Daily State of the Markets 12/18: Bucking The Trend
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Good morning. A host of factors converged yesterday to create a rout to the downside in the stock market. And while the list of negatives was plentiful, we’re of the opinion that it was the move in the dollar that was responsible for much of the damage.
The bad news came early and often yesterday and gave the bears plenty of ammunition to fight with. First, we had the weekly report on Jobless Claims, which, much to the chagrin of all those suggesting that the job market is improving, once again came in below expectations.
Also on the economic front, the Philly Fed Leading Index, which at first blush appeared to be a positive, proved troublesome when you dug into the report. While the headline number came in above expectations, the New Orders component actually fell by 8.3 points and the Expectations component (designed to call the next six months) also dropped to a reading of 24.4 from 36.8.
Then there was the ongoing problems in sovereign debt. Standard & Poors downgraded the debt rating of Greece yesterday and kept the outlook at negative; suggesting that further downgrades may be in the offing. Although the move was not exactly a surprise, it is important to note that the news on this front continues to worsen (which, of course, makes the U.S. dollar more attractive).
Next up was the downgrade of two big names by the ever-pessimistic Meredith Whitney. Ms. Whitney’s firm cut their estimates on both Morgan Stanley (MS) and Goldman Sachs (GS) for the full years 2009, 2010, and 2011.
Speaking of the banking industry, the Citi (C) offering, which was done to get out from under the TARP, was described as a disaster. Couple this with a lot of talk about the Treasury not selling Citi when they could have and you’ve got the makings of a pretty crummy banking sector yesterday.
And finally, FedEx (FDX), which had given the bulls hope recently, decided that they weren’t sure that the current uptick in shipping was sustainable after the holiday shopping season. Therefore, the company went ahead and downplayed their expectations for next quarter.
But if you want the real story about yesterday’s thrashing in stock prices, take a peek at the chart of an ETF we like to use as a proxy for the U.S. dollar below. It is clear to even amateur chartists that the buck has broken the downtrend and may have even moved up and out of a resistance zone. (And for you real chart aficionados out there, note the imminent crossing of the 50-day moving average by the 10-day (orange line) – always a positive sign in technical analysis circles).
PowerShares US Dollar:
Why do you care about a move in currency market, you ask? As we’ve mentioned a time or twenty recently, the unwind of the dollar-carry-trade, which may be one of the most crowded trades in years, is a massive potential negative for what are referred to as “risk assets” such as stocks, commodities, and emerging markets.
Yesterday’s move higher in the dollar undoubtedly triggered stop loss levels and, in turn, caused problems for the dollar-carry-trade crowd. And while this may not be “the move” that causes the trade to unwind en masse, it is clear that the technical action triggered buying in the dollar and selling of stocks, commodities, and emerging markets.
Turning to this morning, we don’t have any economic data to review before the bell today. However we do have a triple-witching expiration event in options and futures today, which, as they say, can add some volatility.
On the news/earnings front, earnings from Research in Motion (RIMM) have put traders in a better mood this morning. But, remember to watch the action in the dollar in between trips to online shopping sites.
Running through the rest of the pre-game indicators, the overseas markets are mixed by region with Asia lower and Europe a little higher. Crude futures are up with the latest quote showing oil trading up $1.55 to $74.20. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.51%, while the yield on the 3-month T-Bill is currently at 0.04%. In addition, gold is moving down by $1 and the dollar is lower against the Yen, Euro, and Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a better open. The Dow futures are currently ahead by about 50 points; the S&P’s are up about 6 points, while the NASDAQ looks to be about 12 points above fair value at the moment.
Earnings After The Bell
Company
Symbol
EPS Reuters
Estimate
Accenture ACN $0.67 $0.65
Darden Restaurants DRI $0.43 $0.41
Nike NKE $0.76 $0.71
Oracle ORCL $0.39 $0.36
Palm PALM -$0.37 -$0.32
Researcy In Motion RIMM $1.10 $1.04
Wall Street Research Summary
Upgrades:
# American Eagle Outfitters (AEO) – Mentioned positively at Barclays
# TJX Cos (TJX) – Mentioned positively at Barclays
# Ross Stores (ROST) – Mentioned positively at Barclays
# BP PLC (BP) – Goldman
# Constellation Brands (STZ) - Goldman
# Incyte (INCY) – Jefferies
# Allegheny Technologies (ATI) – JP Morgan
# State Street (STT) – Keefe, Bruyette & Woods
# Northern Trust (NTRS) – Keefe, Bruyette & Woods
Downgrades:
# Ann Taylor (ANN) – Mentioned cautiously at Barclays
# Gap Stores (GPS) – Mentioned cautiously at Barclays
# Realty Income (O) – Credit Suisse
# Total (TOT) – Goldman
# Statoil (STO) – Goldman
# Repsol (REP) – Goldman
# NetApp (NTAP) – Goldman
# Career Education (CECO) – RBC Capital
# Potash (POT) – Soleil Securities
Long positions in stocks mentioned: TJX
Enjoy your Friday, have a pleasant weekend, and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
For more "top stock" portfolios and research, visit www.TopStockPortfolios.com
The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.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. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in our websites and TopStockPortfolios publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.
The bad news came early and often yesterday and gave the bears plenty of ammunition to fight with. First, we had the weekly report on Jobless Claims, which, much to the chagrin of all those suggesting that the job market is improving, once again came in below expectations.
Also on the economic front, the Philly Fed Leading Index, which at first blush appeared to be a positive, proved troublesome when you dug into the report. While the headline number came in above expectations, the New Orders component actually fell by 8.3 points and the Expectations component (designed to call the next six months) also dropped to a reading of 24.4 from 36.8.
Then there was the ongoing problems in sovereign debt. Standard & Poors downgraded the debt rating of Greece yesterday and kept the outlook at negative; suggesting that further downgrades may be in the offing. Although the move was not exactly a surprise, it is important to note that the news on this front continues to worsen (which, of course, makes the U.S. dollar more attractive).
Next up was the downgrade of two big names by the ever-pessimistic Meredith Whitney. Ms. Whitney’s firm cut their estimates on both Morgan Stanley (MS) and Goldman Sachs (GS) for the full years 2009, 2010, and 2011.
Speaking of the banking industry, the Citi (C) offering, which was done to get out from under the TARP, was described as a disaster. Couple this with a lot of talk about the Treasury not selling Citi when they could have and you’ve got the makings of a pretty crummy banking sector yesterday.
And finally, FedEx (FDX), which had given the bulls hope recently, decided that they weren’t sure that the current uptick in shipping was sustainable after the holiday shopping season. Therefore, the company went ahead and downplayed their expectations for next quarter.
But if you want the real story about yesterday’s thrashing in stock prices, take a peek at the chart of an ETF we like to use as a proxy for the U.S. dollar below. It is clear to even amateur chartists that the buck has broken the downtrend and may have even moved up and out of a resistance zone. (And for you real chart aficionados out there, note the imminent crossing of the 50-day moving average by the 10-day (orange line) – always a positive sign in technical analysis circles).
PowerShares US Dollar:
Why do you care about a move in currency market, you ask? As we’ve mentioned a time or twenty recently, the unwind of the dollar-carry-trade, which may be one of the most crowded trades in years, is a massive potential negative for what are referred to as “risk assets” such as stocks, commodities, and emerging markets.
Yesterday’s move higher in the dollar undoubtedly triggered stop loss levels and, in turn, caused problems for the dollar-carry-trade crowd. And while this may not be “the move” that causes the trade to unwind en masse, it is clear that the technical action triggered buying in the dollar and selling of stocks, commodities, and emerging markets.
Turning to this morning, we don’t have any economic data to review before the bell today. However we do have a triple-witching expiration event in options and futures today, which, as they say, can add some volatility.
On the news/earnings front, earnings from Research in Motion (RIMM) have put traders in a better mood this morning. But, remember to watch the action in the dollar in between trips to online shopping sites.
Running through the rest of the pre-game indicators, the overseas markets are mixed by region with Asia lower and Europe a little higher. Crude futures are up with the latest quote showing oil trading up $1.55 to $74.20. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.51%, while the yield on the 3-month T-Bill is currently at 0.04%. In addition, gold is moving down by $1 and the dollar is lower against the Yen, Euro, and Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a better open. The Dow futures are currently ahead by about 50 points; the S&P’s are up about 6 points, while the NASDAQ looks to be about 12 points above fair value at the moment.
Earnings After The Bell
Company
Symbol
EPS Reuters
Estimate
Accenture ACN $0.67 $0.65
Darden Restaurants DRI $0.43 $0.41
Nike NKE $0.76 $0.71
Oracle ORCL $0.39 $0.36
Palm PALM -$0.37 -$0.32
Researcy In Motion RIMM $1.10 $1.04
Wall Street Research Summary
Upgrades:
# American Eagle Outfitters (AEO) – Mentioned positively at Barclays
# TJX Cos (TJX) – Mentioned positively at Barclays
# Ross Stores (ROST) – Mentioned positively at Barclays
# BP PLC (BP) – Goldman
# Constellation Brands (STZ) - Goldman
# Incyte (INCY) – Jefferies
# Allegheny Technologies (ATI) – JP Morgan
# State Street (STT) – Keefe, Bruyette & Woods
# Northern Trust (NTRS) – Keefe, Bruyette & Woods
Downgrades:
# Ann Taylor (ANN) – Mentioned cautiously at Barclays
# Gap Stores (GPS) – Mentioned cautiously at Barclays
# Realty Income (O) – Credit Suisse
# Total (TOT) – Goldman
# Statoil (STO) – Goldman
# Repsol (REP) – Goldman
# NetApp (NTAP) – Goldman
# Career Education (CECO) – RBC Capital
# Potash (POT) – Soleil Securities
Long positions in stocks mentioned: TJX
Enjoy your Friday, have a pleasant weekend, and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
For more "top stock" portfolios and research, visit www.TopStockPortfolios.com
The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.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. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in our websites and TopStockPortfolios publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.
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