David Moenning's Daily State of the Markets: 7/16

Upside Surprise

Up until three days ago, the bears had investors convinced that something on the charts called a head-and-shoulders formation along with a whole bunch of worry about the economy spelled doom and gloom for the stock market. However, after a couple of upside surprises on the earnings front and some economic data that clearly shows improvement, the Dow and S&P are back to within spitting distance of their June highs while the NASDAQ actually finished at a new cycle-high on Wednesday.

Earnings from Intel (INTC) got most of the credit for yesterday’s melt-up, which took the indices up 3% or more across the board. The world’s leading chip manufacturer reported a pre-EC fine of $0.18, which was a heck of a lot better than the Reuters estimates of $0.08. It is worth noting that the sequential increase in the Q2 earnings was the best since 1988. Traders also liked the increased profit margin as well as the good things the company had to say about the coming quarter. And while Intel is indeed just one company, the report provided hope for more good things to come out of the tech sector.

But tech wasn’t the only story yesterday. While I’m guessing most investors don’t know what the term “master trust data” refers to, this report also gave the bulls quite a boost. Although it is not exactly a household name, the master trust data details the delinquencies, charge-offs, late payments etc. of the six major credit card companies. In short, it appears that all six companies showed either flat or declining delinquency rates while last month’s data showed a decline in late payments. And American Express even went so far as to say things were looking better for the third quarter. Thus, it would appear that this is one more area that provides optimism about improvement in the economic picture.

Speaking of the economy, the data calendar also lent the bulls a hand yesterday as the Empire Manufacturing Index was better than expected, coming in at the best level since April 2008. Much of the focus in this report was on the New Orders and Shipments components, both of which moved back into the zone that projects expansion in the economy.

So, with a batch of good news – most of which qualified as an upside surprise – the bears simply got out of the way yesterday. And the fact that Friday is an expiration event might have caused a trader or two to cover some shorts. Thus, the pressure now shifts to the bull camp as there is resistance overhead and everyone will be watching to see if the bulls can break on through to the other side.

Turning to this morning, the weekly jobless claims report is giving the market a little lift as claims for the week ending July 11 came in at 522K, which was below the consensus of 553K and the lowest since early January. In addition, continuing claims fell to 6.27M vs. expectations for 6.85M.

Running through the rest of the pre-game indicators, the major overseas markets are higher across the board. Crude futures are moving lower with the latest quote showing oil trading down by $0.62 to $60.92. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.59%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a flat open. The Dow futures are currently ahead by about 5 points; the S&P’s are down by about a point, while the NASDAQ looks to be about 2 points below fair value at the moment.

Today’s Earnings Before the Bell:

Baxter (NYSE: BAX) – Reported $0.96 vs. $0.94
Biogen Idec (BIIB) – Reported $0.75 vs. $0.68
Cypress Semiconductor (NYSE: CY) – Reported -$0.03 vs. -$0.09
Fairchild Semiconductor (NYSE: FCS) – Reported -$0.03 vs. -$0.11
Harley-Davidson (NYSE: HOG) – Reported $0.8 vs. $0.26
JP Morgan Chase (NYSE: JPM) – Reported $0.28 vs. $0.04
Marriott (NYSE: MAR) – Reported $0.23 vs. $0.21
PPG Industries (NYSE: PPG) – Reported $0.91 vs. $0.76
Charles Schwab (SCHW) – Reported $0.18 vs. $0.18

Upgrades/Downgrades/Brokerage Research:

Raytheon (NYSE: RTN) – Upgraded at BofA/Merrill
Dr. Pepper Snapple (NYSE: DPS) – Initiated buy at BofA/Merrill
Apple (Nasdaq: AAPL) – Estimates reduced at Bernstein
Walt Disney (NYSE: DIS) – Upgraded at Bernstein
ADTRAN (Nasdaq: ADTN) – Upgraded at Credit Suisse
Scientific Games (Nasdaq: SGMS) – Downgraded at Goldman
Motorola (NYSE: MOT) – Downgraded at Goldman
Steel Dynamics (STLD) – Removed from Conviction Buy list at Goldman
US Steel (NYSE: X) – Target increased at Goldman
Reliance Steel (NYSE: RS) – Target increased at Goldman
American Express (NYSE: AXP) – Upgraded at JP Morgan
James River Coal (Nasdaq: JRCC) – Upgraded at UBS
Patriot Coal (NYSE: PCX) – Upgraded at UBS
Cerner (Nasdaq: CERN) – Initiated outperform at William Blair
Wynn Resorts (Nasdaq: WYNN) – Initiated outperform at Wedbush Morgan
Las Vegas Sands (NYSE: LVS) – Initiated neutral at Wedbush Morgan
Boyd Gaming (NYSE: BYD) – Initiated underperform at Wedbush Morgan
MGM Mirage (NYSE: MGM) – Initiated underperform at Wedbush Morgan
Starwood Hotels (NYSE: HOT) – Initiated outperform at Wedbush Morgan
Carnival Corp (NYSE: CCL) – Initiated outperform at Wedbush Morgan

Long positions in stocks mentioned: DPS, AAPL, CERN

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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