David Moenning's Daily State of the Markets: 06/16
Tweet
Share
E-mail
Back in the Game
Good morning. After being routed by the bears on a daily basis for much of the past month, the bulls appear to be back in the game. Sure, the quick pop of 300 points in just 2 days has a distinctly �oversold bounce� feel to it (cat lovers everywhere should recognize that I did NOT make reference to the other term usually employed for this type of short and sharp move higher) and was probably driven by short-covering and fast money trading during a quadruple expiration week. But after the drubbing the bulls have taken lately, it is nice to see the leaders put some big green numbers up on the board and for the bulls to display some backbone for a change.
The keys to yesterday�s 200 point move included (1) two economic reports showing the economy is not headed into the dumpster just yet and (2) Ben Bernanke�s less testy tone.
While stocks had been getting crushed over the last month on worries over inflation and the state of the economy, on several occasions, we pointed out that the bond market was not confirming these concerns. It was indeed odd that the yield on the 10-year note held steady while the stock market threw a tizzy about the possibility of higher inflation leading to more rate hikes, which would, in turn, damage the economy.
However, yesterday�s data showed that this is simply not the case. The Empire State General Business Conditions Index rebounded 16.1 points to a reading of 29.0, which was well above the expected level of 14.0. Simply put, this indicates that manufacturing activity actually accelerated in June.
Next, the Philly Fed General Business Activity Index came in with a slight decline, but was above expectations. More importantly, the Prices Paid component of the report pulled back somewhat, which puts a dagger in the idea that inflation is beginning to accelerate.
Finally, in a prepared speech in Chicago, Mr. Bernanke�s tone sounded a bit less hawkish and his comments were once again fairly logical. The most notable quote from the speech is the following: "some survey-based measures of longer-term inflation expectations have edged up, on net, in recent months� As yet, these expectations measures have remained within the ranges in which they have fluctuated in recent years and inflation compensation implied by yields on government debt has fallen back somewhat in the past month. Nevertheless, these developments bear watching."
In English, the Fed Chairman said that inflation has yet to exceed the recent range and shows no real threat of doing so � yet it does bear watching. This represents a return to the type of analysis that got Mr. Bernanke tagged as �Gentle Ben� in the early days of his tenure.
So with the markets now discounting another rate hike in two weeks and the 50-50 chance of one more hike by the end of October, traders began to realize that the economy might just survive after all and that the recent decline may have been overdone. And before you could determine if the term oversold bounce was 2 words or three, stocks were off to the races.
Turning to this morning, it looks like we�ve got a bit of a pullback on tap, which is to be expected. St. Louis Fed President William Poole said that the U.S. may face more inflation than is reflected in the data right now and that the Fed faces a challenge in their effort to keep inflation low. In addition, word that China is set to increase its bank reserve requirements by 0.5% is getting some attention, but other than that things are fairly quiet on the news front.
Running through the rest of pre-game indicators, overseas markets are sporting green screens this morning in response to Wall Street�s blast higher. Gold is continuing its rebound this morning and is trading higher by $7.20 to $577.50 at the moment. Oil is hovering around unchanged right now as crude futures are currently trading off by $0.08 to $69.42. Interest rates are moving a little lower with the 2-year currently trading at 5.13% while the 10-yr is quoted at 5.08% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving a bit lower. The Dow futures are currently off by 29 points; the S&Ps are down by 2.70, while the NASDAQ is sporting an decline of about 6 points.
Stocks �In Play� This Morning:
Oracle (ORCL) � Reports preliminary EPS of $0.29 vs. $0.26 - $0.28, Raises guidance
Intel (INTC) � Upgraded at HSBC, Mentioned positively in WSJ
E-Trade Financial (ET) � Mentioned positively in Barron�s
Adobe Systems (ADBE) � Reported $0.31 vs. $0.30, Reduces guidance
KB Homes (KBH) � Reported $2.46 vs. $2.43, Reduces guidance
Microsoft (MSFT) � Bill Gates to step down in 2008, Reportedly developing competitor to iTunes.
Motorola (MOT) � BofA mentions group positive and includes NOK and QCOM
Chemed (CHE) � Mentioned positively at Citigroup along with PSYS, DVA, OCR
Nortel (NT) � Upgraded at Bernstein
Intl Game Technology (IGT) � Upgraded at Deutsche
Harrah�s (HET) � Downgraded at Deutsche
Positions in stocks mentioned: ET, IGT
** 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.
Good morning. After being routed by the bears on a daily basis for much of the past month, the bulls appear to be back in the game. Sure, the quick pop of 300 points in just 2 days has a distinctly �oversold bounce� feel to it (cat lovers everywhere should recognize that I did NOT make reference to the other term usually employed for this type of short and sharp move higher) and was probably driven by short-covering and fast money trading during a quadruple expiration week. But after the drubbing the bulls have taken lately, it is nice to see the leaders put some big green numbers up on the board and for the bulls to display some backbone for a change.
The keys to yesterday�s 200 point move included (1) two economic reports showing the economy is not headed into the dumpster just yet and (2) Ben Bernanke�s less testy tone.
While stocks had been getting crushed over the last month on worries over inflation and the state of the economy, on several occasions, we pointed out that the bond market was not confirming these concerns. It was indeed odd that the yield on the 10-year note held steady while the stock market threw a tizzy about the possibility of higher inflation leading to more rate hikes, which would, in turn, damage the economy.
However, yesterday�s data showed that this is simply not the case. The Empire State General Business Conditions Index rebounded 16.1 points to a reading of 29.0, which was well above the expected level of 14.0. Simply put, this indicates that manufacturing activity actually accelerated in June.
Next, the Philly Fed General Business Activity Index came in with a slight decline, but was above expectations. More importantly, the Prices Paid component of the report pulled back somewhat, which puts a dagger in the idea that inflation is beginning to accelerate.
Finally, in a prepared speech in Chicago, Mr. Bernanke�s tone sounded a bit less hawkish and his comments were once again fairly logical. The most notable quote from the speech is the following: "some survey-based measures of longer-term inflation expectations have edged up, on net, in recent months� As yet, these expectations measures have remained within the ranges in which they have fluctuated in recent years and inflation compensation implied by yields on government debt has fallen back somewhat in the past month. Nevertheless, these developments bear watching."
In English, the Fed Chairman said that inflation has yet to exceed the recent range and shows no real threat of doing so � yet it does bear watching. This represents a return to the type of analysis that got Mr. Bernanke tagged as �Gentle Ben� in the early days of his tenure.
So with the markets now discounting another rate hike in two weeks and the 50-50 chance of one more hike by the end of October, traders began to realize that the economy might just survive after all and that the recent decline may have been overdone. And before you could determine if the term oversold bounce was 2 words or three, stocks were off to the races.
Turning to this morning, it looks like we�ve got a bit of a pullback on tap, which is to be expected. St. Louis Fed President William Poole said that the U.S. may face more inflation than is reflected in the data right now and that the Fed faces a challenge in their effort to keep inflation low. In addition, word that China is set to increase its bank reserve requirements by 0.5% is getting some attention, but other than that things are fairly quiet on the news front.
Running through the rest of pre-game indicators, overseas markets are sporting green screens this morning in response to Wall Street�s blast higher. Gold is continuing its rebound this morning and is trading higher by $7.20 to $577.50 at the moment. Oil is hovering around unchanged right now as crude futures are currently trading off by $0.08 to $69.42. Interest rates are moving a little lower with the 2-year currently trading at 5.13% while the 10-yr is quoted at 5.08% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving a bit lower. The Dow futures are currently off by 29 points; the S&Ps are down by 2.70, while the NASDAQ is sporting an decline of about 6 points.
Stocks �In Play� This Morning:
Oracle (ORCL) � Reports preliminary EPS of $0.29 vs. $0.26 - $0.28, Raises guidance
Intel (INTC) � Upgraded at HSBC, Mentioned positively in WSJ
E-Trade Financial (ET) � Mentioned positively in Barron�s
Adobe Systems (ADBE) � Reported $0.31 vs. $0.30, Reduces guidance
KB Homes (KBH) � Reported $2.46 vs. $2.43, Reduces guidance
Microsoft (MSFT) � Bill Gates to step down in 2008, Reportedly developing competitor to iTunes.
Motorola (MOT) � BofA mentions group positive and includes NOK and QCOM
Chemed (CHE) � Mentioned positively at Citigroup along with PSYS, DVA, OCR
Nortel (NT) � Upgraded at Bernstein
Intl Game Technology (IGT) � Upgraded at Deutsche
Harrah�s (HET) � Downgraded at Deutsche
Positions in stocks mentioned: ET, IGT
** 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.
You May Also Be Interested In
- After-Hours Movers: AMAT, DLO, GLOB, YSS, ETON
- After-Hours Movers: CSCO, COHR, HLIT, CBRS, STUB, ENS
- After-Hours Movers: CRWV, NBIS, SMCI, LITE, CAVA, HRB
Create E-mail Alert Related Categories
Contributors, Special ReportsSign 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!
