David Moenning's Daily State of the Markets: 4/27

Lots of Reasons, But...

One of the most interesting aspects of the market action these days has to be the inability for stocks to decline for any length of time. While there have been lots of reasons for the bears to get something going to the downside, the bottom line is our furry friends have failed at every turn so far.

For example, although there have been some green shoots sprouting up which seem to indicate that the rate of decline is indeed slowing in the economy, there are also plenty of reports showing how bad things are at the present time. Next, there is undoubtedly some apprehension about the “stress tests” being given to the nation’s 19 biggest banks. And quite frankly, this is the type of uncertainty that usually creates a little selling pressure. And finally, if earnings season has taught us anything so far it is that companies have no idea with regard to what to expect for the future or when things will get better.

Yet, through it all the NASDAQ has found a way to advance for seven straight weeks and the S&P 500 is currently sitting +28% above its March 9th low. And while there have been a handful of uncomfortable days to be long stocks, all pullbacks so far have been limited to two days in duration.

A colleague and I are currently engaged in a lively debate on the subject of when and if stocks will experience a pullback that is measured in something more than hours. On one side of the aisle, my friend Curt has provided me with an impressive assimilation of data showing that stocks are overdue for at least a pause that refreshes.

One of the more compelling points is that of the 33 bull markets since 1900, 19 have contained corrections that not only “retested” the lows but also began an average of 45 days after the bear market low was seen. Oh, and by the way, Friday was the 45th day since the March 9th low…

The other side of this argument is that stocks tend to do what will confound the most. So, with almost every trader in the game currently looking for a pullback as an opportunity to put money to work, it makes sense that Ms. Market has been less than accommodating so far.

So, while we readily admit that the stock market is due for a pullback that lasts more than a couple of days, we are of the mind that there will need to be a reason to induce the selling. Because so far at least, it appears that institutions and underinvested hedge funds are continuing to buy every little dip – even on an intraday basis.

Turning to this morning, concerns over the effects on travel and trade should the swine flu turn into a global pandemic is causing traders to do some selling in the pre-market. So will this be the trigger the bears are looking for? Or will rumors begin to crop up about which banks have failed the stress tests? Remember, the results of the stress tests will be made public on May 4th. Either way, it is safe to say that our furry friends are due for some fun in the sun.

Running through the rest of the pre-game indicators, with the exception of Japan, the major overseas markets are down. Crude futures are moving lower with the latest quote showing oil trading down $2.53 to $49.02. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.94%, while the yield on the 3-month T-Bill is trading at 0.09%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 120 points; the S&P’s are down about 15 points, while the NASDAQ looks to be about 20 points below fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

BE Aerospace (Nasdaq: BEAV) – Reported $0.38 vs. $0.39
L-3 Communications (NYSE: LLL) – Reported $0.45 vs. $0.43
Corning (NYSE: GLW) – Reported $0.10 vs. $0.05
Humana (NYSE: HUM) – Reported $1.22 vs. $1.14
Lorillard (NYSE: LO) – Reported $1.09 vs. $1.15
Omnicom (NYSE: OMC) – Reported $0.53 vs. $0.44
Qualcomm (Nasdaq: QCOM) – Reported -$0.03 vs. $0.40
Smith Intl (NYSE: SII) – Reported $0.52 vs. $0.56
Timken (NYSE: TKR) – Reported $0.07 vs. -$0.04
Verizon (NYSE: VZ) – Reported $0.63 vs. $0.59
Whirlpool (NYSE: WHR) – Reported $0.91 vs. -$0.18

Upgrades/Downgrades/Brokerage Research:

Lear Corp (NYSE: LEA) – Downgraded at Argus Research
L-3 Communications (NYSE: LLL) – Upgraded at BAC/MER
General Dynamics (NYSE: GD) – Upgraded at BAC/MER

3M (NYSE: MMM) – Upgraded at Barclays
Burlington Northern (NYSE: BNI) – Downgraded at Citi
MDC Holdings (NYSE: MDC) – Downgraded at Citi
Canadian Pacific Railway (NYSE: CP) – Downgraded at Citi
Honeywell (NYSE: HON) – Downgraded at Citi
Netflix (Nasdaq: NFLX) – Upgraded at Citi
Con-Way (NYSE: CNW) – Downgraded at Credit Suisse
Royal Caribbean (NYSE: RCL) – Downgraded at Credit Suisse
BT Group (NYSE: BT) – Upgraded at Deutsche Bank
Bucyrus (Nasdaq: BUCY) – Upgraded at Goldman
Joy Global (Nasdaq: JOYG) – Upgraded at Goldman
Quest Software (Nasdaq: QSFT) – Upgraded at Goldman
ITT Corp (NYSE: ITT) – Downgraded at Goldman
Tibco Software (Nasdaq: TIBX) – Downgraded at Goldman
Sonic Corp (Nasdaq: SONC) – Downgraded at Goldman
State Street (STT) – Downgraded at Morgan Stanley
DaVita (NYSE: DVA) – Upgraded at Piper Jaffray
AMR Corp (NYSE: AMR) – Downgraded at UBS
Continental Airlines (NYSE: CAL) – Downgraded at UBS
US Airways (NYSE: LCC) – Downgraded at UBS
UAL Corp (Nasdaq: UAUA) – Downgraded at UBS
Marriott (NYSE: MAR) – Downgraded at UBS
Whole Foods (Nasdaq: WFMI) – Downgraded at UBS
BJ Services (NYSE: BJS) – Downgraded at Wachovia

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


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.TopStockPortfolios.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.

You May Also Be Interested In

• SpaceX sets IPO price at $135 ahead of roadshow in break with Wall Street norms
• Exchange Bank authorizes $8.7 million stock buyback program
• Argus Downgrades Electronic Arts (EA) to Hold, 'we expect the completion of its private equity consortium buyout in June'