David Moenning's Daily State of the Markets: 7/10
Tweet
Share
E-mailGet Alerts NTGR Hot Sheet
Join SI Premium – FREE
Is 7% Enough?
Stocks have basically spent the last two trading sessions doing a whole lot of nothing. Despite some rather positive inputs, the S&P finds itself ready to open Friday’s trading only a single point higher than Tuesday’s close. Thus, the question of the day becomes: After a 40% run higher in just three months, is a 7% pullback enough to consolidate the gains or is there more selling on the horizon?
According to Ned Davis Research, one of the largest independent institutional research outfits in the country, the median maximum correction during the first six months of the 34 cyclical bull markets since 1900 has been right at -7% over a period of 18 days. Thus, with the S&P having fallen the very same -7% over a period of 16 days and has done so on very light volume, historians might be inclined to think that the corrective phase has run its course.
To be sure, the bulls have earned the chance at a bounce in here sometime soon. However, with the apprehension about the earnings season running high, the potential upside in the near term might be limited unless traders see earnings or economic numbers coming in above expectations.
On the other side of the aisle, the bears have a couple of big points in their thesis at the moment. First, is the idea that after earnings in the first quarter actually came in above expectations due to analysts having taken machetes to the estimates, the expectations for the second quarter results have actually increased over the past couple of months. Thus, the bar may now be placed slightly higher than it was last quarter. Our furry friends argue that although the recession may end in the near future, it has not yet and therefore guidance for the upcoming quarter is likely to be on the disappointing side.
In addition, the bear camp continues to yammer on about the head-and-shoulders formation on the Dow chart. The glass-is-half-empty crowd contends that the neckline of the formation has clearly been snapped and that after the requisite test to the upside, we will soon be staring at nothing but downside – to the tune of about 500 points.
So, which is it? Have we seen the worst of this little correction or are the bears just getting started? Frankly, with our crystal ball still in the shop, we can’t tell you with any degree of certainty which way things will head from here. If you will recall, the goal of our daily missive isn’t to try and predict what will happen next but rather to identify the drivers of the action. So, instead of offering up a WAG on the direction of the next 200 Dow points, we will suggest that the economic data and the earnings parade is likely to trigger the movement and that it is more important to stay in tune with what IS happening instead of prognosticating on what might happen next.
Turning to this morning, Import Prices for June came in with an increase of +3.2%, which was above the consensus for a gain of +2% and May’s increase of +1.4%. In addition, May’s Trade deficit was -$26 billion, which was below the projections for -$30 billion and April’s deficit of -$28.8 billion.
Running through the rest of the pre-game indicators, the major overseas markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading off by $1.48 to $58.93. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.32%, 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 lower open. The Dow futures are currently off by about 65 points; the S&P’s are down by about 7 points, while the NASDAQ looks to be about 9 points below fair value at the moment.
Stocks "In Play" This Morning:
Analyst Upgrades/Downgrades:
Netgear (Nasdaq: NTGR) – Upgraded at BofA/Merrill
Gilead Sciences (Nasdaq: GILD) – Mentioned positively at Bernstein
MEMC Electronic Materials (NYSE: WFR) – Upgraded at Citi
ArcelorMittal (NYSE: MT) – Upgraded at Citi
Apple (Nasdaq: AAPL) – Estimates increased at Credit Suisse
Dell (Nasdaq: DELL) – Target increased at Credit Suisse, Upgraded at Goldman
Abbott Labs (NYSE: ABT) – Target reduced at Credit Suisse
Danaher (NYSE: DHR) – Upgraded at Deutsche Bank
PerkinElmer (NYSE: PKI) – Upgraded at Deutsche Bank
Stanley Works (NYSE: SWK) – Upgraded at Deutsche Bank
Seagate Technology (NYSE: STX) – Upgraded at Goldman
CA Inc (NYSE: CA) – Downgraded at Goldman
IBM (NYSE: IBM) – Downgraded at Goldman
Western Digital (NYSE: WDC) – Downgraded at Goldman
SanDisk (Nasdaq: SNDK) – Estimates increased at Morgan Stanley
Yahoo! (Nasdaq: YHOO) – Upgraded at Thomas Weisel
Petrobras (NYSE: PBR) – Upgraded at UBS
Long positions in stocks mentioned: PBR, IBM
Enjoy your Friday, have a pleasant weekend, and until next time, "may the bulls be with you!”
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.
Stocks have basically spent the last two trading sessions doing a whole lot of nothing. Despite some rather positive inputs, the S&P finds itself ready to open Friday’s trading only a single point higher than Tuesday’s close. Thus, the question of the day becomes: After a 40% run higher in just three months, is a 7% pullback enough to consolidate the gains or is there more selling on the horizon?
According to Ned Davis Research, one of the largest independent institutional research outfits in the country, the median maximum correction during the first six months of the 34 cyclical bull markets since 1900 has been right at -7% over a period of 18 days. Thus, with the S&P having fallen the very same -7% over a period of 16 days and has done so on very light volume, historians might be inclined to think that the corrective phase has run its course.
To be sure, the bulls have earned the chance at a bounce in here sometime soon. However, with the apprehension about the earnings season running high, the potential upside in the near term might be limited unless traders see earnings or economic numbers coming in above expectations.
On the other side of the aisle, the bears have a couple of big points in their thesis at the moment. First, is the idea that after earnings in the first quarter actually came in above expectations due to analysts having taken machetes to the estimates, the expectations for the second quarter results have actually increased over the past couple of months. Thus, the bar may now be placed slightly higher than it was last quarter. Our furry friends argue that although the recession may end in the near future, it has not yet and therefore guidance for the upcoming quarter is likely to be on the disappointing side.
In addition, the bear camp continues to yammer on about the head-and-shoulders formation on the Dow chart. The glass-is-half-empty crowd contends that the neckline of the formation has clearly been snapped and that after the requisite test to the upside, we will soon be staring at nothing but downside – to the tune of about 500 points.
So, which is it? Have we seen the worst of this little correction or are the bears just getting started? Frankly, with our crystal ball still in the shop, we can’t tell you with any degree of certainty which way things will head from here. If you will recall, the goal of our daily missive isn’t to try and predict what will happen next but rather to identify the drivers of the action. So, instead of offering up a WAG on the direction of the next 200 Dow points, we will suggest that the economic data and the earnings parade is likely to trigger the movement and that it is more important to stay in tune with what IS happening instead of prognosticating on what might happen next.
Turning to this morning, Import Prices for June came in with an increase of +3.2%, which was above the consensus for a gain of +2% and May’s increase of +1.4%. In addition, May’s Trade deficit was -$26 billion, which was below the projections for -$30 billion and April’s deficit of -$28.8 billion.
Running through the rest of the pre-game indicators, the major overseas markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading off by $1.48 to $58.93. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.32%, 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 lower open. The Dow futures are currently off by about 65 points; the S&P’s are down by about 7 points, while the NASDAQ looks to be about 9 points below fair value at the moment.
Stocks "In Play" This Morning:
Analyst Upgrades/Downgrades:
Netgear (Nasdaq: NTGR) – Upgraded at BofA/Merrill
Gilead Sciences (Nasdaq: GILD) – Mentioned positively at Bernstein
MEMC Electronic Materials (NYSE: WFR) – Upgraded at Citi
ArcelorMittal (NYSE: MT) – Upgraded at Citi
Apple (Nasdaq: AAPL) – Estimates increased at Credit Suisse
Dell (Nasdaq: DELL) – Target increased at Credit Suisse, Upgraded at Goldman
Abbott Labs (NYSE: ABT) – Target reduced at Credit Suisse
Danaher (NYSE: DHR) – Upgraded at Deutsche Bank
PerkinElmer (NYSE: PKI) – Upgraded at Deutsche Bank
Stanley Works (NYSE: SWK) – Upgraded at Deutsche Bank
Seagate Technology (NYSE: STX) – Upgraded at Goldman
CA Inc (NYSE: CA) – Downgraded at Goldman
IBM (NYSE: IBM) – Downgraded at Goldman
Western Digital (NYSE: WDC) – Downgraded at Goldman
SanDisk (Nasdaq: SNDK) – Estimates increased at Morgan Stanley
Yahoo! (Nasdaq: YHOO) – Upgraded at Thomas Weisel
Petrobras (NYSE: PBR) – Upgraded at UBS
Long positions in stocks mentioned: PBR, IBM
Enjoy your Friday, have a pleasant weekend, and until next time, "may the bulls be with you!”
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.
You May Also Be Interested In
- Atlassian results seen as 'game changer' for AI kills software worries
- Susquehanna Downgrades The Trade Desk (TTD) to Neutral
- Deutsche Bank Downgrades Aptiv PLC. (APTV) to Hold
Create E-mail Alert Related Categories
ContributorsRelated Entities
Credit Suisse, Deutsche Bank, UBS, Citi, Morgan Stanley, Thomas Weisel Partners Group, David Moenning, Crude OilSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
