David Moenning's Daily State of the Markets 08/04
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Buying the Rumor
Good morning. While the popular press will talk about Thursday�s move higher as being the result of more positive earnings and solid retail sales numbers, the real reason for the move had more to do with one of Wall Street�s oldest clich�s: �Buy the rumor, sell the news.�
The fact of the matter is that traders are continuing to jockey for position ahead of next Tuesday�s Fed meeting. So with Thursday�s economic data coming in a bit weaker than expected, the gamblers in the crowd decided to bet on the idea that the Fed is going to pause sooner rather than later. If correct on their call, this allows the more ambitious trader to sell into the good news, if in fact, it arrives.
The economic news helped support the idea that the Fed needs to at least take a break in the rate-hike campaign. The ISM (Institute of Supply
Managers) Non-Manufacturing Business Activity Index fell 2.2 points to
54.8 in July, which was below the expectations for a reading of 57.0, and the lowest level since April 2003. In addition, the report on June Factory Orders came in with an increase of 1.2%, which was also below expectations.
And while the Prices Index within the ISM report was a bit stronger than expected, it was commodity prices that were primarily responsible for the increase. And given that the Fed can do little to impact the price of commodities, traders decided to focus their attention on the weaker than expected economic data.
So, the combination of lower oil prices (crude declined as Tropical Storm Chris does not appear to be a threat), pretty good retail sales numbers, weaker economic numbers, and some M&A activity wound up pushing stocks into the green side of the ledger yesterday afternoon. Although the move wasn�t exactly significant, it did make the point that traders are looking for good news on Tuesday.
Turning to this morning, all eyes are on the jobs report. And in short, traders really like what they see. July Non-farm Payrolls came in with an increase of 113,000 jobs, which was below the consensus expectations for an increase of 145,000. In addition, the Unemployment Rate ticked higher to 4.8% from 4.6%, which is the highest level since February. There were some revisions to the May and June numbers, but the revisions only added about 11,000 jobs.
This report provides the Fed with additional support for a pause in the rate hike campaign and traders in both bonds and stocks are bidding prices up this morning. The Fed Funds futures are now pricing in just a 20% probability of a Fed tightening in August, although they are still 50-50 on another hike before November. The yield on the 10-Year has moved down significantly after the report. With a yield right now of 4.90%, it has broken near-term support and appears to be heading back to retest the levels seen in the spring.
Running through the rest of the pre-game indicators, overseas markets are higher across the board in Europe while Asian markets were mixed. Gold futures are moving higher this morning and are currently exchanging hands at $661. Oil is moving a bit lower in response to the weather news and crude futures are currently trading off by $0.39 to $75.07. Interest rates are heading lower as the 2-year currently quoted at 4.91% while the 10-yr is trading with a yield slightly below 4.90% right now. And finally, with about an hour before the bell, stock futures in the U.S. have popped higher in response to the Jobs report. While there can certainly be some volatility expected, the Dow futures are currently ahead by 56, the S&Ps are up by more than 6, and the NASDAQ is sporting an advance of about 11 points.
Stocks �In Play� This Morning:
Norfolk Southern (NSC) � Mentioned positively in Business Week
Wrigley (WWY) � Mentioned positively in Business Week
Chicago Merc Exchange (CME) � Will replace KMG in S&P 500 on 8/10
Tesoro (TSO) � Downgraded at Citigroup, BofA
Sunoco (SUN) � Top pick at Citigroup for remainder of 2006
Apple Computer (AAPL) � Will delay filing of 10Q, Likely to restate earnings
Amgen (AMGN) � Downgraded at Bernstein
Nortel Networks (NT) � Downgraded at Prudential, Upgraded at Susquehanna
roup Paychex (PAYX) � Upgraded at AG Edwards
Sprint Nextel (S) � Downgraded at BofA
PDL Biopharma (PDLI) � Downgraded at First Albany
Tenneco (TEN) � Added to Buy list at Goldman Sachs
Medco Health (MHS) � Reported $0.65 vs. $0.61
Long positions in stocks mentioned: GS, SUN, PAYX, MHS
** 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.
Good morning. While the popular press will talk about Thursday�s move higher as being the result of more positive earnings and solid retail sales numbers, the real reason for the move had more to do with one of Wall Street�s oldest clich�s: �Buy the rumor, sell the news.�
The fact of the matter is that traders are continuing to jockey for position ahead of next Tuesday�s Fed meeting. So with Thursday�s economic data coming in a bit weaker than expected, the gamblers in the crowd decided to bet on the idea that the Fed is going to pause sooner rather than later. If correct on their call, this allows the more ambitious trader to sell into the good news, if in fact, it arrives.
The economic news helped support the idea that the Fed needs to at least take a break in the rate-hike campaign. The ISM (Institute of Supply
Managers) Non-Manufacturing Business Activity Index fell 2.2 points to
54.8 in July, which was below the expectations for a reading of 57.0, and the lowest level since April 2003. In addition, the report on June Factory Orders came in with an increase of 1.2%, which was also below expectations.
And while the Prices Index within the ISM report was a bit stronger than expected, it was commodity prices that were primarily responsible for the increase. And given that the Fed can do little to impact the price of commodities, traders decided to focus their attention on the weaker than expected economic data.
So, the combination of lower oil prices (crude declined as Tropical Storm Chris does not appear to be a threat), pretty good retail sales numbers, weaker economic numbers, and some M&A activity wound up pushing stocks into the green side of the ledger yesterday afternoon. Although the move wasn�t exactly significant, it did make the point that traders are looking for good news on Tuesday.
Turning to this morning, all eyes are on the jobs report. And in short, traders really like what they see. July Non-farm Payrolls came in with an increase of 113,000 jobs, which was below the consensus expectations for an increase of 145,000. In addition, the Unemployment Rate ticked higher to 4.8% from 4.6%, which is the highest level since February. There were some revisions to the May and June numbers, but the revisions only added about 11,000 jobs.
This report provides the Fed with additional support for a pause in the rate hike campaign and traders in both bonds and stocks are bidding prices up this morning. The Fed Funds futures are now pricing in just a 20% probability of a Fed tightening in August, although they are still 50-50 on another hike before November. The yield on the 10-Year has moved down significantly after the report. With a yield right now of 4.90%, it has broken near-term support and appears to be heading back to retest the levels seen in the spring.
Running through the rest of the pre-game indicators, overseas markets are higher across the board in Europe while Asian markets were mixed. Gold futures are moving higher this morning and are currently exchanging hands at $661. Oil is moving a bit lower in response to the weather news and crude futures are currently trading off by $0.39 to $75.07. Interest rates are heading lower as the 2-year currently quoted at 4.91% while the 10-yr is trading with a yield slightly below 4.90% right now. And finally, with about an hour before the bell, stock futures in the U.S. have popped higher in response to the Jobs report. While there can certainly be some volatility expected, the Dow futures are currently ahead by 56, the S&Ps are up by more than 6, and the NASDAQ is sporting an advance of about 11 points.
Stocks �In Play� This Morning:
Norfolk Southern (NSC) � Mentioned positively in Business Week
Wrigley (WWY) � Mentioned positively in Business Week
Chicago Merc Exchange (CME) � Will replace KMG in S&P 500 on 8/10
Tesoro (TSO) � Downgraded at Citigroup, BofA
Sunoco (SUN) � Top pick at Citigroup for remainder of 2006
Apple Computer (AAPL) � Will delay filing of 10Q, Likely to restate earnings
Amgen (AMGN) � Downgraded at Bernstein
Nortel Networks (NT) � Downgraded at Prudential, Upgraded at Susquehanna
roup Paychex (PAYX) � Upgraded at AG Edwards
Sprint Nextel (S) � Downgraded at BofA
PDL Biopharma (PDLI) � Downgraded at First Albany
Tenneco (TEN) � Added to Buy list at Goldman Sachs
Medco Health (MHS) � Reported $0.65 vs. $0.61
Long positions in stocks mentioned: GS, SUN, PAYX, MHS
** 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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