David Moenning's Daily State of the Markets: 05/04

What's Next?

Good morning. Stocks advanced once again yesterday and the DJIA wound up finishing at another new all-time high. This was the third straight new high for the world’s best known market index and the eleventh record in the last twelve sessions. And just to show off our ability to count, the Dow has now been up 22 of the last 25 days, soaring 1191 points since the low seen on March 5th.

After a fair amount of whining yesterday, we are pleased to report that this time around, the Dow had some company in its march higher. The S&P 500 and NASDAQ both finished at fresh new six-year highs while the NYSE and S&P Small Cap indices joined the Dow with record closes.

There is little doubt that the catalyst behind the latest leg higher has been a better than expected earnings season. But with the earnings parade now starting to wind down a bit, the bulls have to be asking themselves, what’s next?

The answer, in all probability, will be a return to the macro view and a focus on Goldilocks. And while the bulls may still get a lift now and again from the never ending stream of M&A deals, we’re betting that the question of the economy is likely to be the focal point for the next move. At issue will the state of the soft landing and the amount of inflation that can be expected to crop up going forward.

If you’re looking for a way to short-cut the analysis of the all data, we’d recommend keeping a keen eye on the bond market. Since the boys in the bond pits spend nearly every waking moment focused on all things economic, as long as the bond market behaves, you can rest assured that all is well in the bull camp.

So, keep these 10-year bond yields in mind; 4.78% and 4.60%. Any move above 4.78% in the near term would suggest that the economy and/or inflation are beginning to overheat and a move below 4.60% would be an indication that things might be getting a little too cool for Goldilocks’ tastes.

Turning to this morning, traders are abuzz with the latest news that Microsoft and Yahoo! might be talking about getting together. Obviously this might be a big deal, but, we’ve got the big Kahuna of data points - the employment report to review. So, let’s get right to the numbers.

The Labor department reported that Nonfarm Payrolls increased by 88,000 in April, which was below the consensus forecast for an increase of 100,000 new jobs. Next, the Unemployment Rate came in at 4.5%, which was in line with expectations, but up a tenth from last month. And finally, the average workweek was reported at 33.8 hours, which was in line with the forecasts.

The market reaction has been positive as the report supports the idea that Goldilocks is alive and well. The futures have extended their gains and things are looking pretty positive at the moment.

Running through the rest of the pre-game indicators, the major foreign markets were higher overnight. Gold futures are moving up this morning by $3.20 and are trading at $687.60. In the oil pits, crude futures are higher by $0.02 with the latest quote at $63.21. Interest rates are moving up a smidge this morning with the yield on the 10-year currently trading at 4.68%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a strong open. The Dow futures are currently ahead by about 52 points; the S&P’s are about 6 points above fair value, while the NASDAQ looks to be about 10 points ahead of fair value at the moment

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:

Chesapeake Energy (NYSE: CHK) – Reported $0.87 vs. $0.78
Electronic Data Systems (NYSE: EDS) – Reported $0.31 vs. $0.21
Nabors Industries (NYSE: NBR) – Reported $0.92 vs. $0.83
Qlogic (NASDAQ: QLGC) – Reported $0.22 vs. $0.20
Starbucks (NASDAQ: SBUX) – Reported $0.19 vs. $0.19

Today’s Earnings Before the Bell:

Apartment Investment & Mgmt (NYSE: AIV) – Reported $0.75 vs. $0.73
Eastman Kodak (NYSE: EK) – Reported <$0.35> vs. <$0.05>

News, Upgrades/Downgrades/Brokerage Research:

Yahoo! (NASDAQ: YHOO) – NY Posts reports MSFT has asked to renew formal negotiations
Plantronics (NYSE: PLT) – Upgraded at Bear Stearns
Royal Dutch Shell (NYSE: RDS.A) – Upgraded at Bear Stearns
Unilever (NYSE: UL) – Upgraded at Citigroup
Rockwell Automation (NYSE: ROK) – Upgraded at JP Morgan
Assurant (NYSE: AIZ) – Downgraded at Merrill Lynch
Schering Plough SNYSE: SGP) – Upgraded at Prudential
Biogen (NASDAQ: BIIB) – Upgraded at RBC
JB Hunt (NASDAQ: JBHT) – Downgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: None

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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