David Moenning's Daily State of the Markets: 05/21

Mr. Softie Bucks Up

Good morning. Stocks blasted higher again on Friday on the back of continued M&A activity, better-than expected economic news, and an expiration that had to send at least a few more short sellers running for cover. I know that updating the statistics for the Dow might be getting a bit repetitive, but it is still fun to note that the Dow has now finished in the green in 31 of the last 36 sessions and has risen by 12.5% in the last 2 ½ months. And from the low seen on June 13 of last summer, the Bulls have a gain of more than 26% to show for their efforts, which is not too bad for less than a year’s work.

While some may argue that the M&A game may be getting a little bubbly right now, the bulls were heartened by Microsoft’s big splash in the game on Friday. The world’s largest software company agreed to acquire aQuantive for $66.50 per share, which is a deal valued at about $6 Billion. And while $6 Billion to a company the size of Microsoft might be considered simply an expenditure of petty cash, the deal was important to the market for two reasons.

First, the price Mr. Softie agreed to pay for aQuantive represents an 85% premium to the market price of the stock. This obviously tells investors that there must be big values still available out there in technology-land.

Second, this was a competitive bidding situation for Microsoft. Therefore, it’s an indication that things are heating up in the M&A arena. The deal also tells traders that the take-out game isn’t likely to slow down any time soon. And with a premium of 85% available to those guessing right, it makes the takeover speculation game bigger than ever.

The bulls also got a hand from the economic data as the University of Michigan Consumer Confidence number came in with a reading of 88.7, which was higher than expectations for a number in the 87 range. With gasoline prices now solidly over $3 per gallon, it is encouraging to see that consumer confidence has not gone into the tank.

Lost in the stock market hoopla on Friday – let’s not forget that the S&P 500 is now just a good session away from reaching a new all-time high – was the action in the bond market. While everyone was celebrating another day of green screens in stocks, the bond market got hit hard for the second straight day. Yields have now risen in eight of the last nine sessions with the 10-Year closing Friday at 4.80%. While this does not represent a reason to panic, a move above 4.9% is sure to attract some attention from the bears.

Turning to this morning, there is no economic news before the bell. However, it is Monday, so there are at least a couple new M&A deals for traders to focus on and as usual, this is keeping the tone positive in the early going.

Running through the rest of the pre-game indicators, the major foreign markets all followed the U.S. higher. Gold futures are moving down this morning by $2.10 to $659.90. In the oil pits, crude futures are higher by $0.35 with the latest quote at $65.29. Interest rates are continuing to inch up this morning with the yield on the 10-year currently trading at 4.81. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open a little higher. The Dow futures are currently ahead by about 4 points; the S&P’s are about 1 point above board, while the NASDAQ looks to be 4 points better than fair value at the moment

Stocks “In Play” This Morning:


Today’s Earnings Before the Bell:

Lowe’s (NYSE: LOW) – Reported $0.48 vs. $0.49

News, Upgrades/Downgrades/Brokerage Research:

Alltel (NYSE: AT) – Agrees to be acquired by Texas Pacific and GS Capital Partners
DaimlerChrysler (NYSE: DCX) – Mentioned positively in Barron’s
Micron Technology (NYSE: MU) – Mentioned positively in Barron’s
Aquantive (Nasdaq: AQNT) – Downgraded at AG Edwards, Piper
Tiffany’s (NYSE: TIF) – Upgraded at Bear Stearns
Shuffle Master (Nasdaq: SHFL) – Upgraded at Bear Stearns
Comcast (CMCSA) – Upgraded at Citigroup
Altria (NYSE: MO) – Mentioned positively at Citigroup
Microsoft (Nasdaq: MSFT) – Upgraded at Davenport
Valero (NYSE: VLO) – Added to Conviction Buy list at Goldman Sachs
Medtronic (NYSE: MDT) – Downgraded at Morgan Stanley
American Eagle Outfitters (NYSE: AEO) – Upgraded at RBC Capital
Dicks Sporting Goods (NYSE: DKS) – Mentioned positively at Thomas Weisel
Intuit (Nasdaq: INTU) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: GS, VLO, MO, DKS

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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