David Moenning's Daily State of the Markets: 6/18
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Should We Worry Now?
One of the best ways to determine the conviction and/or strength of a trend is by the action during the countertrend moves. For example, since March 9th, the pullbacks have been short, shallow, and for the most part, have lacked vigor. This made it easy to get behind the uptrend and to simply dismiss any and all the negative talk about the rally.
However, over the past two weeks the bulls have started to look a little tired and the rally got ragged around the edges. And then, out of the blue – well, okay, I guess we can’t really say “out of the blue” after a 40% sprint higher and the biggest batch of secondary offerings seen in ages – the character of the market began to change. No longer were the green shoots embraced. No longer was good news considered good news. No, suddenly everything was viewed with a skeptical eye as investors began to realize that while the recession WILL end, the recovery is likely to be subpar.
Thus, it wasn’t exactly surprising to see stocks finally roll over this week and the greatly anticipated pullback begin. Three days later, the Dow finds itself 300 points lower, the S&P has dropped -3.75%, while the market-leading NASDAQ has begrudgingly given back a smidge less than -3%. The decline has left the S&P perched on its 200-day moving average and the DJIA sitting atop the old trading range. Thus, the question now becomes: Should we be worried about a correction?
As we’ve said a time or twelve lately, pullbacks during “mini” bull markets, especially those seen during the first few months of the move, tend to be short and shallow. So, if the current move lower is in keeping with the character of a “mini” bull, then we are probably about half-way through it.
However, we don’t manage money based on what historical trends suggest. As we have also said a time or twenty, we believe it is vital to stay in tune with what the market IS doing and not worry about what we think it ought to be doing. Thus, we will have to admit that we are a little concerned about a couple of things right now.
For starters, the weak action last week as the market appeared to break on through to the other side of the super-secret hedge fund resistance at 950 was disappointing. Up until that point, the breaks to the upside had been convincing. But unfortunately, this time we saw no volume and no oomph. Thus, the bears had an opportunity handed to them on a platter.
Next, I was also disappointed with yesterday’s short-term countertrend bounce attempt. Sure, there was some dip buying evident. But the point is the buying was unenergetic. In addition, there was no real sign of short covering, which has marked the end of the prior pullbacks.
In rereading this morning meandering missive, I guess I could be accused of picking fly poop out of pepper. However, I have pledged to keep everyone abreast of any changes in the environment. So, while I don’t think anything “big” has occurred just yet, there are some warning signs cropping up.
Oh, and before I forget, there is still a gap on the NASDAQ chart that is big enough to drive a tractor trailer through, so we’ll want to keep an eye the 1774 level.
Turning to this morning, the weekly jobless claims came in at 608K, which was a bit higher than expectations for 604K while continuing claims were reported at 6.68M vs. 6.84M. This report would seem to confirm the idea that we’re seeing some stabilization in job losses. But the question is if we’ll see job growth any time soon.
Running through the rest of the pre-game indicators, the major overseas markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading lower by $0.11 to $70.92. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.76%, while the yield on the 3-month T-Bill is trading at 0.15%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to modestly higher open. The Dow futures are currently ahead by about 20 points; the S&P’s are up about 2 points, while the NASDAQ looks to be about 1 point above fair value at the moment.
Stocks “In Play” This Morning:
Upgrades/Downgrades/Brokerage Research:
Pride Intl (NYSE: PDE) – Downgraded at Citi
Lincoln Natl (NYSE: LNC) – Upgraded at Credit Suisse
ArvinMeritor (NYSE: ARM) – Upgraded at Goldman
Borg Warner (NYSE: BWA) – Upgraded at Goldman
Saks (NYSE: SKS) – Downgraded at Goldman
Hansen Natural (Nasdaq: HANS) – Estimates reduced at Goldman
Hewitt Assoc (NYSE: HEW) – Upgraded at JP Morgan
Automatic Data Processing (NYSE: ADP) – Downgraded at JP Morgan
Paychex (Nasdaq: PAYX) – Downgraded at JP Morgan
Oracle (Nasdaq: ORCL) – Target increased at Morgan Stanley
Con-Way (NYSE: CNW) – Target increased at RW Baird
Old Dominion Freight Lines (Nasdaq: ODFL) – Target increased at RW Baird
YRC Worldwide (Nasdaq: YRCW) – Downgraded at RW Baird
Hertz Global Holdings (NYSE: HTZ) – Upgraded at Wachovia
Long positions in stocks mentioned: none
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.
One of the best ways to determine the conviction and/or strength of a trend is by the action during the countertrend moves. For example, since March 9th, the pullbacks have been short, shallow, and for the most part, have lacked vigor. This made it easy to get behind the uptrend and to simply dismiss any and all the negative talk about the rally.
However, over the past two weeks the bulls have started to look a little tired and the rally got ragged around the edges. And then, out of the blue – well, okay, I guess we can’t really say “out of the blue” after a 40% sprint higher and the biggest batch of secondary offerings seen in ages – the character of the market began to change. No longer were the green shoots embraced. No longer was good news considered good news. No, suddenly everything was viewed with a skeptical eye as investors began to realize that while the recession WILL end, the recovery is likely to be subpar.
Thus, it wasn’t exactly surprising to see stocks finally roll over this week and the greatly anticipated pullback begin. Three days later, the Dow finds itself 300 points lower, the S&P has dropped -3.75%, while the market-leading NASDAQ has begrudgingly given back a smidge less than -3%. The decline has left the S&P perched on its 200-day moving average and the DJIA sitting atop the old trading range. Thus, the question now becomes: Should we be worried about a correction?
As we’ve said a time or twelve lately, pullbacks during “mini” bull markets, especially those seen during the first few months of the move, tend to be short and shallow. So, if the current move lower is in keeping with the character of a “mini” bull, then we are probably about half-way through it.
However, we don’t manage money based on what historical trends suggest. As we have also said a time or twenty, we believe it is vital to stay in tune with what the market IS doing and not worry about what we think it ought to be doing. Thus, we will have to admit that we are a little concerned about a couple of things right now.
For starters, the weak action last week as the market appeared to break on through to the other side of the super-secret hedge fund resistance at 950 was disappointing. Up until that point, the breaks to the upside had been convincing. But unfortunately, this time we saw no volume and no oomph. Thus, the bears had an opportunity handed to them on a platter.
Next, I was also disappointed with yesterday’s short-term countertrend bounce attempt. Sure, there was some dip buying evident. But the point is the buying was unenergetic. In addition, there was no real sign of short covering, which has marked the end of the prior pullbacks.
In rereading this morning meandering missive, I guess I could be accused of picking fly poop out of pepper. However, I have pledged to keep everyone abreast of any changes in the environment. So, while I don’t think anything “big” has occurred just yet, there are some warning signs cropping up.
Oh, and before I forget, there is still a gap on the NASDAQ chart that is big enough to drive a tractor trailer through, so we’ll want to keep an eye the 1774 level.
Turning to this morning, the weekly jobless claims came in at 608K, which was a bit higher than expectations for 604K while continuing claims were reported at 6.68M vs. 6.84M. This report would seem to confirm the idea that we’re seeing some stabilization in job losses. But the question is if we’ll see job growth any time soon.
Running through the rest of the pre-game indicators, the major overseas markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading lower by $0.11 to $70.92. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.76%, while the yield on the 3-month T-Bill is trading at 0.15%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to modestly higher open. The Dow futures are currently ahead by about 20 points; the S&P’s are up about 2 points, while the NASDAQ looks to be about 1 point above fair value at the moment.
Stocks “In Play” This Morning:
Upgrades/Downgrades/Brokerage Research:
Pride Intl (NYSE: PDE) – Downgraded at Citi
Lincoln Natl (NYSE: LNC) – Upgraded at Credit Suisse
ArvinMeritor (NYSE: ARM) – Upgraded at Goldman
Borg Warner (NYSE: BWA) – Upgraded at Goldman
Saks (NYSE: SKS) – Downgraded at Goldman
Hansen Natural (Nasdaq: HANS) – Estimates reduced at Goldman
Hewitt Assoc (NYSE: HEW) – Upgraded at JP Morgan
Automatic Data Processing (NYSE: ADP) – Downgraded at JP Morgan
Paychex (Nasdaq: PAYX) – Downgraded at JP Morgan
Oracle (Nasdaq: ORCL) – Target increased at Morgan Stanley
Con-Way (NYSE: CNW) – Target increased at RW Baird
Old Dominion Freight Lines (Nasdaq: ODFL) – Target increased at RW Baird
YRC Worldwide (Nasdaq: YRCW) – Downgraded at RW Baird
Hertz Global Holdings (NYSE: HTZ) – Upgraded at Wachovia
Long positions in stocks mentioned: none
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.
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