Daily State of the Markets: No Decision

Good morning. Although there were an awful lot of green numbers spread amongst the indices by the time the closing bell rang (in fact, only the Dow finished slightly in the red yesterday), we’re going to have to call the day a “no decision.” In short, while the bulls looked like they had a shot in the early going, they were once again unable to “break on through to the other side.” And then on the other side of the aisle, the bears have to have been disappointed that they weren’t able to turn the failed breakout into a key reversal.

So, for those of you keeping score at home, it is now Resistance: 8, Bulls 0. To hear the technicians tell it, if the bulls don’t get their act together soon and find a way to punch through the resistance, we could easily see a return trip to the low end of the recent range. And the bears would then be entitled to take their shot at breaking on through.

Stocks seemed to get a lift in the early going from the ADP Employment report, which actually came in below expectations as the private sector lost another 169K jobs in November; below the estimates for a decline of 150K. However, traders seemed to focus more on the idea that job loss totals have now declined for eight months in a row.

So armed with the concept that the jobs market is indeed getting better (or at least, ‘less bad’) traders pushed stocks higher at the open and for a while it looked like Santa might be arriving ahead of schedule this year. However, the numbers from the Department of Energy on oil inventories put a damper on the rally as larger supplies meant selling in oil and buying of the dollar – and we all know what buying in the dollar means to stock prices.

Once the rally appeared to be failing, it is a safe bet that some sell stops may have kicked in as every trader worth their salt was watching for another ‘breakout fakeout.’ And although the sellers were able to take the indices well into the red zone, the Fed’s Beige Book report seemed to save the day.

While Fed watchers will admit that the FOMC really doesn’t put much credence on the Beige Book, the report did help keep the bulls from getting TKO’d yesterday. The report showed that economic activity was improving in 8 of the Fed’s 12 districts and the overall impression was that the economy continues to improve modestly. And although this wasn’t exactly breaking news, it was enough to turn things around into the end of the day.

So, while neither team was able to come away with much of an advantage yesterday, you can’t really blame traders for not wanting to take a big stand in front of today’s same-store sales results and Friday’s big jobs report. In addition, with a financial reform bill getting closer and debate on health care about to begin, you can’t really blame anyone for wanting to take a wait-and-see attitude in the near term.

Turning to this morning, we’ve got same-store sales numbers coming in and another batch of economic data to sift through. For starters, Jobless claims for the week ending November 28th were reported at 457K; below the consensus estimates for 480K. The prior week was revised lower to 462K from 466K. Continuing claims for unemployment insurance for the week ending November 21 came in at 5.465M vs. consensus 5.400M.

Next up, Final Nonfarm Productivity for the third quarter was reported up 8.1%; below the consensus for 8.5% and the preliminary reading of 9.5%. Finally, Unit Labor Costs for the quarter fell by -2.5%, which was also below the consensus for a decline of -4.1% and the previous reading of -5.2% .

Running through the rest of the pre-game indicators, overseas markets were mostly higher on news that BAC will repay the TARP money in full. Crude futures are higher with the latest quote showing oil trading up by $0.55 to $77.15. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.38%, while the yield on the 3-month T-Bill is currently at 0.05%. In addition, gold is up another $2.50 and the dollar is weaker against the Yen, Euro, but down against the Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 20 points; the S&P’s are up about 3 points, while the NASDAQ looks to be about 3.5 points above fair value at the moment.

Wall Street Research Summary

Upgrades:
# Weyerhaeuser (WY) – BofA/Merrill
# Vornado Realty Trust (VNO) – Estimates and target increased at Barclays
# Texas Instruments (TXN) – Estimates and target increased at Barclays
# Ternium (TX) – Credit Suisse
# Mobile TeleSystems (MBT) – Target increased at Credit Suisse
# Bank of America (BAC) – FBR Capital
# AvalonBay (AVB) – Goldman
# FedEx (FDX) – Estimates increased at RBC Capital
# Cubist Pharmaceuticals (CBST) – RBC Capital
# DreamWorks Animation (DWA) – Target increased at Thomas Weisel
# Goldcorp (GG) – UBS
# Assured Guaranty (AGO) – UBS

Downgrades:
# Genzyme (GENZ) – Collins Stewart
# Kimco Realty (KIM) – Goldman
# Teck Resources (TCK) – RBC Capital
# MBIA (MBI) – Target reduced at UBS

Long positions in stocks mentioned: none

Make the decision to have a great day 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

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