary, inflation, and economic situations do all tend to favor the bulls right now.

But the overriding driver of stock prices seems to be the M&A activity. Go ahead, try and spend a day without hearing the words “private equity” used in a market report these days. It seems that every hundred-billion dollar hedge fund has a horde of cash burning a hole in their pockets and they feel compelled to spend it. And this is probably the best explanation we’ve got as to why the bears have been kept caged up for the longest time in more than 50 years.

But before anyone starts singing “We’re in the money” too loudly, we need to remember that we’ve got an awful lot of potential catalysts being thrown our way over the next couple of days. First, we’re going to hear all about the economy and monetary policy from Mr. Ben Bernanke today as he testifies in front of the Senate Banking Committee at 10:00am this morning.

Then tomorrow’s slate of economic data is nothing short of impressive. Before the bell we’ll get reports on Jobless Claims, Import Prices, and the state of manufacturing in the New York Region. Shortly thereafter, we’ll get the numbers on Industrial Production, the Philly Fed Report, and finally, the Housing Market Index from the NAHB.

Let’s also keep in mind that expiration weeks tend to provide volatility in both directions. So now that we can go ahead and make a checkmark on the plus side of the volatility column, the question is whether or not we’ll be seeing a triple-digit decline before the closing bell on Friday.

Turning to this morning, the report on January Retail Sales is unlikely to cause much in the way of volatility. Retail Sales came in light for the month at an unchanged level, however, revisions to December made up for the shortfall. And when you strip out the sale of autos, January’s gain of +0.3% was a tenth shy of expectations, but once again revisions to December more than made up for it.

Running through the rest of the pre-game indicators, the major overseas markets are all higher on the back of strong tech earnings from Applied Materials. Gold futures are trading up $4.90 to $673.40 right now. In the oil pits, crude futures are a little lower this morning with the latest quote showing the futures contract down $0.16 to $58.90. Interest rates are down a little this morning with the yield on the 10-year currently trading at 4.79%. And finally, with an hour before the bell, stock futures in the U.S. are looking to open to the upside. The Dow futures are currently ahead by about 11 points; the S&P’s are about 3 points above board, while the NASDAQ looks to be about 7 points ahead of fair value at the moment.

Stocks "In Play" This Morning:

Applied Materials (Nasdaq: AMAT) - Reported $0.29 vs. $0.27

Deere (NYSE: DE) - Reported $1.04 vs. $0.81

Coca Cola (NYSE: KO) - Reported $0.52 vs. $0.50

Metlife (NYSE: MET) - Reported $1.36 vs. $1.18

Nvidia (Nasdaq: NVDA) - Reported $0.41 vs. $0.35

Office Depot (NYSE: ODP) - Reported $0.54 vs. $0.52

Transocean (NYSE: RIG) - Reported $1.25 vs. $1.19

Crown Castle (NYSE: CCI) - Upgraded at BofA

Playboy Ent (NYSE: PLA) - Downgraded at BofA

Nasdaq Stock Mkt (Nasdaq: NDAQ) - Downgraded at CIBC, Upgraded at Prudential

Ciena (Nasdaq: CIEN) - Upgraded at Citigroup

Bear Stearns (NYSE: BSC) - Upgraded at Credit Suisse

KB Home (NYSE: KBH) - Upgraded at JMP Securities

XTO Energy (NYSE: XTO) - Upgraded at JP Morgan

FedEx (NYSE: FDX) - Upgraded at Morgan Keegan

Mr. Moenning holds Long positions in stocks mentioned: BSC, CCI, AMAT

Note: All earnings reports compared to Reuter’s consensus estimates

** 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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