David Moenning's Daily State of the Markets: 04/19

Will the Worries Return?

Good morning. Although the Dow finished at a new record high yesterday for the second straight day and has now advanced thirteen out of the last fourteen days, it really wasn’t a stellar day for the overall market. Yes, the NYSE index joined the DJIA by setting another new high (its fifth straight record close) and the S&P 500 inched ahead to a new cycle-high.

However, once again, the soldiers weren’t necessarily following the generals yesterday as the NASDAQ, Russell 2000, and S&P Small Cap and Mid Cap indices all finished the day in the red.

The explanation for the market’s sudden split personality lies in the earnings reports. While the results for the big blue chips have been coming in surprisingly strong so far, the tech numbers have been on the disappointing side. For example, it was positive earnings from the likes of JP Morgan and Washington Mutual as well as an analyst upgrade for Caterpillar that helped push the blue chip indices higher yesterday. And in short, it was weak results from IBM, Motorola, and Yahoo! that kept the tech-heavy NASDAQ from joining the party.

Traders were also a little concerned about the drop in the dollar yesterday. A surprisingly strong inflation report in the UK pushed the greenback to 26-year lows against the British pound and a 2-year low against the Euro. And with the prospects of higher rates overseas, the worry over the dollar and domestic rates may return to the forefront.

Speaking of currencies and interest rates, it would appear that one of the big fears that helped dump the Dow in late February has resurfaced this morning. Overnight, China reported that economic growth advanced at a rate of 11.1% during the first quarter, which was higher than expectations for a 10.4% rate. This has renewed concerns about a change in interest rate policy in China and evoked selling in just about all the foreign markets.

The problem is if China starts to raise rates, it puts pressure on foreign currencies. And if other countries follow suit with rate increases, the worries over the Yen-Carry Trade and global liquidity are sure to resume.

So, with the market once again in an overbought condition, it would appear the we are going to hear from the bears today.

Turning to this morning, other than the weekly Jobless Claims numbers, we don’t have any major economic news to review before the bell. However, we will get a look at the Index of Leading Economic Indicators (LEI) at 10:00 am eastern and then the Philly Fed report at noon.

Running through the rest of the pre-game indicators, the major foreign markets are lower across the board as Hong Kong fell -2.3%, Japan dropped -1.7%, France is off -0.7%, Germany is down -1.2% and the UK is seeing a decline of -0.4%. so far.

Gold futures are down this morning and are trading off by $2.80 to $690.50. In the oil pits, crude futures are down by $0.48 with the latest quote at $62.65. Interest rates are moving lower again this morning as the yield on the 10-year is currently trading at 4.65%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a fairly weak open. The Dow futures are currently down by 57 points; the S&P’s are about 7 points underwater, while the NASDAQ looks to be about 9 points below fair value at the moment

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Allstate (NYSE: ALL) – Reported $1.93 vs. $1.86
eBay (Nasdaq: EBAY) – Reported $0.33 vs. $0.30
E*Trade (Nasdaq: ETFC) – Reported $0.39 vs. $0.38
First Horizon Natl (NYSE:FHN) – Reported $0.55 vs. $0.58
Gilead Sciences (Nasdaq: GILD) – Reported $0.85 vs. $0.80
Novellus Systems (Nasdaq: NVLS) – Reported $0.42 vs. $0.43
Teradyne (NYSE: TER) – Reported $0.04 vs. $0.02

Today’s Earnings Before the Bell:
Bank of America (NYSE: BAC) – Reported $1.17 vs. $1.15
Baxter Intl (NYSE: BAX) – Reported $0.61 vs. $0.55
DR Horton (NYSE: DHI) – Reported $0.32 vs. $0.36
Harley Davidson (NYSE: HOG) – Reported $0.74 vs. $0.72
Southwest Air (NYSE: LUV) – Reported $0.04 vs. $0.04
Altria (NYSE: MO) – Reported $1.03 vs. $1.06
Merck (NYSE: MRK) – Reported $0.84 vs. $0.84
Merrill Lynch (NYSE: MER) – Reported $2.26 vs. $1.97
Nokia (NYSE: NOK) – Reported 0.26 vs. 0.25
Union Pacific (NYSE: UNP) – Reported $1.41vs. $1.28

Upgrades/Downgrades/Brokerage Research:

MEMC Elect Mat (NYSE: WFR) – Price target Increased at CIBC
Teekay Shipping (NYSE: TK) – Downgraded at Citigroup
General Motors (NYSE: GM) – Estimates reduced at Credit Suisse
Eaton Vance (NYSE: EV) – Upgraded at JP Morgan
Franklin Resources (NYSE: BEN) – Downgraded at JP Morgan
Centex (NYSE: CTX) – Downgraded at Merrill Lynch
BP PLC (NYSE: BP) – Downgraded at Merrill Lynch

Mr. Moenning holds Long positions in stocks mentioned: WFR, NVLS, BAX, MO, IBM

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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