David Moenning's Daily State of the Markets: 12/16
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Dodge, Duck, Dip, Dive, and...
For the second straight session, the Dow Jones Industrial Average managed to finish the day without a triple-digit move. Okay, in reality, the Dow’s drop of 65 points did mask the much larger declines seen on the S&P 500, the NASDAQ, the Small Caps, the Mid Caps, and the Russell 2000, where the equivalent point totals would have been in a range of 109 to 293 Dow points. But hey, with all of the hair-raising moves they’ve suffered through recently, the bulls will take the lack of volatility wherever and whenever they can get it.
In short, traders spent the majority of yesterday’s session waiting. Waiting on President Bush to finish dodging loafers and return his attention to the minor issue of the automaker bailout. Waiting on what will undoubtedly be a miserable earnings report from Goldman Sachs (GS). Waiting on Mr. Bernanke to use one of the two arrows he’s got left in his quiver. Waiting to see just how far the Madoff swindle will extend. And waiting on a guy by the name of Kris Kringle to finally get that sleigh loaded up.
At different points in the session yesterday, it looked like both teams might be able to secure the ball and move up court. But by the time the closing bell rang, the big cap Dow appeared to have spent the day waiting and waffling.
This is not to say that there weren’t some issues to deal with during the session, not the least of which was the President telling us that he’ll get to the crisis in Detroit when he’s done employing at least a couple of the Five D’s of Dodge Ball (which, if you will recall are: dodge, duck, dip, dive, and… dodge!) in Iraq.
There were also some macroeconomic headwinds to deal with both at home and abroad. Looking outside the U.S. first, traders got a helping of currency devaluation in Russia, sovereign debt default in Ecuador, economic slowdown in China (their Industrial Production rose by the slowest amount in 10 years), and bad news from Japan’s Tankan index.
Closer to home, we learned that Industrial Production fell for the third month in a row and according to JP Morgan (JPM), is on pace to put up the biggest quarterly decline since 1980. We got another crummy batch of data on the housing sector. And as we mentioned before the bell yesterday, the New York Fed’s Empire State Manufacturing Index fell to its lowest level since records began being kept.
And finally, we learned that all that is plastic is not gold (or even platinum) as American Express (AXP), Discover, and Capital One (COF) reported that net charge-offs were up strongly over the past year and something called early-stage delinquencies were up 0.22% last month alone.
So, while we hate to sound like a broken record, we will again say is a positive that things didn’t get ugly yesterday in the stock market.
Turning to this morning, today is really all about the Fed. Everyone expects a rate cut, but listen closely for talk of a “quantitative easing” which takes a page out of Japan’s deflation fighting playbook and refers to the Fed actually buying bonds on the open market in order to push market rates lower on the long end of the curve.
On the economic front, the Consumer Price Index for November was reported to have dropped by -1.7%, which was even lower than analyst expectations for a decline of -1.2%. On a year-over-year basis, CPI increased by just +1.1%, which was less than the consensus estimate for an increase of +1.4%. When you strip out food and energy the so-called Core CPI came in unchanged, which was also below the expectations for an increase of +0.1%. In short, these numbers confirm that inflation may be a concern in the future, but is not a worry at the moment.
Running through the rest of the pre-game indicators, the major overseas markets are mostly higher. Crude futures are higher with the latest quote showing oil trading up $0.82 to $45.33. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 2.50%, the yield on the 3-month T-Bill is at 0.01%, and overnight LIBOR is at 0.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are now pointing to a modestly higher open. The Dow futures are currently ahead by about 80 points; the S&P’s are up about 10 points, while the NASDAQ looks to be about 12 points above fair value at the moment.
Stocks “In Play” This Morning:
Today’s Earnings Before the Bell:
Best Buy (NYSE: BBY) – Reported $0.35 vs. $0.24
Goldman Sachs (NYSE: GS) – Reported -$4.97 vs. -$3.48
News, Upgrades/Downgrades/Brokerage Research:
Baker Hughes (NYSE: BHI) – Downgraded at Bernstein
Weatherford Intl (NYSE: WFT) – Downgraded at Bernstein
MEMC Electronic Materials (NYSE: WFR) – Estimates reduced at Citi
Progressive (NYSE: PGR) – Downgraded at Citi
Ericsson (Nasdaq: ERIC) – Downgraded at Deutsche Bank
Gap Inc (NYSE: GPS) – Downgraded at Friedman Billings Ramsey
Baidu (Nasdaq: BIDU) – Added to Conviction Buy list at Goldman
Cypress Semi (NYSE: CY) – Downgraded at JP Morgan
Kroger (NYSE: KR) – Upgraded at JP Morgan
Safeway (NYSE: SWY) – Upgraded at JP Morgan
Whole Foods (WFMI) – Downgraded at JP Morgan
BT Group (NYSE: BT) – Downgraded at JP Morgan
Potash (NYSE: POT) – Upgraded at Merrill
Mosaic (NYSE: MOS) – Upgraded at Merrill
CF Industries (NYSE: CF) – Upgraded at Merrill
Terra Industries (NYSE: TRA) – Upgraded at Merrill
Gilead Sciences (Nasdaq: GILD) – Upgraded at Merrill
United Parcel Service (NYSE: UPS) – Downgraded at Merrill
Lennar (NYSE: LEN) – 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.
For the second straight session, the Dow Jones Industrial Average managed to finish the day without a triple-digit move. Okay, in reality, the Dow’s drop of 65 points did mask the much larger declines seen on the S&P 500, the NASDAQ, the Small Caps, the Mid Caps, and the Russell 2000, where the equivalent point totals would have been in a range of 109 to 293 Dow points. But hey, with all of the hair-raising moves they’ve suffered through recently, the bulls will take the lack of volatility wherever and whenever they can get it.
In short, traders spent the majority of yesterday’s session waiting. Waiting on President Bush to finish dodging loafers and return his attention to the minor issue of the automaker bailout. Waiting on what will undoubtedly be a miserable earnings report from Goldman Sachs (GS). Waiting on Mr. Bernanke to use one of the two arrows he’s got left in his quiver. Waiting to see just how far the Madoff swindle will extend. And waiting on a guy by the name of Kris Kringle to finally get that sleigh loaded up.
At different points in the session yesterday, it looked like both teams might be able to secure the ball and move up court. But by the time the closing bell rang, the big cap Dow appeared to have spent the day waiting and waffling.
This is not to say that there weren’t some issues to deal with during the session, not the least of which was the President telling us that he’ll get to the crisis in Detroit when he’s done employing at least a couple of the Five D’s of Dodge Ball (which, if you will recall are: dodge, duck, dip, dive, and… dodge!) in Iraq.
There were also some macroeconomic headwinds to deal with both at home and abroad. Looking outside the U.S. first, traders got a helping of currency devaluation in Russia, sovereign debt default in Ecuador, economic slowdown in China (their Industrial Production rose by the slowest amount in 10 years), and bad news from Japan’s Tankan index.
Closer to home, we learned that Industrial Production fell for the third month in a row and according to JP Morgan (JPM), is on pace to put up the biggest quarterly decline since 1980. We got another crummy batch of data on the housing sector. And as we mentioned before the bell yesterday, the New York Fed’s Empire State Manufacturing Index fell to its lowest level since records began being kept.
And finally, we learned that all that is plastic is not gold (or even platinum) as American Express (AXP), Discover, and Capital One (COF) reported that net charge-offs were up strongly over the past year and something called early-stage delinquencies were up 0.22% last month alone.
So, while we hate to sound like a broken record, we will again say is a positive that things didn’t get ugly yesterday in the stock market.
Turning to this morning, today is really all about the Fed. Everyone expects a rate cut, but listen closely for talk of a “quantitative easing” which takes a page out of Japan’s deflation fighting playbook and refers to the Fed actually buying bonds on the open market in order to push market rates lower on the long end of the curve.
On the economic front, the Consumer Price Index for November was reported to have dropped by -1.7%, which was even lower than analyst expectations for a decline of -1.2%. On a year-over-year basis, CPI increased by just +1.1%, which was less than the consensus estimate for an increase of +1.4%. When you strip out food and energy the so-called Core CPI came in unchanged, which was also below the expectations for an increase of +0.1%. In short, these numbers confirm that inflation may be a concern in the future, but is not a worry at the moment.
Running through the rest of the pre-game indicators, the major overseas markets are mostly higher. Crude futures are higher with the latest quote showing oil trading up $0.82 to $45.33. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 2.50%, the yield on the 3-month T-Bill is at 0.01%, and overnight LIBOR is at 0.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are now pointing to a modestly higher open. The Dow futures are currently ahead by about 80 points; the S&P’s are up about 10 points, while the NASDAQ looks to be about 12 points above fair value at the moment.
Stocks “In Play” This Morning:
Today’s Earnings Before the Bell:
Best Buy (NYSE: BBY) – Reported $0.35 vs. $0.24
Goldman Sachs (NYSE: GS) – Reported -$4.97 vs. -$3.48
News, Upgrades/Downgrades/Brokerage Research:
Baker Hughes (NYSE: BHI) – Downgraded at Bernstein
Weatherford Intl (NYSE: WFT) – Downgraded at Bernstein
MEMC Electronic Materials (NYSE: WFR) – Estimates reduced at Citi
Progressive (NYSE: PGR) – Downgraded at Citi
Ericsson (Nasdaq: ERIC) – Downgraded at Deutsche Bank
Gap Inc (NYSE: GPS) – Downgraded at Friedman Billings Ramsey
Baidu (Nasdaq: BIDU) – Added to Conviction Buy list at Goldman
Cypress Semi (NYSE: CY) – Downgraded at JP Morgan
Kroger (NYSE: KR) – Upgraded at JP Morgan
Safeway (NYSE: SWY) – Upgraded at JP Morgan
Whole Foods (WFMI) – Downgraded at JP Morgan
BT Group (NYSE: BT) – Downgraded at JP Morgan
Potash (NYSE: POT) – Upgraded at Merrill
Mosaic (NYSE: MOS) – Upgraded at Merrill
CF Industries (NYSE: CF) – Upgraded at Merrill
Terra Industries (NYSE: TRA) – Upgraded at Merrill
Gilead Sciences (Nasdaq: GILD) – Upgraded at Merrill
United Parcel Service (NYSE: UPS) – Downgraded at Merrill
Lennar (NYSE: LEN) – 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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