David Moenning's Daily State of the Markets: 11/16
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A Game of Peek-a-Boo
The Dow played a game of peek-a-boo yesterday as the venerable index rallied in the morning, peeked its head above the all-important line in the sand, and then promptly retreated. While the popular press will cite a multitude of reasons for the pullback (inflation concerns, the larger-than expected deficit at Pension Benefit Guaranty, Target�s warning, and the ever-popular evils of sell programs) probably the most important reason was: we were due.
With just 2 red bars over the past 12 trading sessions, the simple fact is that stocks had become extended. And with just about every major index encountering at least some form of important resistance on the charts, a period of �testing� is to be expected. The bottom line is that the burden of proof is currently on the bulls. The overhead resistance is formidable and as such, our bovine buddies will need to produce a move with some oomph if they hope to push the indices higher from here.
Stocks moved up in the morning on the better-than expected reports on Retail Sales, the Core PPI, and strong manufacturing activity in the New York region. However, from there it became obvious that the bulls didn�t have their A-Game. While the retail sales numbers were good and the internals of the report were even better, a warning from Target (TGT) dampened the hopes for the holiday shopping season.
However, the bulls will take solace in the fact that although traders are probably expecting a pullback in the near-term and everyone looking at a chart can plainly see the market�s technical issues, yesterday�s selling was actually pretty tame. The reason, simply put, is that there are positives to offset most of the negatives. For example, yesterday, Ben Bernanke said all the right things as he told the Senate committee that his top priority was to continue Mr. Greenspan�s policy of fighting inflation.
Turning to this morning, we�ve got another peek at the inflation situation with the CPI report. Expectations were for October�s headline number to be unchanged and for the Core Rate to have increased by +0.2%. And for a change, it looks like the report is pretty much in-line with expectations. CPI was reported up +0.2% which was slightly above analysts� views, but the Core Rate came in exactly as expected � up +0.2%. More importantly, on a year-over-year basis, the Core Inflation rate currently stands at +2.1%, which, while up a tenth from last month, is still well within the comfort zone.
Running thru the rest of the pre-game indicators, the dollar continues to move higher this morning, oil is down -$0.20 to $56.78, bonds appear to like the inflation numbers with the yield on the 10-yr currently at 4.54%, and stock futures are pointing ever-so slightly higher.
So with stocks currently encountering some resistance, logic dictates that the bears should have an opportunity here. The key will be to see what, if anything, they are do with the ball at this time of year.
Stocks "In Play" This Morning:
HP � Reports $0.67 vs. $0.71, Revenue $233M vs. $223M
DHI � Reports $1.77 vs. $1.64, ups forecast
TYC � Reports $0.48 vs. $0.46
SPLS � Reiterated Buy at Citigroup
CLX � Raises dividend by $0.01 to $0.29
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: none
To see David Moenning�s Trading Record, his (Strong Buy) List, or the rank for any Top Guns Stocks, visit: http://www.AnotherWinningTrade.com/SI
The Dow played a game of peek-a-boo yesterday as the venerable index rallied in the morning, peeked its head above the all-important line in the sand, and then promptly retreated. While the popular press will cite a multitude of reasons for the pullback (inflation concerns, the larger-than expected deficit at Pension Benefit Guaranty, Target�s warning, and the ever-popular evils of sell programs) probably the most important reason was: we were due.
With just 2 red bars over the past 12 trading sessions, the simple fact is that stocks had become extended. And with just about every major index encountering at least some form of important resistance on the charts, a period of �testing� is to be expected. The bottom line is that the burden of proof is currently on the bulls. The overhead resistance is formidable and as such, our bovine buddies will need to produce a move with some oomph if they hope to push the indices higher from here.
Stocks moved up in the morning on the better-than expected reports on Retail Sales, the Core PPI, and strong manufacturing activity in the New York region. However, from there it became obvious that the bulls didn�t have their A-Game. While the retail sales numbers were good and the internals of the report were even better, a warning from Target (TGT) dampened the hopes for the holiday shopping season.
However, the bulls will take solace in the fact that although traders are probably expecting a pullback in the near-term and everyone looking at a chart can plainly see the market�s technical issues, yesterday�s selling was actually pretty tame. The reason, simply put, is that there are positives to offset most of the negatives. For example, yesterday, Ben Bernanke said all the right things as he told the Senate committee that his top priority was to continue Mr. Greenspan�s policy of fighting inflation.
Turning to this morning, we�ve got another peek at the inflation situation with the CPI report. Expectations were for October�s headline number to be unchanged and for the Core Rate to have increased by +0.2%. And for a change, it looks like the report is pretty much in-line with expectations. CPI was reported up +0.2% which was slightly above analysts� views, but the Core Rate came in exactly as expected � up +0.2%. More importantly, on a year-over-year basis, the Core Inflation rate currently stands at +2.1%, which, while up a tenth from last month, is still well within the comfort zone.
Running thru the rest of the pre-game indicators, the dollar continues to move higher this morning, oil is down -$0.20 to $56.78, bonds appear to like the inflation numbers with the yield on the 10-yr currently at 4.54%, and stock futures are pointing ever-so slightly higher.
So with stocks currently encountering some resistance, logic dictates that the bears should have an opportunity here. The key will be to see what, if anything, they are do with the ball at this time of year.
Stocks "In Play" This Morning:
HP � Reports $0.67 vs. $0.71, Revenue $233M vs. $223M
DHI � Reports $1.77 vs. $1.64, ups forecast
TYC � Reports $0.48 vs. $0.46
SPLS � Reiterated Buy at Citigroup
CLX � Raises dividend by $0.01 to $0.29
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: none
To see David Moenning�s Trading Record, his (Strong Buy) List, or the rank for any Top Guns Stocks, visit: http://www.AnotherWinningTrade.com/SI
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