David Moenning's Daily State of the Markets: 04/12
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Understanding the Day
Good morning. The headlines from the popular press suggest that the market fell yesterday because of the verbiage in the Fed minutes. This makes it sound like the minutes were a surprise to the market and that traders reacted by selling. And while the rather hawkish tone of the minutes wasn't exactly a positive data point, in light of the facts that (1) the Fed minutes were not released until 2:00 pm and (2) stocks were down all day prior to the release of the minutes, this is hardly the real story.
To review, stocks opened lower for no real reason other than the bears were due. After eight straight up days, which was the longest winning streak in four years, the market had become overbought and thus, was set up for a pullback. So, with the bulls standing on the curb with their hands in their pockets anxiously waiting for the earnings parade to start, the bears seized their opportunity to do some selling.
The return of the grizzly gang knocked the indices down a bit at the open. But, the drop was very modest in the early going and if memory serves, the decline was somewhere in the -30 range. From there, stocks tanked on the report showing that gasoline inventories were much lower than expected. With the summer driving season coming up and the economy already in slowdown mode, the last thing the consumer needs to see on the news every night is the price of gasoline hitting $3.00 a gallon.
The bulls were definitely slow to react, but after the second cup of coffee, they did manage to stage a bit of a comeback. By lunchtime, the big selling had subsided and it looked like we were back in waiting mode. It was then that the Fed minutes were released. And it was then that some selling resumed.
But the key point to take away here is that the selling took place because the buyers were waiting on earnings and NOT because the Fed report contained any nasty surprises. Come on, no one really expects the Fed to raise rates. But Mr. Bernanke’s job is to convince anyone that will listen that this is exactly what he will do if inflation doesn’t behave.
Why do we care so much about the action of one session? In short, because understanding WHY stocks are doing what they are doing is very helpful in determining the appropriate action to take – if any. For example, as stocks began to plunge in late February, if you didn’t know that the decline was based on fear (fear of China slowing, fear of global liquidity, fear of a subprime meltdown, etc), then you might have let emotions get the best of you. If you didn’t know that declines based on fear are usually short-lived, you might have done some ill-advised selling. And with the NYSE setting a new all-time high on Tuesday, it is pretty clear that selling in late February was a mistake.
So, to sum up, whenever stocks head south for no apparent reason, we make it our business to understand WHY it happened.
Turning to this morning, March Same Store Sales results for retailers are coming in a bit better than expected across the board. However, comments from Wal-Mart that EPS Guidance for the first quarter will be a "challenge" is putting a somewhat negative spin on the results. In addition, Import Prices for March came in higher than expected, which is sure to get some play on the inflation front.
Running through the pre-game indicators, the major foreign markets are all a bit lower overnight. Gold futures are trading off by $0.60 to $681.10. In the oil pits, crude futures are up $0.66 with the latest quote at $62.67 on a report showing reduced oil production worldwide last month. Interest rates are moving a little lower this morning as the yield on the 10-year is currently trading at 4.72%. And finally, with about an hour before the bell, stock futures in the U.S. are looking a little lower. The Dow futures are currently off by 24 points; the S&P’s are a about 3 underwater, while the NASDAQ looks to be about 5 points below fair value at the moment
Stocks "In Play" This Morning:
Research in Motion (Nasdaq: RIMM) – Reported $0.99 vs. $0.99
Genentech (NYSE: DNA) – Reported $0.74 vs. $0.67
Avaya (NYSE: AV) – Downgraded at BofA
Manor Care (NYSE: HCR) – Upgraded at Bear Stearns
Pepsico (NYSE: PEP) – Upgraded at Bernstein
Lam Research (Nasdaq: LRCX) – Upgraded at Citigroup, HSBC
Healthways (Nasdaq: HWAY) – Upgraded at Goldman Sachs
Kraft Foods (NYSE: KFT) – Upgraded at Morgan Stanley, UBS
Forest Oil (NYSE: FST) – Upgraded at Morgan Stanley
Noble Energy (NYSE: NBL) – Downgraded at Morgan Stanley
DreamWorks (NYSE: DWA) – Upgraded at Pali Research
Mr. Moenning holds Long positions in stocks mentioned: GS
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.
Good morning. The headlines from the popular press suggest that the market fell yesterday because of the verbiage in the Fed minutes. This makes it sound like the minutes were a surprise to the market and that traders reacted by selling. And while the rather hawkish tone of the minutes wasn't exactly a positive data point, in light of the facts that (1) the Fed minutes were not released until 2:00 pm and (2) stocks were down all day prior to the release of the minutes, this is hardly the real story.
To review, stocks opened lower for no real reason other than the bears were due. After eight straight up days, which was the longest winning streak in four years, the market had become overbought and thus, was set up for a pullback. So, with the bulls standing on the curb with their hands in their pockets anxiously waiting for the earnings parade to start, the bears seized their opportunity to do some selling.
The return of the grizzly gang knocked the indices down a bit at the open. But, the drop was very modest in the early going and if memory serves, the decline was somewhere in the -30 range. From there, stocks tanked on the report showing that gasoline inventories were much lower than expected. With the summer driving season coming up and the economy already in slowdown mode, the last thing the consumer needs to see on the news every night is the price of gasoline hitting $3.00 a gallon.
The bulls were definitely slow to react, but after the second cup of coffee, they did manage to stage a bit of a comeback. By lunchtime, the big selling had subsided and it looked like we were back in waiting mode. It was then that the Fed minutes were released. And it was then that some selling resumed.
But the key point to take away here is that the selling took place because the buyers were waiting on earnings and NOT because the Fed report contained any nasty surprises. Come on, no one really expects the Fed to raise rates. But Mr. Bernanke’s job is to convince anyone that will listen that this is exactly what he will do if inflation doesn’t behave.
Why do we care so much about the action of one session? In short, because understanding WHY stocks are doing what they are doing is very helpful in determining the appropriate action to take – if any. For example, as stocks began to plunge in late February, if you didn’t know that the decline was based on fear (fear of China slowing, fear of global liquidity, fear of a subprime meltdown, etc), then you might have let emotions get the best of you. If you didn’t know that declines based on fear are usually short-lived, you might have done some ill-advised selling. And with the NYSE setting a new all-time high on Tuesday, it is pretty clear that selling in late February was a mistake.
So, to sum up, whenever stocks head south for no apparent reason, we make it our business to understand WHY it happened.
Turning to this morning, March Same Store Sales results for retailers are coming in a bit better than expected across the board. However, comments from Wal-Mart that EPS Guidance for the first quarter will be a "challenge" is putting a somewhat negative spin on the results. In addition, Import Prices for March came in higher than expected, which is sure to get some play on the inflation front.
Running through the pre-game indicators, the major foreign markets are all a bit lower overnight. Gold futures are trading off by $0.60 to $681.10. In the oil pits, crude futures are up $0.66 with the latest quote at $62.67 on a report showing reduced oil production worldwide last month. Interest rates are moving a little lower this morning as the yield on the 10-year is currently trading at 4.72%. And finally, with about an hour before the bell, stock futures in the U.S. are looking a little lower. The Dow futures are currently off by 24 points; the S&P’s are a about 3 underwater, while the NASDAQ looks to be about 5 points below fair value at the moment
Stocks "In Play" This Morning:
Research in Motion (Nasdaq: RIMM) – Reported $0.99 vs. $0.99
Genentech (NYSE: DNA) – Reported $0.74 vs. $0.67
Avaya (NYSE: AV) – Downgraded at BofA
Manor Care (NYSE: HCR) – Upgraded at Bear Stearns
Pepsico (NYSE: PEP) – Upgraded at Bernstein
Lam Research (Nasdaq: LRCX) – Upgraded at Citigroup, HSBC
Healthways (Nasdaq: HWAY) – Upgraded at Goldman Sachs
Kraft Foods (NYSE: KFT) – Upgraded at Morgan Stanley, UBS
Forest Oil (NYSE: FST) – Upgraded at Morgan Stanley
Noble Energy (NYSE: NBL) – Downgraded at Morgan Stanley
DreamWorks (NYSE: DWA) – Upgraded at Pali Research
Mr. Moenning holds Long positions in stocks mentioned: GS
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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