David Moenning's Daily State of the Markets: 3/16

Can We Expect More of the Same?

Stocks rose for a fourth straight day on Friday, capping off a strong week of gains. The reason for the move up in front of the G-20 meeting and Ben Bernanke’s appearance on T.V. was really more of the same; there is a growing feeling that we’ve seen the worst of the credit crisis and as such, we may have also seen the worst in terms of the discounting to the downside in the stock market.

With the banks having led the way down into the abyss, the fact that Citi’s Chairman Richard Parsons on Friday said that the bank’s capital levels are strong and that it would not need further government assistance was really the main story. I know that we’ve been pounding away at this, but if the very banks that traders worried would need to be nationalized are now making money and don’t need any more capital from the government, then frankly, it is hard not to be optimistic about the future.

It is also a positive that we are starting to see the deal space become active again as this tells us several things. First, it means that there are values out there in them thar hills. Next, it means that financing for M&A deals may once again be available. And finally, the fact that rumors are again flying about who may be buying whom, means that the companies with abundant cash levels are not afraid to spend some. The big point here is if the boards of companies felt that we were headed for a depression, this type of activity would not be happening.

However, after a three day run in which the Dow had blasted higher by more than 600 points, it wouldn’t have been surprising to see the bulls take a breather on Friday. After all, stocks had become overbought from a short-term perspective and there did appear to be some resistance on the charts. In addition, the G-20 was meeting over the weekend in London and then Ben Bernanke was scheduled to make a pitch to the public on “60 Minutes” on Sunday. Thus, some profit taking might have been called for.

But instead, we got a continuation of the rally and a classic example of dips being bought. Volume was decent and breadth was strong. To which, the bulls will likely say, “it’s all good.”

However, as we head into today’s session, we should keep in mind that stocks are indeed overbought and as such, are susceptible to any form of disappointing news. Therefore, buyers may want to exhibit some patience and continue to watch the internal action closely.

Turning to this morning, while the G-20 meeting wasn’t terribly productive, Ben Bernanke’s interview on CBS’s “60 Minutes” was. In a rare public interview, the Fed Chairman reminded the American people that the economy will recover and that if the banking crisis can get ironed out, the recovery will come sooner rather than later.

And speaking of the banks, we’re getting reports that the administration’s plan to create Public/Private Funds designed to buy those bad assets from the banks may be ready to be announced as soon as this week.

On the economic front, the empire Manufacturing Index came in at -38.23, which was below the consensus -30.8.

Running through the rest of the pre-game indicators, the overseas markets are up nicely across the board. Crude futures are lower with the latest quote showing oil trading down by $1.70 to $44.55. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.99%, while 3-month LIBOR is at 1.31% and the yield on the 3-month T-Bill is trading at 0.20%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are once again pointing to a modestly higher open. The Dow futures are currently ahead by about 60 points; the S&P’s are up by about 8 points, while the NASDAQ looks to be about 3 points above fair value at the moment.

Stocks “In Play” This Morning:

Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

Edison Intl (NYSE: EIX) – Upgraded at BAC/MER
Union Pacific (NYSE: UNP) – Upgraded at BAC/MER
Newell Rubbermaid (NYSE: NWL) – Upgraded at BAC/MER
Legg Mason (NYSE: LM) – Downgraded at BAC/MER
Genentech (NYSE: DNA) – Downgraded at Bernstein
BT Group (NYSE: BT) – Upgraded at Bernstein
Exxon Mobil (NYSE: XOM) – Initiated Buy at Citi
Apache (NYSE: APA) – Upgraded at Credit Suisse
Denbury Resources (NYSE: DNR) – Downgraded at Credit Suisse
Occidental Petroleum (NYSE: OXY) – Downgraded at Credit Suisse
Plains Exploration (NYSE: PXP) – Downgraded at Credit Suisse
Weyerhaeuser (NYSE: WY) – Upgraded at Deutsche Bank
Borg Warner (NYSE: BWA) – Added to Conviction Buy list at Goldman
Coca Cola Enterprises (NYSE: CCE) – Upgraded at Goldman
PepsiAmericas (NYSE: PAS) – Downgraded at Goldman
Goodrich (NYSE: GR) – Upgraded at Goldman
Spirit Aerosystems (NYSE: SPR) – Downgraded at Goldman
Fastenal (Nasdaq: FAST) – Estimates reduced at Morgan Stanley
Sun Power (Nasdaq: SPWRA) – Downgraded at Morgan Stanley
Hartford Financial Services (NYSE: HIG) – Downgraded at Morgan Stanley
Lincoln National (NYSE: LNC) – Downgraded at Morgan Stanley
Boeing (NYSE: BA) – Estimates reduced at Oppenheimer
Sprint Nextel (NYSE: S) – Downgraded at Wachovia

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.TopStockPortfolios.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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