David Moenning's Daily State of the Markets: 10/22

The Basing Game

While the jury is still out on whether or not the low established during the 1,000 point ride on October 10th will wind up being the ultimate low in this now year-old bear market, we do know that the longer the indices can stay above that low, the better the chances are that we’re playing the basing game right now. And although this sounds like a positive, we need to remember that the post-crash basing game isn’t exactly an easy game to play as volatility remains high and the declines cause investors to feel like everything is coming apart at the seams again.

From a technical standpoint, stocks (as defined by the Dow, S&P 500, and NASDAQ) slammed headlong into resistance yesterday morning and then promptly retreated. It appears that the 13th century mathematician Leonardo Fibonacci had a small hand in yesterday’s rout as the Dow turned southward after twice testing the .25 closing basis retracement level made famous by Fibonacci.

Staying with the charts for just one more moment, it is also good news that yesterday’s decline occurred on very light volume – also a characteristic of the basing game. The thinking is that if declines occur on low volume, then the selling pressure is actually abating. So, while a drop of -232 may not have felt very good yesterday, it is actually a good thing from big picture standpoint. But, and this is a very big “but,” if the lows of October 10th are taken out in any meaningful way, all bets are off.

Finally, we should probably recognize that if the basing game continues to go as planned, we can expect to see buyers lower and higher. You see, at this stage of the game, everybody knows that we’ve enjoyed a nice bounce off the bottom and that the dead-cat bounce trade is over. Everyone also knows that a retest or better yet, several retests of the lows are likely. Thus, traders looking to get long will probably start to “but the dips” from here. And on the other side of the coin, fund managers who moved cash on the sidelines during the decline will likely begin to feel performance anxiety if prices rise from here.

Getting back to yesterday’s session, in addition to the technical factors we’ve discussed, it was a combination of weak guidance from companies such as DuPont (DD), Texas Instruments (TXN), and Sun Microsystems (JAVA) as well as another round of crummy economic data that caused traders to turn to the dark side once again.

However, it was also encouraging to see the credit market continue to thaw (are you still watching LIBOR?) and the Fed step in with yet another measure to try and bolster investor confidence in money funds.

Turning to this morning, the earnings parade is really rolling right now but unfortunately, this morning’s numbers aren’t causing anyone to do much in the way of buying.

Running through the rest of the pre-game indicators, the major overseas markets are lower across the board. Crude futures are down again on global growth concerns with the latest quote showing oil trading lower by $3.07 to $69.11. On the interest rates front, we’ve got the yield on the 10-yr currently trading at 3.68% while the yield on the 3-month T-Bill is at 1.05% and overnight LIBOR is at 1.12% which is down from yesterday’s rate of 1.28%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 200 points; the S&P’s are down by about 25 points, while the NASDAQ looks to be about 16 points below fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Apple (Nasdaq: AAPL) – Reported $1.26 vs. $1.11
Adaptec (Nasdaq: ADPT) – Reported $0.03 vs. $0.02
Amylin Pharma (Nasdaq: AMLN) – Reported -$0.46 vs. -$0.50
Broadcom (Nasdaq: BRCM) – Reported $0.31 vs. $0.44
Boston Scientific (NYSE: BSX) – Reported $0.16 vs. $0.16
Cerner Corp (Nasdaq: CERN) – Reported $0.54 vs. $0.53
CH Robinson Worldwide (Nasdaq: CHRW) – Reported $0.54 vs. $0.53
Canadian Natl Railway (NYSE: CNI) – Reported $1.07 vs. $1.00
Coventry Health Care (NYSE: CVH) – Reported $0.73 vs. $1.06
E*Trade (Nasdaq: ETFC) – Reported -$0.09 vs. -$0.35
Illumina (Nasdaq: ILMN) – Reported $0.22 vs. $0.17
Newfield Exploration (NYSE: NFX) – Reported $1.02 vs. $1.07
Norfolk Southern (NYSE: NSC) – Reported $1.37 vs. $1.21
Panera Bread (Nasdaq: PNRA) – Reported $0.46 vs. $0.43
QLogic (Nasdaq: QLGC) – Reported $0.34 vs. $0.31
Raymond James (NYSE: RJF) – Reported $0.41 vs. $0.51
Sigma-Aldrich (Nasdaq: SIAL) – Reported $0.64 vs. $0.65

Taubman Centers (NYSE: TCO) – Reported $0.74 vs. $0.73
Tupperware (NYSE: TUP) – Reported $0.47 vs. $0.41
Yahoo! (YHOO) – Reported $0.09 vs. $0.08

Today’s Earnings Before the Bell:

Arkansas Best (Nasdaq: ABFS) – Reported $0.61 vs. $0.60
Applied Biosystems (NYSE: ABI) – Reported $0.48 vs. $0.41
Affiliated Managers Group (NYSE: AMG) – Reported $1.31 vs. $1.24
Air Products (NYSE: APD) – Reported $1.26 vs. $1.25
Allegheny Technologies (NYSE: ATI) – Reported $1.45 vs. $1.38
Boeing (BNYSE: A) – Reported $0.94 vs. $1.00
Baker Hughes (NYSE: BHI) – Reported $1.29 vs. $1.36
Conoco Phillips (NYSE: COP) – Reported $3.39 vs. $3.08
EMC (NYSE: EMC) – Reported $0.20 vs. $0.18
Foundation Coal (NYSE: FCL) – Reported -$0.46 vs. -$0.19
General Dynamics (NYSE: GD) – Reported $1.59 vs. $1.51
Kimberly Clark (NYSE: KMB) – Reported $1.02 vs. $1.01
McDonalds (NYSE: MCD) – Reported $1.05 vs. $0.98
Merck (NYSE: MRK) – Reported $0.80 vs. $0.79
Knight Capital (Nasdaq: NITE) – Reported $0.40 vs. $0.24
Northrop Grumman (NYSE: NOC) – Reported $1.50 vs. $1.41
Northern Trust (Nasdaq: NTRS) – Reported $1.01 vs. $1.05
Northwest Airlines (NYSE: NWA) – Reported $0.35 vs. $0.22
PepsiAmericas (NYSE: PAS) – Reported $0.70 vs. $0.62
Philip Morris (NYSE: PM) – Reported $0.93 vs. $0.89
Ryder Systems (NYSE: R) – Reported $1.22 vs. $1.27
Reynolds American (NYSE: RAI) – Reported $1.29 vs. $1.20
AT&T (NYSE: T) – Reported $0.67 vs. $0.71
The Travelers Cos (NYSE: TRV) – Reported $0.55 vs. $0.58
Wachovia (NYSE: WB) – Reported -$2.23 vs. -$0.27
WellPoint (NYSE: WLP) – Reported $1.60 vs. $1.50
Wyeth (NYSE: WYE) – Reported $0.90 vs. $0.90

News, Upgrades/Downgrades/Brokerage Research

Apple (Nasdaq: AAPL) – Target reduced at Citi, Downgraded at UBS
Amazon.com (Nasdaq: AMZN) – Estimates and target reduced at Piper Jaffray
Coach (NYSE: COH) – Target reduced at Citi
Lexmark (NYSE: LXK) – Upgraded at Citi
AK Steel (NYSE: AKS) – Upgraded at Goldman
Mobile TeleSystems (NYSE: MBT) – Downgraded at Goldman
Nuance Communications (Nasdaq: NUAN) – Upgraded at Goldman
Steel Dynamics (Nasdaq: STLD) – Upgraded, Added to�Buy list at Goldman
US Steel (NYSE: X) – Downgraded, Added to Sell list at Goldman
Lukoil (Nasdaq: LUKOY) – Downgraded at Goldman
Genentech (NYSE: DNA) – Upgraded at Jefferies
Tellabs (Nasdaq: TLAB) – Upgraded at Jefferies, UBS
CF Industries (NYSE: CF) – Downgraded at JP Morgan
Coventry Health Care (NYSE: CVH) – Downgraded at JP Morgan
CH Robinson (Nasdaq: CHRW) – Upgraded at Merrill
Torchmark (NYSE: TMK) – Upgraded at Merrill
Genzyme (Nasdaq: GENZ) – Mentioned positively at Oppenheimer
Broadcom (Nasdaq: BRCM) – Upgraded at RW Baird
Zimmer Holdings (NYSE: ZMH) – Target reduced at UBS
Dell (Nasdaq: DELL) – Target at UBS

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

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.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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