Daily State of the Markets
Wednesday Morning – October 19, 2011
Good morning. There was an abundance of stories for traders to focus on during Tuesday’s session. Let’s see; you had China’s GDP report showing that growth had slowed, some high profile earnings reports, Germany’s ZEW report that suggested a recession is on the way, the Moody’s warning that France’s credit rating may be at risk in the future, the hotter-than-expected PPI report, the NAHB Homebuilder report, and a host of headlines out of Europe relating to what leaders may or may not due before Sunday’s deadline.
Stocks started off on the wrong foot as our markets followed Europe’s move lower in response to Moody’s note about France. Before long the Dow had broken below Monday’s low and it looked like we were going to head down another one-way street for the next few days. However, just about the time one might have considered adding those SPXU’s to the portfolio again, the market turned.
Maybe the change in tone had to do with the fact that it is an options expiration week. Maybe it had to do with the fact that a large number of mutual funds are staring at their year-ends in less than two weeks. Or maybe traders decided that all the bad news in the U.S. banking sector was out after Citi, Wells Fargo, Bank of America and Goldman had reported earnings (the KBW Banking Index being up 6% was our first clue here). But regardless of the reason, stocks began to rally – and for a change, the move didn’t appear to be HFT-driven.
The idea of a further rally made a lot of sense to me and my team and was enough for me to start thinking about getting out of the bitter barn and back on the bull train (well, for a trade, anyway – after all, November is coming!). I opined that with the banks looking like they had bottomed out, at least a temporary reprieve in Europe on the way (remember, Sunday is the deadline for European leaders to come up with their comprehensive plan to solve the crisis), only a modest slowdown in China, and a U.S. economy that didn’t look to be taking a dive, I figured that the traditional year-end rally might just show up as scheduled. Lest we forget, history shows that buying the lows of October and holding through April has been a very profitable strategy.
But with the major indices still mired in the now two-month old trading range, I reminded myself that patience is an important attribute in this business. And since the market was one negative European headline away from taking another trip through the range, I decided to watch the action a while longer. But the very moment I made the decision that it was probably best to wait for the bulls to serve up some volume, the major story of the day hit. Well, OK, the media’s presentation of a story hit, that is.
The headline was exciting and appeared to be a game changer: “France and Germany ready to agree €2 Trillion euro rescue fund.” My first thought was, “Wow, forget the bazooka (the term being applied to a “coordinated response” to the European debt crisis) Team Merkozy had just nuked the problem!” As one might expect, the computers saw the headline and buy programs ensued. Within 12 short minutes, the Dow had surged 160 points and the S&P 500 was breaking out of its range. The reason for the surge was simple, European leaders appeared to have finally located their inner shock-and-awe.
But as is the case with every scoring play this year, this one needed to be reviewed. So, I went to The Guardian websiteand pulled up the story. Sure enough the headline was correct and the first paragraph of the story seemed pretty clear:
France and Germany have reached agreement to boost the eurozone’s rescue fund to €2 trillion as part of a “comprehensive plan” to resolve the sovereign debt crisis, which this weekend’s summit should endorse, EU diplomats said.However, if you kept reading (it took 7 paragraphs) you eventually came to the details. Germany and France were NOT suggesting that the EFSF should be increased to €2 trillion – this was the amount of “firepower” estimated that the EFSF would have if used to insure “first-loss guarantees” to bond holders. To which I quickly IM’d “This isn’t new! This is the plan everybody has been talking about… There isn’t anything new here at all.” Dow Jones was also quickly on the wires saying the headline was “totally wrong.”
So, with the media suddenly being the story (The Guardian headline was completely irresponsible in my humble opinion), stocks pulled back just far enough to keep the Dow and S&P in their respective trading ranges. Thus, after a VERY busy day of news, we’re right back where we were – waiting for the bulls to produce some ‘oomph.’
Turning to this morning… EU officials have officially denied The Guardian story that caused such a stir yesterday afternoon, saying that there is no agreement as to how best to leverage the EFSF and the maths employed was entirely too simplistic. In other news the BOE kept rates unchanged but increased their QE program. While European and Asian markets played catch-up to Wall Street, U.S. stock futures are currently hovering around breakeven.
On the Economic front… The Consumer Price Index for September rose by +0.3%, which was in line with the consensus estimates for an increase of +0.3%. When you strip out food and energy, the so-called Core CPI came in with a gain of +0.1%, which was below expectations for +0.2% and August’s +0.2%.
Next up, Housing Starts rose in September to an annualized rate of 658K. This was well above the consensus for 588K. Building Permits for September rose to a rate of 549K. This was below the consensus of 610K and last month’s unrevised reading of 625K.
Thought for the day… Why not do something nice for someone today for no reason at all…
Here are the Pre-Market indicators we review each morning before the opening bell…
- Major Foreign Markets: Australia: +0.60% Shanghai: -0.25% Hong Kong: +1.29% Japan: +0.35% France: +0.79% Germany: +1.15% Italy: +1.64% Spain: +1.67% London: +0.85%
- Australia: +0.60%
- Shanghai: -0.25%
- Hong Kong: +1.29%
- Japan: +0.35%
- France: +0.79%
- Germany: +1.15%
- Italy: +1.64%
- Spain: +1.67%
- London: +0.85%
- Crude Oil Futures: +$0.24 to $88.58
- Gold: +$2.20 to $1655.00
- Dollar: higher against the Yen, Euro, and Pound
- 10-Year Bond Yield: Currently trading at 2.221%
- Stock Futures Ahead of Open in U.S. (relative to fair value): S&P 500: +1.60 Dow Jones Industrial Average: +23 NASDAQ Composite: -10.07
- S&P 500: +1.60
- Dow Jones Industrial Average: +23
- NASDAQ Composite: -10.07
Wall Street Research Summary
- Zale (ZLC) – BofA/Merrill
- Canadian Pacific (CP) – BofA/Merrill
- Con-way (CNW) – BB&T
- McDonald’s (MCD) – Estimates increased at Janney
- Whole Foods (WFM) – Jefferies
- Citrix Systems (CTXS) – Needham
- UniFirst Corporation (UNF) – RW Baird
- Range Resources (RRC) – Canaccord Genuity
- AmeriGas Partners (APU) – Citi
- Jaguar Mining (JAG) – JPMorgan
- Atwood Oceanics (ATW) – Morgan Stanley
- Rowan Companies (RDC) – Morgan Stanley
- RightNow Technologies (TNOW) – Stifel Nicolaus
- Juniper Networks (JNPR) – Wells Fargo
Earnings Yesterday’s Earnings After The Bell
Estimate Apple AAPL $7.05 $7.28 Crown Holdings CCK $1.01 $0.99 Cree CREE $0.25 $0.25 CSX Corp CSX $0.43 $0.44 Hawaiian Airlines HA $0.59 * $0.45 Intel INTC $0.69 $0.61 Intuitive Surgical ISRG $3.05 $2.76 Linear Technology LLTC $0.47 * $0.50 Sonoco Products SON $0.66 $0.65 Sonic SONC $0.20 $0.22 Waste Connections WCN $0.42 $0.40 Werner Enterprises WERN $0.40 $0.40 Yahoo! YHOO $0.23 $0.17
Today’s Earnings Before The Bell
Estimate Abbott Labs ABT $1.18 $1.17 Apollo Group APOL $1.02 $0.94 Bank of New York Mellon BK $0.53 $0.53 BlackRock BLK $2.83 $2.68 Comerica CMA $0.51 * $0.52 First Cash FCFS $0.59 $0.55 Freeport-McMoRan FCX $1.10 $1.02 Knight Capital KCG $0.48 * $0.36 Morgan Stanley MS $1.14 * $0.30 Northern Trust NTRS $0.70 $0.69 PNC Bank PNC $1.55 $1.48 St. Jude Medical STJ $0.78 $0.76 The travellers Co TRV $0.79 $0.90 Textron TXT $0.45 $0.31 US Bancorp USB $0.64 $0.62 United Technologies UTX $1.47 $1.45* Report includes items that make comparisons to the consensus estimate questionable
Long positions in stocks mentioned: AAPL, FCFS
For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com
The opinions and forecasts expressed herein are those of Mr. David Moenning 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. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.