David Moenning�s Daily State of the Markets 04/04
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Stumble or Tumble?
Stocks roared out of the gate yesterday morning on news that Lucent and Alcatel were getting together (a deal worth $13.4 Billion) and that GM had unloaded the majority of GMAC on an investment group for something like $14 Billion. Markets were upbeat on the thinking that if people are willing to buck up with that kind of cash for these less-than inspiring companies, just think of the values that must be lurking out there.
The market then improved further after a round of mixed economic data, which seemed to provide no further ammunition toward Mr. Bernanke�s cause. The ISM Manufacturing Index fell 1.5 points in March, which is indicative of slower, yet steady growth. The prices paid component was still an issue in the report, but this is not exactly a new worry. Next, we learned that Pending Home Sales slipped 0.8% in February, but that January was revised higher. However, with rates on the rise, we should continue to see home sales slip. Finally, the report on construction spending showed an increase in February and the numbers were above expectations. This smattering of data had a �not too hot and not too cold� feel to it, so traders decided to test the upside.
With the market blasting higher mid-morning on the merger news and reinvestment demand, it looked like the bulls were off to the races and that we might have a good old-fashioned melt-up on our hands. The Dow was up +130 points and despite higher oil prices; the market felt like a warm and fuzzy place to have money.
But then, unfortunately, reality set in. Traders suddenly remembered that this isn�t 1999 and these days, the big gains in the market are usually met with selling. And in short, yesterday was no exception. There are simply too many crosscurrents at the moment for the market to blast up, up and away on the back of a telecom merger.
To be sure, the market showed some strength yesterday. However, once traders got wind of the crummy auto sales numbers, the idea of profit taking became appealing and it was clear that the bulls had stumbled. The selling accelerated in the last hour and the Dow finished more than 100 points off the high, while the NASDAQ, Small Cap and Mid Caps all actually finished in the red.
Thus, the question of the day is if Monday�s misstep by the bulls represented a small stumble or if it was the start of something more serious. There were no serious technical breeches and April is the best month of the year, so I guess we�ll have to keep singing the bull market theme song for now.
Turning to this morning, there is no economic data on the docket today and with an hour before the bell, things are fairly quiet.
Running through the pre-game indicators, with the exception of Hong Kong, overseas markets are all lower across the board. Oil futures are moving down before the bell this morning and are currently trading off by $0.88 to $65.86. Natural Gas is trading down -$0.15 to $7.10. Gold is down -$1.40 currently but is still a stone�s throw from $600 at $592.90. Bond yields are flat this morning with the 2-yr yield at 4.85% and 10-yr is currently trading at 4.86%. And finally, stock futures in the U.S. are modestly higher before the bell with the Dow sporting a gain of +8 points, the S&Ps are higher by +1.40, and the NASDAQ futures are gaining +2.50.
Stocks �In Play� This Morning:
ADSK � Receives Buy rating at Needham
MER � Modifies Q1 stock comp charges to $1.2B from $350M
LMT � Awarded $750M Air Force contract
CIEN � Files $250M convertible note offering
TOT � WSJ reports Venezuelan government seized oil fields
QCOM � Telecomm equipment sector downgraded at Banc of America
PWAV � Guides lower, Downgraded at Deutsche Bank, Defended at Credit Suisse
TIVO � Piper suggests caution
IBM � Settles suit with Sky Technologies
INTC � Credit Suisse discusses potential cut in Capex
CHKP � Guides lower
AFL � Upgraded at Morgan
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: MER, CIEN, QCOM, PWAV, IBM
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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 roared out of the gate yesterday morning on news that Lucent and Alcatel were getting together (a deal worth $13.4 Billion) and that GM had unloaded the majority of GMAC on an investment group for something like $14 Billion. Markets were upbeat on the thinking that if people are willing to buck up with that kind of cash for these less-than inspiring companies, just think of the values that must be lurking out there.
The market then improved further after a round of mixed economic data, which seemed to provide no further ammunition toward Mr. Bernanke�s cause. The ISM Manufacturing Index fell 1.5 points in March, which is indicative of slower, yet steady growth. The prices paid component was still an issue in the report, but this is not exactly a new worry. Next, we learned that Pending Home Sales slipped 0.8% in February, but that January was revised higher. However, with rates on the rise, we should continue to see home sales slip. Finally, the report on construction spending showed an increase in February and the numbers were above expectations. This smattering of data had a �not too hot and not too cold� feel to it, so traders decided to test the upside.
With the market blasting higher mid-morning on the merger news and reinvestment demand, it looked like the bulls were off to the races and that we might have a good old-fashioned melt-up on our hands. The Dow was up +130 points and despite higher oil prices; the market felt like a warm and fuzzy place to have money.
But then, unfortunately, reality set in. Traders suddenly remembered that this isn�t 1999 and these days, the big gains in the market are usually met with selling. And in short, yesterday was no exception. There are simply too many crosscurrents at the moment for the market to blast up, up and away on the back of a telecom merger.
To be sure, the market showed some strength yesterday. However, once traders got wind of the crummy auto sales numbers, the idea of profit taking became appealing and it was clear that the bulls had stumbled. The selling accelerated in the last hour and the Dow finished more than 100 points off the high, while the NASDAQ, Small Cap and Mid Caps all actually finished in the red.
Thus, the question of the day is if Monday�s misstep by the bulls represented a small stumble or if it was the start of something more serious. There were no serious technical breeches and April is the best month of the year, so I guess we�ll have to keep singing the bull market theme song for now.
Turning to this morning, there is no economic data on the docket today and with an hour before the bell, things are fairly quiet.
Running through the pre-game indicators, with the exception of Hong Kong, overseas markets are all lower across the board. Oil futures are moving down before the bell this morning and are currently trading off by $0.88 to $65.86. Natural Gas is trading down -$0.15 to $7.10. Gold is down -$1.40 currently but is still a stone�s throw from $600 at $592.90. Bond yields are flat this morning with the 2-yr yield at 4.85% and 10-yr is currently trading at 4.86%. And finally, stock futures in the U.S. are modestly higher before the bell with the Dow sporting a gain of +8 points, the S&Ps are higher by +1.40, and the NASDAQ futures are gaining +2.50.
Stocks �In Play� This Morning:
ADSK � Receives Buy rating at Needham
MER � Modifies Q1 stock comp charges to $1.2B from $350M
LMT � Awarded $750M Air Force contract
CIEN � Files $250M convertible note offering
TOT � WSJ reports Venezuelan government seized oil fields
QCOM � Telecomm equipment sector downgraded at Banc of America
PWAV � Guides lower, Downgraded at Deutsche Bank, Defended at Credit Suisse
TIVO � Piper suggests caution
IBM � Settles suit with Sky Technologies
INTC � Credit Suisse discusses potential cut in Capex
CHKP � Guides lower
AFL � Upgraded at Morgan
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: MER, CIEN, QCOM, PWAV, IBM
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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