David Moenning's Daily State of the Markets: 11/14
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Good Things Can (and do) Happen
It always seems to work this way. Just about the time the bears have you convinced that they might have a solid point about the doom and gloom being espoused, something good happens to break up the misery. So, yesterday, true to form, the bulls were blessed with not one, not two, but three good things at the same time – imagine that!
The good stuff started from a most unlikely source – a little company from Arkansas named Wal-Mart. The nation’s largest retailer beat earnings by $0.02 and then raised guidance for the full year, which is something traders love to hear. Although the news was impressive and did draw cheers from the crowd, the bears were quick to argue that consumers were simply “moving down the retail food chain,” which doesn’t sound great from a big picture standpoint.
The good news is that the good news from Wal-Mart seemed to put the bulls back in the game in the early going yesterday. And then when Goldman Sach’s CEO "just said no" to the question of an upcoming write-down of epic proportions, the bulls began to celebrate in earnest.
If you will recall, the buzz was that the King of the Street would need to writedown a bunch of cash in their fourth quarter report. What’s more, there were questions as to how Goldman had avoided any major writedowns so far. But when asked why the firm was going to avoid a massive loss when word had it that they had owned every bit as much of those nasty CDO’s as everybody else on the street, Goldman’s CEO said there is no need to writedown losses when you are net short the mortgage area. It turns out that Goldman had dumped the majority of their CDO’s in April and May and then used their own capital recently to short various mortgage-related securities. I guess the big question here is why nobody else thought of that?
It will suffice to say that the news from Goldman got the bulls fired up on Tuesday and sent the glass-is-half-empty gang running to cover their shorts. And before you could figure out how the heck you short something there are no buyers for, stocks were off to the races.
Then to top things off, the bulls got some help from the oil pits. The fact that oil closed down a whopping -$3.45 to $91.71 on a report of falling demand helped our horned heroes reverse the recent last-hour trend and this time, stocks actually melted up into the close.
Although the Dow's gain of +319 points was definitely impressive and allowed stock investors verywhere to breathe easier for a day, the fact that volume came in lower than the three prior sessions was a bit disappointing. And with both the Dow and S&P 500 now flirting with their 200-day moving averages, we will have to watch the action closely going forward.
Turning to this morning, we've got a couple of economic reports to review before the bell and then a speech from Ben Bernanke to listen to at 9:10 am Eastern. But probably the most important item this morning is the turning of the tide in the brokers. Bear Stearns announced a writedown of $1.2B but then went on to say good things about the opportunities in the CDO and subprime markets.
On the economic front, October’s Producer Price Index came in at +0.1%, which was below the consensus estimate for a gain of +0.3%. And when you strip out food and energy, the Core PPI was unchanged, which was again better than the expectations for an increase of +0.2%.
We also got a look at Retail Sales for October, which came in a tenth better than expectations at +0.2% and when you take out autos, the numbers were spot-on with the consensus.
Traders seem to love the news all around and so far at least, the futures are sprinting higher.
Running through the rest of the pre-game indicators; the overseas markets, as expected, followed the US higher overnight. Crude futures are heading higher with the latest quote showing the December contract up $0.78 to $91.95. Interest rates are a little higher this morning with the 10-yr trading at a yield of 4.29% at the moment. 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 70 points; the S&Ps are up by about 7 points, while the NASDAQ looks to be about 12 points above fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Hershey (NYSE: HSY) – Downgraded at Bear Stearns
Rio Tinto (NYSE: RTP) – Downgraded at Bernstein
Oracle (Nasdaq: ORCL) – Upgraded at CIBC
Qwest Comm (NYSE: Q) – Upgraded at Citi
Int’l Paper (NYSE: IP) – Upgraded at Citi
EOG Resources (NYSE: EOG) – Upgraded at Citi
Pepsico (NYSE: PEP) – Credit Suisse initiates coverage with Outperform rating
Autodesk (Nasdaq: ADSK) – Upgraded at Jefferies
J2 Global Comm (Nasdaq: JCOM) – Upgraded at Jefferies
Franklin Resources (NYSE: BEN) – Upgraded at JP Morgan
Target (NYSE: TGT) – Downgraded at Merrill Lynch
Alcatel Lucent (NYSE: ALU) – Upgraded at Merrill Lynch
Affiliated Managers Group (NYSE: AMG) – Upgraded at Wachovia
Mr. Moenning holds Long positions in stocks mentioned: MER
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.
It always seems to work this way. Just about the time the bears have you convinced that they might have a solid point about the doom and gloom being espoused, something good happens to break up the misery. So, yesterday, true to form, the bulls were blessed with not one, not two, but three good things at the same time – imagine that!
The good stuff started from a most unlikely source – a little company from Arkansas named Wal-Mart. The nation’s largest retailer beat earnings by $0.02 and then raised guidance for the full year, which is something traders love to hear. Although the news was impressive and did draw cheers from the crowd, the bears were quick to argue that consumers were simply “moving down the retail food chain,” which doesn’t sound great from a big picture standpoint.
The good news is that the good news from Wal-Mart seemed to put the bulls back in the game in the early going yesterday. And then when Goldman Sach’s CEO "just said no" to the question of an upcoming write-down of epic proportions, the bulls began to celebrate in earnest.
If you will recall, the buzz was that the King of the Street would need to writedown a bunch of cash in their fourth quarter report. What’s more, there were questions as to how Goldman had avoided any major writedowns so far. But when asked why the firm was going to avoid a massive loss when word had it that they had owned every bit as much of those nasty CDO’s as everybody else on the street, Goldman’s CEO said there is no need to writedown losses when you are net short the mortgage area. It turns out that Goldman had dumped the majority of their CDO’s in April and May and then used their own capital recently to short various mortgage-related securities. I guess the big question here is why nobody else thought of that?
It will suffice to say that the news from Goldman got the bulls fired up on Tuesday and sent the glass-is-half-empty gang running to cover their shorts. And before you could figure out how the heck you short something there are no buyers for, stocks were off to the races.
Then to top things off, the bulls got some help from the oil pits. The fact that oil closed down a whopping -$3.45 to $91.71 on a report of falling demand helped our horned heroes reverse the recent last-hour trend and this time, stocks actually melted up into the close.
Although the Dow's gain of +319 points was definitely impressive and allowed stock investors verywhere to breathe easier for a day, the fact that volume came in lower than the three prior sessions was a bit disappointing. And with both the Dow and S&P 500 now flirting with their 200-day moving averages, we will have to watch the action closely going forward.
Turning to this morning, we've got a couple of economic reports to review before the bell and then a speech from Ben Bernanke to listen to at 9:10 am Eastern. But probably the most important item this morning is the turning of the tide in the brokers. Bear Stearns announced a writedown of $1.2B but then went on to say good things about the opportunities in the CDO and subprime markets.
On the economic front, October’s Producer Price Index came in at +0.1%, which was below the consensus estimate for a gain of +0.3%. And when you strip out food and energy, the Core PPI was unchanged, which was again better than the expectations for an increase of +0.2%.
We also got a look at Retail Sales for October, which came in a tenth better than expectations at +0.2% and when you take out autos, the numbers were spot-on with the consensus.
Traders seem to love the news all around and so far at least, the futures are sprinting higher.
Running through the rest of the pre-game indicators; the overseas markets, as expected, followed the US higher overnight. Crude futures are heading higher with the latest quote showing the December contract up $0.78 to $91.95. Interest rates are a little higher this morning with the 10-yr trading at a yield of 4.29% at the moment. 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 70 points; the S&Ps are up by about 7 points, while the NASDAQ looks to be about 12 points above fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Hershey (NYSE: HSY) – Downgraded at Bear Stearns
Rio Tinto (NYSE: RTP) – Downgraded at Bernstein
Oracle (Nasdaq: ORCL) – Upgraded at CIBC
Qwest Comm (NYSE: Q) – Upgraded at Citi
Int’l Paper (NYSE: IP) – Upgraded at Citi
EOG Resources (NYSE: EOG) – Upgraded at Citi
Pepsico (NYSE: PEP) – Credit Suisse initiates coverage with Outperform rating
Autodesk (Nasdaq: ADSK) – Upgraded at Jefferies
J2 Global Comm (Nasdaq: JCOM) – Upgraded at Jefferies
Franklin Resources (NYSE: BEN) – Upgraded at JP Morgan
Target (NYSE: TGT) – Downgraded at Merrill Lynch
Alcatel Lucent (NYSE: ALU) – Upgraded at Merrill Lynch
Affiliated Managers Group (NYSE: AMG) – Upgraded at Wachovia
Mr. Moenning holds Long positions in stocks mentioned: MER
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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