David Moenning's Daily State of the Markets: 9/4

September 4, 2008 10:00 AM EDT
David Moenning's Daily State of the Markets:

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

All Done?

Although the global slowdown theme is probably to blame for much of the decline seen in stocks and commodities lately, the abject carnage in oil, natural gas, coal, etc. over the last few days is more likely due to something we like to call “hedge fund follies.”

There is a saying in the investment community that applies here, “Sell when you can, not when you have to.” You see, when you run billions of dollars using big leverage to enhance your returns as well as your performance fees, the going can get tough when the market goes against you. And if things go badly enough, you may be forced to toss in the towel since most hedge funds have a preset self-liquidation clause once a certain level of losses are incurred.

So when a fund the size of Ospraie (of which Lehman Brothers (LEH) owns 25%) decides to close its doors after admitting to losses of -27% in the month of August alone, you can rest assured that there is some forced selling going on. And unfortunately, if it is known that a big fund is selling energy positions, friendly buyers are unlikely to be found until the selling is over.

Therefore, the question of the day isn’t whether China’s economic growth is going to slow further, but rather if the forced selling of energy positions is done yet? If Ospraie has finished dumping its positions, then it is probably okay to wade back into the pool. But if not, it is probably best to simply watch the action from the sidelines.

So, while there were plenty of other stories in the market yesterday such as Corning’s (GLW) cut in guidance, Qualcomm’s (QCOM) comments about cell phone users hanging on to their phones longer now, a better than expected report on July Factory Orders, the ongoing outperformance of the Russell 2000, and an ugly Beige Book, the real focus of the day was this question of forced selling in energy. So as the last hour rolled around and there were no order imbalances seen in stocks, the shorts covered and the major indices improved.

The glass-is-half-full crowd suggests that it remains a positive that the Dow, S&P, and NASDAQ have not broken down so far and all have held above important support levels.

Turning to this morning, as expected, both the ECB and the Bank of England left interest rates unchanged. On the economic front, ADP reported that private payrolls fell in August by 33,000, which was a smidge below the expectations for a drop of 30K. In addition, the government reported that Q2 Nonfarm Productivity grew by 4.3%, which was above the consensus for an increase of 3.5%. Next, Unit Labor costs (an important measure of inflation) were lower by -0.5% which was also better than expectations for a flat reading. And finally, weekly Jobless Claims came in at 444K which was a bit higher than the 420K analysts had been estimating.

Running through the rest of the pre-game indicators, with the exception of the UK, the foreign markets are lower. Crude futures are moving up again with the latest quote showing oil trading higher by $0.65 to $110.00. Interest rates are continuing their move down with the yield on the 10-yr currently trading at 3.69%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 70 points; the S&P’s are down by about 5 points, while the NASDAQ looks to be about 7 points below fair value at the moment.

Stocks “In Play” This Morning:

Today's Earnings Before the Bell:

Ciena (Nasdaq: CIEN) – Reported $0.37 vs. $0.37
Toll Brothers (NYSE: TOL) – Reported -$0.18 vs. -$0.36

News, Upgrades/Downgrades/Brokerage Research:

Aeropostale (NYSE: ARO) – August same store sales +13% vs. StreetAccount +6.4%
Abercrombie & Fitch (NYSE: ANF) – August same store sales -11% vs. StreetAccount -8.2%
BJ Wholesale Club (NYSE: BJ) – August same store sales 15.4% vs. StreetAccount 13.9%
Dillard’s (NYSE: DDS) – August same store sales -7% vs. StreetAccount -4%
Gap (NYSE: GPS) – August same store sales -8.0% vs. StreetAccount -9.7%
Nordstrom (NYSE: JWN) – August same store sales -7.9% vs. StreetAccount -6.6%
Target (NYSE: TGT) – August same store sales -2.1% vs. StreetAccount -2.4%
Wal-Mart (NYSE: WMT) – August same store sales +3.0% vs. StreetAccount +1.5%
Family Dollar (NYSE: FDO) – August same store sales +3.6% vs. StreetAccount +2.8%
Cummins (NYSE: CMI) – Mentioned positively at Bank of America
Robert Half (NYSE: RHI) – Downgraded at Citi
Legg Mason (NYSE: LM) – Downgraded at Credit Suisse
Marvell Technology (MRVL) – Downgraded at Deutsche Bank
US Steel (NYSE: X) – Removed fromBuy list at Goldman
State Street (NYSE: STT) – Removed fromBuy list at Goldman
Qualcomm (Nasdaq: QCOM) – Removed fromBuy list at Goldman
Steel Dynamics (Nasdaq: STLD) – Upgraded at Goldman
Commercial Metals (NYSE: CMC) – Downgraded at Goldman
AK Steel (NYSE: AKS) – Estimate and target reduced at Goldman
American Express (NYSE: AXP) – Target reduced at Lehman
Discover Financial (NYSE: DFS) – Target reduced at Lehman
Capital One (NYSE: COF) – Target reduced at Lehman
Lam Research (Nasdaq: LRCX) – Downgraded at Morgan Stanley
KLA Tencor (Nasdaq: KLAC) – Downgraded at Morgan Stanley

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

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.

You May Also Be Interested In

Related Categories


Related Entities

Credit Suisse, Deutsche Bank, Factory Orders, Citi, Morgan Stanley, Lehman Brothers, David Moenning, Hedge Funds, Crude Oil