David Moenning's Daily State of the Markets: 4/17

Knocking On The Door

Here’s a link to listen to an Audio Version of the report:
http://PlayAudioMessage.com/play.asp?m=497839&f=AJLSLG&ps=13&c=FFFFFF&pm=2&h=25

After yesterday's furious rally of 256 points on the Dow, the bulls appear to be once again knocking on the door of a breakout. The rally, which left the venerable index about 80 points shy of the ceiling that has been firmly in place since the end of January, was induced by a solid earnings report from another tech bellwether (Intel – INTC) and then a couple of reports from the banking sector that were, believe or not, better than expected.

Intel’s strong showing came on the heels of IBM’s better than expected results and gave tech investors hope that the sector may actually be faring well in this recessionary environment.

However, the big news of the day was that the earnings reports from JP Morgan (JPM) and Wells Fargo (WFC) were not a disaster. Yes, we know that Citi's (C) results are on tap and unlikely to be encouraging. However, the fact that a company such as Wells Fargo, which has been embroiled in the whole mortgage mess, can come up with a report that exceeded expectations definitely helps the bull case.
You see, while expectations may have been high for the likes of Intel and IBM, they were anything but for the beleaguered banking sector. So, the fact that JPM and Wells Fargo were able to come in a bit above expectations caused some shorts to run for cover and furthered the idea that we’ve seen the worst from the credit crisis. And on that note JP Morgan’s Jamie Dimon became the fourth CEO of a major brokerage firm to make such a pronouncement in the past week. So, while the jury is still out on whether the crux of the credit problems are over, the powers that be are certainly talking a good game right now.

However, with the Dow up nearly 900 points since the March 10th low, the bulls are faced with a familiar dilemma of how to go about breaking out above the top end of the trading range. Such a move would be a major event for chart technicians and undoubtedly bring a lot of cash in off the sidelines. Or perhaps more accurately, cause some of the shorts to go the other way for a while.

The only fly in the ointment here is that a move above the range needs to have some oomph behind it in order to be taken seriously. So, in light of the fact that the range has now been in effect for four months, our heroes in horns are going to need to ‘go big or go home’ in their next attempt to bust through to the upside. And unfortunately, until this happens, one can’t get too fired up about the movements within the confines of the trading range.

Turning to this morning, word of more writedowns at Merrill (MER) has put a damper on the mood in the early going.

Running through the rest of the pre-game indicators; the foreign markets are mostly higher on the back of yesterday’s rally in the U.S. Crude futures are moving down with the latest quote showing oil lower by $0.29 to $114.64. Interest rates are moving up again with the 10-yr trading at a yield of 3.70% so far. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to softer open. The Dow futures are currently off by about 10 points; the S&P's are down about 3 points, while the NASDAQ looks to be about a point below fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:
Aptar Group (NYSE: ATR) – Reported $0.52 vs. $0.49
eBay (Nasdaq: EBAY) – Reported $0.42 vs. $0.39
Gilead Sciences (Nasdaq: GILD) – Reported $0.51 vs. $0.47
IBM (NYSE: IBM) – Reported $1.65 vs. $1.45, Guides higher

Today's Earnings Before the Bell:
Baxter (NYSE: BAX) – Reported $0.74 vs. $0.72
Bank of New York Mellon (NYSE: BK) – Reported $0.78 vs. $0.73
Continental Airlines (NYSE: CAL) – Reported -$0.86 vs. -$0.94
First Horizon Natl (NYSE: FHN) – Reported $0.06 vs. $0.11
Harley Davidson (NYSE: HOG) – Reported $0.79 vs. $0.77
Southwest Airlines (NYSE: LUV) – Reported $0.06 vs. $0.01
Merrill Lynch (NYSE: MER) – Reported -$2.20 vs. -$1.96
Pfizer (NYSE: PFE) – Reported $0.61 vs. $0.66
SLM Corp (NYSE: SLM) – Reported $0.48 vs. $0.38
United Technologies (NYSE: UTX) – Reported $1.05 vs. $1.01

News, Upgrades/Downgrades/Brokerage Research:
U.S. Steel (NYSE: X) – Downgraded at Citi
IBM (NYSE: IBM) – Target increased at Citi
Procter & Gamble (NYSE: PG) – Downgraded at Deutsche Bank
Reynolds American (NYSE: RAI) – Upgraded at Bear Stearns
Campbell Soup (NYSE: CPB) – Upgraded at Merrill
Potash (NYSE: POT) – Target increased at RBC
UST Inc (NYSE: UST) – Downgraded at UBS
AMR Corp (NYSE: AMR) – Estimates reduced at UBS

Mr. Moenning holds Long positions in stocks mentioned: GILD

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.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.

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