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David Moenning's Daily State of the Markets: 7/21

July 21, 2009 9:29 AM EDT

When Goldman Talks…

Just about the time most analysts figured the bulls had had their fun and that stocks couldn’t possibly go any higher, the bulls caught a break from the news and also got a big call out of Goldman Sachs (GS) yesterday. In response, the indices jumped up for the sixth straight session (and for those of you keeping score at home, that’s 9 up days in a row over on the NASDAQ); tacking on another 1% or so to the year-to-date performance of the major indices. And while chart analysis hasn’t exactly been helpful lately, it is worth noting that the Dow and S&P joined their brethren in four-letterland at new cycle highs at yesterday’s close.

Part of the positive vibe was attributable to the report that CIT Group (CIT) had reached a deal with their bondholders that allowed them to stave off bankruptcy. The $3 billion loan arranged by the company’s bondholders was said to be done at 10% or so above LIBOR and appears to provide the company time to restructure. Shares of CIT popped +78% in response to the news and gave the financial sector a lift in the process.

Next, in light of the fact that the firm seems to be able to print money in almost any environment; when Goldman Sachs talks people listen. Yesterday, Goldman’s chief US investment strategist raised his year-end target on the S&P 500 to 1060, which represents an almost 13% boost from the previous projection of 940. In addition, the firm increased their targets for operating earnings for 2009 to $52 from $40, which is a 30% boost, and then raised 2010’s estimates from $63 to $75.

Finally, although you have to be a bit of an economics geek to have recognized the signal because it wasn’t reported to any large degree in the popular press, the Conference Board’s Index of Leading Economic Indicators (LEI) generated an expansion signal for the economy yesterday. By increasing for a third straight month, the LEI has now effectively called an end to the recession. The LEI came in with an increase of +0.7%, which was in line with expectations. And it is worth nothing that the LEI’s end-of-recession signals since 1948 have all been accurate – although the signal in 2002 was a bit early.

The bulls will undoubtedly be pounding the table about the breakout on the charts being the start of a new leg in the bull market. However, given the fact that the June’s all-important breakout turned out to be a fakeout and that the much-ballyhooed head-and-shoulders top formation failed to impress, we’re going to curb our enthusiasm about the action on the charts for the time being – especially given the rather uninspired level of volume achieved during yesterday’s break to new cycle highs.

Turning to this morning, the Chicago Fed Activity Index for June came in at a reading of -1.8, which was below the consensus for a reading of -1.3 but above May’s level of -2.3. On the news front, the bulls have gotten a mild boost from the announcement that Credit Suisse (CS) followed in Goldman’s footsteps and bumped its year-end forecast for the S&P 500 up to 1050.

Running through the rest of the pre-game indicators, the major overseas markets are once again mostly higher across the board. Crude futures are moving higher with the latest quote showing oil trading up by $1.16 to $65.14. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.67%, while the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 50 points; the S&P’s are up by about 5 points, while the NASDAQ looks to be about a single point above fair value at the moment.


Yesterday’s Earnings After the Bell:

Brown & Brown (NYSE: BRO) – Reported $0.29 vs. $0.28
Boston Scientific (NYSE: BSX) – Reported $0.20 vs. $0.13
Forward Air (Nasdaq: FWRD) – Reported $0.10 vs. $0.09
Legg Mason (NYSE: LM) – Reported $0.35 vs. $0.22
Packaging Corp (NYSE: PKG) – Reported $0.28 vs. $0.16
Texas Instruments (NYSE: TXN) – Reported $0.20 vs. $0.23
Zions Bancorp (Nasdaq: ZION) – Reported -$0.35 vs. -$0.96

Today’s Earnings Before the Bell:

TD Ameritrade (Nasdaq: AMTD) – Reported $0.33 vs. $0.29
BJ Services (NYSE: BJ) – Reported -$0.11 vs. $0.00
Caterpillar (NYSE: CAT) – Reported $0.72 vs. $0.22
Coca Cola (NYSE: KO) – Reported $0.92 vs. $0.89
Comerica (NYSE: CMA) – Reported -$0.10 vs. -$0.44


DuPont (NYSE: DD) – Reported $0.61 vs. $0.53
Quest Diagnostics (NYSE: DGX) – Reported $1.00 vs. $0.96
Freeport-McMoRan (NYSE: FCX) – Reported $1.38 vs. $0.72
Jefferies Group (NYSE: JEF) – Reported $0.30 vs. $0.26
Lockheed Martin (NYSE: LMT) – Reported $1.88 vs. $1.81
Southwest Air (NYSE: LUV) – Reported $0.08 vs. $0.07
Lexmark (NYSE: LXK) – Reported $0.55 vs. $0.60
Merck (NYSE: MRK) – Reported $0.86 vs. $0.77
Regions Financial (NYSE: RF) – Reported -$0.28 vs. -$0.23
Peabody Energy (NYSE: BTU) – Reported $0.49 vs. $0.49
Precision Castparts (NYSE: PCP) – Reported $1.70 vs. $1.75
Schering-Plough (NYSE: SGP) – Reported $0.46 vs. $0.45
State Street (NYSE: STT) – Reported -$7.12 vs. $0.99
UnitedHealth (NYSE: UNH) – Reported $0.73 vs. $0.70
Western Union (NYSE: WU) – Reported $0.32 vs. $0.30

Upgrades/Downgrades/Brokerage Research:

Citrix Systems (Nasdaq:CTXS) – Downgraded at BofA/Merrill
Enbridge Energy Partners (NYSE: EEP) – Downgraded at BofA/Merrill
Blackboard (Nasdaq:BBBB) – Downgraded at BofA/Merrill
Human Genome (HGSI) – Upgraded at Bernstein
Avon Products (NYSE: AVP) – Upgraded at BMO Capital
Zions Bancorp (Nasdaq: ZION) – Downgraded at Citi
Intl Paper (NYSE: IP) – Upgraded at Deutsche Bank
Packaging Corp (NYSE: PKG) – Upgraded at Deutsche Bank
Teekay Tankers (NYSE: TNK) – Upgraded at JP Morgan
Knightsbridge Tankers (Nasdaq: VLCCF) – Upgraded at JP Morgan
Nordic American Tankers (NYSE: NAT) – Downgraded at JP Morgan
Teekay Corp (NYSE: TK) – Downgraded at JP Morgan
IBM (NYSE: IBM) – Upgraded at Societe Generale

Long positions in stocks mentioned: IBM, DGX

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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