David Moenning's Daily State of the Markets: 05/23

Failure to Launch?

Good morning. For the second straight session, investors were teased with the prospects of a new all-time high on the S&P 500, which is something we haven’t been able to talk about in 7 years, 1 month, and 29 days. And although the big blue-chip index once again couldn't quite get 'er done yesterday, the session wasn’t a total failure as there were plenty of green numbers to go around.

However, while the bulls will no doubt claim victory on the day, our horned heroes can’t crow about another new high on the DJIA either because the venerable industrial index actually fell for the second straight day. But before anyone gets overly concerned about two consecutive days where the Dow failed to reach another new all-time high, we should probably admit that a decline of less than 3 points, even when combined with Monday’s drop of 11 points, is hardly worth counting.

With everyone watching the S&P 500's flirtation with new high ground, the fact that the NYSE, Russell 2000, and S&P Small and Mid Cap indices went ahead and pushed on to new record closes didn’t get much attention. And although the bears might be tempted to do some bragging about the S&P’s failure to launch, we should keep in mind that it is always positive when the broad market indices are moving higher.

The impetus for the lesser-know indices’ heroics came from the usual sources – buyouts, mergers, and private equity deals. While the wires weren’t brimming with new deals, the size of the deals being talked about yesterday kept the idea of big money chasing stocks higher on the forefront of traders’ minds.

The bulls also got some help from oil prices as crude fell from its recent rude levels and closed the day down $1.30 to $64.97.

But there was also a fairly prominent negative that, once again, went almost unnoticed yesterday. As we’ve mentioned a couple of times recently, the bond market isn’t exactly behaving right now. Despite the rather punk data from the Richmond Fed Index yesterday, the yield on the 10-year moved up yet again and closed at 4.83%. And given that yields were as low as 4.60% just 8 days ago, this continues to be a situation that bears watching.

Turning to this morning, once again there is no economic news before the bell. However, the mood on the street before the bell is positive as M&A talk continues to dominate the scene. This morning’s buzz is about the potential for a bidding war to develop over aluminum producer Alcan. And remember; as long as prices continue to rise on these deals, then the bulls tell us that the market has upside potential.

Running through the rest of the pre-game indicators, the major foreign markets are mostly higher this morning. Gold futures are moving up by $3.10 to $663.00. In the oil pits, crude futures are higher by $0.03 with the latest quote at $65.54. Interest rates are doing little this morning with the yield on the 10-year currently trading at 4.83%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open higher. The Dow futures are currently ahead by about 35 points; the S&P’s are more than 3 points above board, while the NASDAQ looks to be 3.5 points better than fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Medtronic (NYSE: MDT) – Reported $0.66 vs. $0.62
Analog Devices (NYSE: ADI) – Reported $0.36 vs. $0.37

Today’s Earnings Before the Bell:

Dillards Inc (NYSE: DDS) – Reported $0.50 vs. $0.72
Dicks Sporting Goods (NYSE: DKS) – Reported $0.38 vs. $0.37
Target (NYSE: TGT) – Reported $0.75 vs. $0.71

News, Upgrades/Downgrades/Brokerage Research:*

Royal Dutch Shell (NYSE: RDS.A) – Upgraded at Bernstein
ConocoPhillips (NYSE: COP) – Upgraded at Bernstein
Chevron (NYSE: CVX) – Downgraded at Bernstein
Valueclick (NASDAQ: VCLK) – Downgraded at Credit Suisse
Analog Devices (NYSE: ADI) – Downgraded at JP Morgan, Merrill Lynch
Medtronic (NYSE: MDT) – Upgraded at Piper
AGCO (NYSE: AG) – Downgraded at UBS
Metlife (NYSE: MET) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: GILD, MRO

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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