David Moenning's Daily State of the Markets: 03/01
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David Moenning's Daily State of the Markets:
The Law of Large Numbers
Just about the time reporters began to espouse that we were seeing the market�s best start to the year since 1998, the bears decided to make a stand yesterday. The combination of an extended market, several punk economic reports, and Google�s reference to the Law of Large Numbers gave the bears a nice opportunity to make some headway. The bulls had little in the way of backup and soon found themselves overrun to the tune of -104 points.
It�s not hard to put a finger on what caused the market�s sudden change of heart. Although there was some talk of the GDP report being Fed friendly, stocks seemed to take the update on the economy�s growth rate in stride and then braced for an onslaught of economic data at 10:00 a.m. But unfortunately for the bulls, not one of the three economic reports provided any encouraging data.
The report on Existing Home sales came in well below expectations (-2.8% vs. +1.5%) and provided further confirmation of a slowdown in the housing market. Consumer Confidence slumped -5.1 points, which was also below the consensus estimate. And then the Chicago Purchasing Managers report came in at 54.9, which was, yep, you guessed it, below the estimates for a reading of 58.4.
Doing the market math from the data, traders saw a surprise uptick in the GDP data, which surely won�t be lost on the Fed, two reports showing that the consumer could be discouraged, and a report showing the pace of business activity in Chicago has slowed. And when you add it all up, the reports equaled lower prices for stocks.
To be sure, the day wasn�t going well up to that point, but then things really went south in a hurry after Google uttered the words that strike terror in the hearts of shareholders: �slowing growth.� Citing the Law of Large Numbers (meaning it becomes increasingly difficult to post strong percentage gains in growth as the size of the company becomes ever larger), Google CFO George Reyes told investors that growth at the search firm was likely to slow and that the company would need to find new ways to boost revenues going forward.
Needless to say, the shorts jumped all over this statement and within minutes, shares of Google had fallen from $397 to $339. The plunge of nearly -15% certainly got the market�s attention and it wasn�t long before the extrapolation began. The thinking was straightforward enough; if Google is slowing, then maybe we should take a look around at what else might be lurking.
So, with a market that had been unable to move above important resistance after several attempts, the bears saw an opening and jumped on it. Stocks ended February on a down note as the shorts found easy pickings among the extended leaders. Volume picked up on the decline and breadth was about as expected. Thus, the question now becomes; will the bulls be able to make a stand at nearby support or do we have a full fledged corrective action on our hands?
Turning to this morning, it looks like stocks will try to bounce off of stronger European markets. This morning�s economic data on Personal Income and Spending came in right around expectations. Personal Income grew by +0.7% last month, which was a tenth higher than expectations, while Spending was a tenth light at +0.9%. In addition, the PCE Deflator, which is one of the Fed�s favorite measures of inflation, came in right at the consensus at +0.2%.
Running through the pre-game indicators, overseas markets are a mixed bag with Asian markets down and European bourse up. Oil futures are moving up this morning on more violence in Nigeria with crude currently trading +$0.32 to $61.73. Natural Gas is quoted higher at $6.73 right now. Gold futures are up +$1.80 this morning to $565.70. Bond yields are a bit higher with the 2-yr yield currently quoted at 4.67% while the 10-yr is at 4.57%. And finally, stock futures in the U.S. are pointing upward at the moment with the Dow currently up by +32, the S&P�s are ahead +2.80, and the NASDAQ is gaining +4 points.
Stocks "In Play" This Morning:
INTC � JP Morgan says Q1 is tracking below estimates
ADSK � Reports $0.37 vs. $0.35 Revenue $417.0M vs. $414.2M
CBS � CBS Radio suing Howard Stern for breach of contract
GOOG � Continues to see opportunities to monetize search
PSUN � Reports $0.63 vs. $0.63 Revenues $424.9M vs. $427.5M
GM � Says the aim is to stop losing money this year
TOL � Bank of America cautious on homebuilders
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: INTC
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.
The Law of Large Numbers
Just about the time reporters began to espouse that we were seeing the market�s best start to the year since 1998, the bears decided to make a stand yesterday. The combination of an extended market, several punk economic reports, and Google�s reference to the Law of Large Numbers gave the bears a nice opportunity to make some headway. The bulls had little in the way of backup and soon found themselves overrun to the tune of -104 points.
It�s not hard to put a finger on what caused the market�s sudden change of heart. Although there was some talk of the GDP report being Fed friendly, stocks seemed to take the update on the economy�s growth rate in stride and then braced for an onslaught of economic data at 10:00 a.m. But unfortunately for the bulls, not one of the three economic reports provided any encouraging data.
The report on Existing Home sales came in well below expectations (-2.8% vs. +1.5%) and provided further confirmation of a slowdown in the housing market. Consumer Confidence slumped -5.1 points, which was also below the consensus estimate. And then the Chicago Purchasing Managers report came in at 54.9, which was, yep, you guessed it, below the estimates for a reading of 58.4.
Doing the market math from the data, traders saw a surprise uptick in the GDP data, which surely won�t be lost on the Fed, two reports showing that the consumer could be discouraged, and a report showing the pace of business activity in Chicago has slowed. And when you add it all up, the reports equaled lower prices for stocks.
To be sure, the day wasn�t going well up to that point, but then things really went south in a hurry after Google uttered the words that strike terror in the hearts of shareholders: �slowing growth.� Citing the Law of Large Numbers (meaning it becomes increasingly difficult to post strong percentage gains in growth as the size of the company becomes ever larger), Google CFO George Reyes told investors that growth at the search firm was likely to slow and that the company would need to find new ways to boost revenues going forward.
Needless to say, the shorts jumped all over this statement and within minutes, shares of Google had fallen from $397 to $339. The plunge of nearly -15% certainly got the market�s attention and it wasn�t long before the extrapolation began. The thinking was straightforward enough; if Google is slowing, then maybe we should take a look around at what else might be lurking.
So, with a market that had been unable to move above important resistance after several attempts, the bears saw an opening and jumped on it. Stocks ended February on a down note as the shorts found easy pickings among the extended leaders. Volume picked up on the decline and breadth was about as expected. Thus, the question now becomes; will the bulls be able to make a stand at nearby support or do we have a full fledged corrective action on our hands?
Turning to this morning, it looks like stocks will try to bounce off of stronger European markets. This morning�s economic data on Personal Income and Spending came in right around expectations. Personal Income grew by +0.7% last month, which was a tenth higher than expectations, while Spending was a tenth light at +0.9%. In addition, the PCE Deflator, which is one of the Fed�s favorite measures of inflation, came in right at the consensus at +0.2%.
Running through the pre-game indicators, overseas markets are a mixed bag with Asian markets down and European bourse up. Oil futures are moving up this morning on more violence in Nigeria with crude currently trading +$0.32 to $61.73. Natural Gas is quoted higher at $6.73 right now. Gold futures are up +$1.80 this morning to $565.70. Bond yields are a bit higher with the 2-yr yield currently quoted at 4.67% while the 10-yr is at 4.57%. And finally, stock futures in the U.S. are pointing upward at the moment with the Dow currently up by +32, the S&P�s are ahead +2.80, and the NASDAQ is gaining +4 points.
Stocks "In Play" This Morning:
INTC � JP Morgan says Q1 is tracking below estimates
ADSK � Reports $0.37 vs. $0.35 Revenue $417.0M vs. $414.2M
CBS � CBS Radio suing Howard Stern for breach of contract
GOOG � Continues to see opportunities to monetize search
PSUN � Reports $0.63 vs. $0.63 Revenues $424.9M vs. $427.5M
GM � Says the aim is to stop losing money this year
TOL � Bank of America cautious on homebuilders
Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: INTC
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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