David Moenning's Daily State of the Markets: 12/08

Dare We Say It?

Although the words ‘upside momentum’ have not been used in the stock market for about eight months, it looks like the bulls just might be able to incorporate the phrase into their vocabulary at the present time. In short, it was definitely a positive that our heroes in horns were able to brush aside Friday’s miserable economic news. The most impressive part of the deal was that stocks not only did NOT plunge on the data, but they actually found a way to move higher into the close. So, dare we say it, things are looking up for the bull camp.

Make no mistake about it; the jobs report on Friday was the icing on the cake of a week’s worth of miserable economic news. And while I’m sure you’ve all heard the data by now, but the magnitude of the news makes it bear repeating

The Bureau of Labor Statistics announced on Friday that the economy lost 533,000 jobs in November. This brings the total jobs lost since the recession began to a cool 1.9 million, with two-thirds of the losses coming in the last three months. Next, the fact that the job losses last month were the highest since 1974 certainly made the rounds in the popular press. But, it is important to note that the workforce is now three times the size it was in 1974. So, in percentage terms, the November decline was 0.39%, which was closer to the decline seen in July 1982. In addition, according to StreetAccount, there have been 30 months in the post-WWII period that have seen job declines larger than November's, and 7 post-war economic downturns that saw one or more periods of 3-month job losses that exceeded the recent decline.

In short, this data shows that Friday’s announcement wasn’t quite as bad as the press made it out to be. But, what is more important about the report, at least in terms of how the stock market looks at things, is that it represents a rear view mirror picture. At issue here is the fact that the market had already declined 42% from September through November 20th. And while a great deal of that decline had to do with the fear that the banking system would collapse, the latest price action has been focused primarily on the state of the economy.

The bottom line is since the banking system did not burn to the ground and is now unlikely to fail, as we’ve stated a time or two lately, a decline of 42% is more than likely a sufficient discounting of the difficult economic times that may be ahead.

However, in looking at the charts, the bulls have some work ahead of them if they want to get something more than the usual 3-day blast going. All three of the major indices have short-term resistance looming overhead, with the key points being Dow 8830 and S&P 900. And as we noted over the weekend, if the indices can power through these levels – and it looks like they may give it a try this morning – the bulls would have some room to run (at least on a chart basis).

Turning to this morning, the news of President-elect Obama’s plans for a massive infrastructure-based stimulus package, when coupled with the stimulus announcements made overseas over the weekend, have foreign market surging and the futures full of green numbers at the moment.

Running through the rest of the pre-game indicators, the major overseas markets are flying higher with Hong Kong up +8.7%, Japan +5.2% France +6.8%, Germany +6.4% and London up +4.9%. Crude futures are higher with the latest quote showing oil trading up $2.79 to $43.60 On the interest rate front, we’ve got the yield on the 10-yr currently trading at 2.74%, the yield on the 3-month T-Bill is at 0.02%, and overnight LIBOR is at 0.19%, which is down from Friday’s 0.28%. 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 208 points; the S&P’s are up about 26 points, while the NASDAQ looks to be about 34 points above fair value at the moment.

Stocks “In Play” This Morning:


News, Upgrades/Downgrades/Brokerage Research:

McDonalds (MCD) – Global sales comparisons +7.7% vs. StreetAccount +5.0%
Boeing (BA) – Price target reduced at Bank of America
3M (MMM) – Announces job cuts, reduces guidance
Illinois Tool (ITW) – Reduces guidance for Q4
Target (TGT) – Price target reduced at Barclays
Costco (COST) – Estimates reduced at Bernstein
Questar (STR) – Upgraded at Goldman
Magellan Health Services (MGLN) – Downgraded at Goldman
Dollar Tree (DLTR) – Downgraded at Friedman Billings
Goodrich Petroleum (GDP) – Downgraded at Jefferies
Devon Energy (DVN) – Downgraded at Jefferies
Genco Shipping (FNK) – Downgraded at Merrill Lynch

Disclosure: Mr. Moenning and/or related firms hold long positions in: DLTR

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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