David Moenning's Daily State of the Markets: 1/14
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Trying To Decide
The stock market spent most of yesterday trying to make a decision. The questions at hand include whether we know everything about why the Citigroup (C) breakup is taking place, if the 6% discount over the past 5 days is appropriate, if the relentless downgrades to earnings will be enough, and if there is another shoe to drop in the credit crisis.
The day got started on sour note after Fed Chairman Ben Bernanke noted that banks are likely to continue to need capital in response to further credit losses and writedowns. In a speech before the London School of Economics, Bernanke also warned that the government’s stimulus actions are unlikely to be enough to create a recovery unless further measures are taken to stabilize the financial system.
The good news was that the market managed to look past Bernanke’s comments, the earnings miss from Alcoa (AA), the profit warnings from KLA-Tencor (KLAC), Lexmark (LXK), Liz Claiborne (LIZ), and NVIDIA (NVDA), and the negative comments about General Electric (GE). And in short, after initially diving lower, the major indices recovered nicely into the close, with all but the venerable DJIA actually finishing in the green.
The pressing question at the moment has to do with the state of the earnings season. After rallying 24% off the November lows in anticipation of the financial system surviving and better days ahead, stocks have pulled back nearly 600 points over the last five days in front of this quarter’s earnings parade. Thus, the recent pullback would seem to be a reminder that we’re not altogether sure about what we expect to hear out of Corporate America over the next few weeks.
Our assessment of the recent action is that the market is trying to decide whether or not there will be any further surprises. As is often the case in front of big events, the major indices have retreated to an equilibrium point. The highs seen on the first trading day of January now appear to have represented an outlook that might have been a bit too optimistic while the November lows were clearly too pessimistic. So, with the earnings parade about to begin, where do we find ourselves? Yep, that’s right; smack dab in the middle of the range.
Looking a bit further at the chart action, we can now see that the indices are sitting on a near-term support zone and are oversold. And while it is simply one analyst’s opinion, it would appear that stocks are poised to move up if the earnings season is anything short of a disaster or move down if things are actually worse than expected.
Turning to this morning, the economic data just released has caused traders to lean a little more to the dark side. The Retail Sales report for December shows just how bad the Holiday Shopping Season was as total sales dropped -2.7%, which was more than double the expectations for a decline of -1.2%. When you strip out autos, sales fell a whopping -3.1%, which again was a multiple of the consensus for a drop of -1.3%. And then to add insult to injury, the November figures were revised lower as well.
Running through the rest of the pre-game indicators, the major foreign markets are mixed by region with Asia slightly higher and Europe lower. Crude futures are a smidge higher with the latest quote showing oil futures trading up by $0.29 to $38.07. On the interest rate front, we’ve got the yield on the 10-yr currently down at 2.25%, the yield on the 3-month T-Bill is at 0.11%, and overnight LIBOR is at 0.11%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing lower once again. The Dow futures are currently off by about 125 points; the S&P’s are down by about 15 points, while the NASDAQ looks to be about 10 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Linear Technology (Nasdaq: LLTC) – Reported $0.38 vs. $0.34
Today’s Earnings Before the Bell:
Corus Entertainment (NYSE: CJR) – Reported $0.51 vs. $0.49
Mercantile Bank (Nasdaq: MBWM) – Reported $0.04 vs. $0.01
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Under Armour (NYSE: UA) – Guides Q4 Revenue lower
AptarGroup (NYSE: ATR) – Downgraded at Argus Research
Seagate Technology (NYSE: STX) – Downgraded at Argus Research
Sepracor (Nasdaq: SEPR) – Downgraded at Bank America Merrill Lynch
Siemens AG (NYSE: SI) – Downgraded at Bank America Merrill Lynch
BlackRock (NYSE: BLK) – Initiated Overweight at Barclays
Legg Mason (NYSE: LM) – Initiated Equal Weight at Barclays
T Rowe Price (Nasdaq: TROW) – Initiated Equal Weight at Barclays
Janus Capital (NYSE: JNS) – Initiated Underweight at Barclays
Fortress Investment Group (NYSE: FIG) – Downgraded at Barclays
Heinz (NYSE: HNZ) – Downgraded at Bernstein
Applied Materials (Nasdaq: AMAT) – Estimates reduced at Citi
Lam Research (Nasdaq: LRCX) – Estimates reduced at Citi
SK Telecom (NYSE: SKM) – Upgraded at Citi
Anglo American (Nasdaq: AAUK) – Downgraded at Citi
LaBranche (NYSE: LAB) – Upgraded at Goldman
Investment Technology Group (NYSE: ITG) – Downgraded at Goldman
Smith Intl (NYSE: SII) – Downgraded at JP Morgan
Transocean (NYSE: RIG) – Downgraded at JP Morgan
National Oilwell Varco (NYSE: NOV) – Downgraded at JP Morgan
Pride Intl (NYSE: PDE) – Downgraded at JP Morgan
Sohu.com (Nasdaq: SOHU) – Upgraded at Oppenheimer
eBay (Nasdaq: EBAY) – Estimates reduced at Thomas Weisel
American Express (NYSE: AXP) – Estimates reduced at UBS
Capital One (NYSE: COF) – Estimates reduced at UBS
Southern Copper (NYSE: PCU) – Downgraded at UBS
Banco Santander Chile (NYSE: SAN) – Downgraded at UBS
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: 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.
The stock market spent most of yesterday trying to make a decision. The questions at hand include whether we know everything about why the Citigroup (C) breakup is taking place, if the 6% discount over the past 5 days is appropriate, if the relentless downgrades to earnings will be enough, and if there is another shoe to drop in the credit crisis.
The day got started on sour note after Fed Chairman Ben Bernanke noted that banks are likely to continue to need capital in response to further credit losses and writedowns. In a speech before the London School of Economics, Bernanke also warned that the government’s stimulus actions are unlikely to be enough to create a recovery unless further measures are taken to stabilize the financial system.
The good news was that the market managed to look past Bernanke’s comments, the earnings miss from Alcoa (AA), the profit warnings from KLA-Tencor (KLAC), Lexmark (LXK), Liz Claiborne (LIZ), and NVIDIA (NVDA), and the negative comments about General Electric (GE). And in short, after initially diving lower, the major indices recovered nicely into the close, with all but the venerable DJIA actually finishing in the green.
The pressing question at the moment has to do with the state of the earnings season. After rallying 24% off the November lows in anticipation of the financial system surviving and better days ahead, stocks have pulled back nearly 600 points over the last five days in front of this quarter’s earnings parade. Thus, the recent pullback would seem to be a reminder that we’re not altogether sure about what we expect to hear out of Corporate America over the next few weeks.
Our assessment of the recent action is that the market is trying to decide whether or not there will be any further surprises. As is often the case in front of big events, the major indices have retreated to an equilibrium point. The highs seen on the first trading day of January now appear to have represented an outlook that might have been a bit too optimistic while the November lows were clearly too pessimistic. So, with the earnings parade about to begin, where do we find ourselves? Yep, that’s right; smack dab in the middle of the range.
Looking a bit further at the chart action, we can now see that the indices are sitting on a near-term support zone and are oversold. And while it is simply one analyst’s opinion, it would appear that stocks are poised to move up if the earnings season is anything short of a disaster or move down if things are actually worse than expected.
Turning to this morning, the economic data just released has caused traders to lean a little more to the dark side. The Retail Sales report for December shows just how bad the Holiday Shopping Season was as total sales dropped -2.7%, which was more than double the expectations for a decline of -1.2%. When you strip out autos, sales fell a whopping -3.1%, which again was a multiple of the consensus for a drop of -1.3%. And then to add insult to injury, the November figures were revised lower as well.
Running through the rest of the pre-game indicators, the major foreign markets are mixed by region with Asia slightly higher and Europe lower. Crude futures are a smidge higher with the latest quote showing oil futures trading up by $0.29 to $38.07. On the interest rate front, we’ve got the yield on the 10-yr currently down at 2.25%, the yield on the 3-month T-Bill is at 0.11%, and overnight LIBOR is at 0.11%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing lower once again. The Dow futures are currently off by about 125 points; the S&P’s are down by about 15 points, while the NASDAQ looks to be about 10 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Linear Technology (Nasdaq: LLTC) – Reported $0.38 vs. $0.34
Today’s Earnings Before the Bell:
Corus Entertainment (NYSE: CJR) – Reported $0.51 vs. $0.49
Mercantile Bank (Nasdaq: MBWM) – Reported $0.04 vs. $0.01
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Under Armour (NYSE: UA) – Guides Q4 Revenue lower
AptarGroup (NYSE: ATR) – Downgraded at Argus Research
Seagate Technology (NYSE: STX) – Downgraded at Argus Research
Sepracor (Nasdaq: SEPR) – Downgraded at Bank America Merrill Lynch
Siemens AG (NYSE: SI) – Downgraded at Bank America Merrill Lynch
BlackRock (NYSE: BLK) – Initiated Overweight at Barclays
Legg Mason (NYSE: LM) – Initiated Equal Weight at Barclays
T Rowe Price (Nasdaq: TROW) – Initiated Equal Weight at Barclays
Janus Capital (NYSE: JNS) – Initiated Underweight at Barclays
Fortress Investment Group (NYSE: FIG) – Downgraded at Barclays
Heinz (NYSE: HNZ) – Downgraded at Bernstein
Applied Materials (Nasdaq: AMAT) – Estimates reduced at Citi
Lam Research (Nasdaq: LRCX) – Estimates reduced at Citi
SK Telecom (NYSE: SKM) – Upgraded at Citi
Anglo American (Nasdaq: AAUK) – Downgraded at Citi
LaBranche (NYSE: LAB) – Upgraded at Goldman
Investment Technology Group (NYSE: ITG) – Downgraded at Goldman
Smith Intl (NYSE: SII) – Downgraded at JP Morgan
Transocean (NYSE: RIG) – Downgraded at JP Morgan
National Oilwell Varco (NYSE: NOV) – Downgraded at JP Morgan
Pride Intl (NYSE: PDE) – Downgraded at JP Morgan
Sohu.com (Nasdaq: SOHU) – Upgraded at Oppenheimer
eBay (Nasdaq: EBAY) – Estimates reduced at Thomas Weisel
American Express (NYSE: AXP) – Estimates reduced at UBS
Capital One (NYSE: COF) – Estimates reduced at UBS
Southern Copper (NYSE: PCU) – Downgraded at UBS
Banco Santander Chile (NYSE: SAN) – Downgraded at UBS
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: 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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