David Moenning's Daily State of the Markets: 4/25

April 25, 2008 10:37 AM EDT

The NEW Trade?

Here’s a link to listen to an Audio Version of the report:

For quite some time now, ‘the trade’ in hedgie-land has been to be short the financials and long just about any ol’ commodity. There has been so much money flowing into futures and the ETFs that own this stuff that economists are now blaming the evil speculators for causing inflation to uptick lately. But, let’s not forget that the demise of the dollar has also caused commodity prices to rise. So, in looking at the big-picture, the commodity complex has had a perfect storm behind it; rising demand, falling supplies, a falling dollar, and lots and lots of money chasing the gains.

Then, on the flipside of this trade, what’s not to like about being short the financials? After all, we’ve just witnessed one of the biggest financial crises ever. And although most believe that the worst may be behind us, even now, hardly a day goes by without somebody somewhere talking about writing down billions of dollars of those mortgage-backed securities.

However, the word on the street is that there may be a NEW trade in town. Those making the case say it is time to short the commodities and get long the financials.

By now, everybody on the planet is underweight the financials and nobody wants to miss the bus when this thing finally turns around. So, it is safe to say that there is at least a couple bucks out there looking to buy the banks and brokers on a true trend reversal.

In addition, the assumption is that the Fed is going to cut rates next week by either 25 or 50 basis points. This move is expected by just about everyone and is thus baked into the cake. But, what is new here is the idea that the Fed may hint about it being time to take a break. After all, the data coming in has not been as horrific as forecast and everybody now knows that the credit crisis was really a crisis of accounting and not economics. So, with the Fed purportedly feeling a wee bit better about the economy, the thinking is that there is an end in sight to the rate cuts, which, in turn, means that the Fed’s next move will be to actually raise rates.

So, what do higher rates mean? For one, rising rates lead to a stronger dollar and lower commodity prices. So, there you have it folks; the new trade – buy the dogs and sell your winners. And THIS was what was happening in the market yesterday. The leaders got tagged and the laggards found a bid.

But, before you dump all the leaders in your portfolio to go bomb into Citigroup (C) and the XLF, remember that we’ve heard this story before. So, is this the end to the commodity boom or just a pause that refreshes? We believe in buying the dips of secular bull markets, but stick around because this will be interesting.

Turning to this morning, we don’t have any economic data to review before the opening bell, but we will get a report from the University of Michigan on Consumer Confidence at 10:00 am.

Running through the rest of the pre-game indicators; with the exception of Hong Kong, the foreign markets are mostly higher. Crude futures are moving up so far with the latest quote showing oil higher by $0.94 to $117.00. Interest rates are continuing to rise with the 10-yr trading at a yield of 3.86%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to modestly higher open. The Dow futures are currently ahead by about 45 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about even with fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

AmeriCredit (NYSE: ACF) – Reported $0.23 vs. $0.21
Amgen (Nasdaq: AMGN) – Reported $1.12 $1.05
American Express (NYSE: AXP) – Reported $0.84 vs. $0.80
Baidu (Nasdaq: BIDU) – Reported $0.67 vs. $0.64
Cheesecake Factory (CAKE) – Reported $0.21 vs. $0.21
Chubb (NYSE: CB) – Reported $1.65 vs. $1.55
CF Industries (NYSE: CF) – Reported $2.77 vs. $2.14
Curtiss Wright (NYSE: CW) – Reported $0.48 vs. $46
Columbia Sportswear (Nasdaq: COLM) – Reported $0.56 vs. $0.52
DeVry (NYSE: DV) – Reported $0.53 vs. $0.45
Eastman Chemical (NYSE: EMN) – Reported $1.48 vs. $1.36
Federated Investors (NYSE: FII) – Reported $0.55 vs. $0.61
Genworth Financials (NYSE: GNW) – Reported $0.56 vs. $0.63
Juniper Networks (Nasdaq: JNPR) – Reported $0.27 vs. $0.25
KLA Tencor (Nasdaq: KLAC) – Reported $0.67 vs. $0.63
McAfee (NYSE: MFE) – Reported $0.43 vs. $0.45
Altria (NYSE: MO) – Reported $0.37 vs. $0.37
Microsoft (Nasdaq: MSFT) – Reported $0.47 vs. $0.45
Companhia Vale do Rio Doce (NYSE: RIO) – Reported $0.41 vs. $0.56
Safeco (NYSE: SAF) – Reported $1.57 vs. $1.44

Western Digital (NYSE: WDC) – Reported $1.23 vs. $1.09
MEMC Electronic Materials (NYSE: WFR) – Reported $0.84 vs. $0.85

Today’s Earnings Before the Bell:

Coventry Health Care (NYSE: CVH) – Reported $0.81 vs. $0.81
Goodyear Tire (NYSE: GT) – Reported $0.67 vs. $0.48
ITT Corp (NYSE: ITT) – Reported $0.94 vs. $0.82

News, Upgrades/Downgrades/Brokerage Research:

Ford (NYSE: F) – Downgraded at Bear Stearns, JP Morgan
Diamond Offshore (NYSE: DO) – Downgraded at Calyon
Northwest Airlines (NYSE: NWA) – Upgraded at Calyon
Newmont Mining (NYSE: NEM) – Upgraded at CIBC Capital
Baidu (NYSE: BIDU) – Upgraded at Citi
Tenet Healthcare (NYSE: THC) – Upgraded at Credit Suisse
Health Management Assoc (NYSE: HMA) – Upgraded at Credit Suisse
Aetna (NYSE: AET) – Upgraded at Credit Suisse
Corning (NYSE: GLW) – Upgraded at Deutsche Bank
Wendy’s (NYSE: WEN) – Upgraded at Goldman
Kroger (NYSE: KR) – Upgraded at Goldman
Credit Suisse (NYSE: CS) – Upgraded at Goldman
America Movil (NYSE: AMX) – Downgraded at Goldman, Deutsche Bank
Northrop Grumman (NYSE: NOC) – Upgraded at JP Morgan
Raytheon (NYSE: RTN) – Downgraded at JP Morgan
Denbury Resources (NYSE: DNR) – Upgraded at Thomas Weisel

Mr. Moenning holds Long positions in stocks mentioned: CF, MSFT, CW, XLF

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

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit:

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 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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761

email: [email protected]

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