David Moenning's Daily State of the Markets: 11/19

November 19, 2008 9:49 AM EST
This Bud's For You

Stocks started out on a positive note yesterday on the back of the upbeat preannouncement from Hewlett-Packard (HPQ), relatively benign inflation data, some positive talk on the macro front on Capitol Hill, and another pullback in energy prices. Just before lunchtime, it looked like the bulls
might have something going with the Dow at the high of the day and up 205 points.

One of the biggest plusses the bulls had going for them early on was the fact that Fed Chairman Bernanke, Treasury Secretary Paulson, and FDIC Chairwoman Blair had reminded members of the House Financial Services Committee that the TARP, while not an end-all to the country's economic
problems, is indeed doing its job in terms of stabilizing the financial system.

But as has been the case for what seems like eternity, some bad news on housing hit the tape and whoosh - it was straight down for the next two and one-half hours. Although no one in their right mind was expecting much out of the National Association of Home Builders Housing Market Index, the fact
that the index fell 5 points to a record low in November took traders by surprise. The reading of just 9 points was well below expectations and two of the three index components hit record lows.

Sticking with real estate for a moment, what wasn't widely reported yesterday was the fact that the S&P/GRA Commercial Real Estate National Composite Index fell by -0.5% in August and drug the year-over-year change below zero for the first time. And while no one is talking about commercial
real estate much right now, this is definitely something to watch going forward.

Stocks basically turned on a dime after the real estate reports as the S&P and NASDAQ quickly found themselves in new closing low territory. This, of course, created a lot of chatter from market technicians about the beginning of another leg down. And given that fact that the indices have been quick to give up gains recently, the bears seemed to be converting the undecided vote with relative ease.

It also didn't help that agency spreads were seen to be "blowing out" again yesterday as 10-year spreads were wider by 9 basis points at midday. It is also worth noting that since Secretary Paulson announced last week that the TARP wouldn't be buying toxic mortgage securities after all, the spreads
have widened by nearly 40 basis points. This too remains something to watch closely.

Although the bears seemed to be having their way with the market, at about 3:00 pm things began to turn around in a big way. Rumor had it that there was a $5 billion S&P 500 rebalancing buy program set to be run at the close. This was tied to the completion of the Anheuser-Bush deal as indexers had to shift money from BUD to Stericycle (SRCL) on the closing bell. So, with a market that had become very oversold, this was all it took to get things moving to the upside into the close.

Turning to this morning, we've got some more economic data to review. October CPI came in down -1.0%, which was a bit better than expectations for a drop of -0.8%. And when you strip out food and energy, the Core rate was on target with a drop of -0.1%. Next up, Housing Starts were reported at
791,000, which, while down hard on a year-over-year basis, was actually a little better than the expectations of 780K. Finally, Building Permits fell 12% to 708K, which was below the estimates for 774K.

Running through the rest of the pre-game indicators, the major overseas markets are once again down across the board. Crude futures are lower with the latest quote showing oil trading down by $0.54 to $53.85. On the interest rate front, we've got the yield on the 10-yr currently trading at 3.45% while the yield on the 3-month T-Bill is at 0.13% and overnight LIBOR is at 0.44%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 50 points; the S&P's are down about 5 points, while the NASDAQ looks to be about 6 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell
Pacific Sunwear (Nasdaq: PSUN) - Reported -$0.05 vs. $0.01
Phillips Van Heusen (NYSE: PVH) - Reported $1.10 vs. $1.06

Today's Earnings Before the Bell:
BJs Wholesale Club (NYSE: BJ) - Reported $0.49 vs. $0.48
Mentor Graphics (Nasdaq: MENT) - Reported -$0.4 vs. -$0.05

News, Upgrades/Downgrades/Brokerage Research:
Kroger (NYSE: KR) - Mentioned positively in Barron's
Louisiana Pacific (NYSE: LPX) - Upgraded at BMO Capital
ACE Ltd (NYSE: ACE) - Downgraded at Citi
Sunoco (NYSE: SUN) - Downgraded at Deutsche Bank
Research in Motion (Nasdaq: RIMM) - Added to Buy list at Goldman
Cisco Systems (Nasdaq: CSCO) - Removed from Buy list at Goldman
Cogent (Nasdaq: COGT) - Upgraded at JP Morgan
JM Smucker (NYSE: SJM) - Upgraded at Merrill
Best Buy (NYSE: BBY) - Corporate debt downgraded at S&P
Pacific Sunwear (Nasdaq: PSUN) - Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

Note: All earnings reports compared to Reuter's consensus estimates

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The opinions and forecasts expressed are those of David Moenning, President
of Heritage Capital Management and Co-Founder of and may
not actually come to pass. Mr. Moenning's opinions and viewpoints regarding
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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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