Daily State of the Markets 
Monday Morning – July 12, 2010  

One short week ago, the talk about town was all about the “death cross,” the likelihood of a global recession, and that the stock market was heading lower – a lot lower. However, after a quick jaunt of more than 500 Dow points to the upside, suddenly the fast-money crowd is significantly more upbeat. Nowadays, traders are talking about the idea that the correction was overdone, that the economy is “just fine, thank you,” that China will continue to grow at a robust rate, and that Europe, well, there really isn’t anything to worry about after all. In short, traders appear to be taking an “it’s all good” stance these days.

Are we guilty of being perhaps a tad cynical on this fine Monday morning? Perhaps. However, there is no denying that the mood of the market turned on a dime last Tuesday as the bounce off of the low began. As such, Friday’s report on Wholesale Inventories, which was the first even semi-positive piece of economic data we’ve had in a while, was seen through rose colored glasses. Thus, the data helped support a continuation of the bounce.

But before we break into a chorus of “happy days are here again” or “we’re in the money,” we should probably point out that although the bounce has been impressive, the intermediate-term trend of the stock market remains down. If you are so inclined, take a moment and “draw” (electronically or otherwise) a trendline from the top of either the closing high on April 23rd or the intraday high of April 26th. What you will quickly see is that the S&P 500 is still below both lines. Thus, it will take a move above 1080 on a closing basis and a move over 1100 on an intraday basis to break the downtrend.

However, the way things are going, such a move appears to be only a matter of time. As we have mentioned, with traders now looking at things like the surprise rate hike out of South Korea as being supportive of the global growth story, the buying could easily continue. But, then again, given that, so far at least, the current rally is sticking to the script of oversold bounces, we wouldn’t be surprised to see the bears show up and reenter the fray at some point soon.

Looking at the bright side, we could get much more upbeat about the upside potential if the bulls were to pause for a moment and regroup. Therefore, a period of backing and filling right about now would be constructive. And with earnings season about to get underway, a “pause that refreshes” might just be in order.

Turning to this morning… We don’t have any economic data to review before the bell. And perhaps the biggest event of the day will be the unofficial start of the earnings parade when Alcoa reports after the close.

Finally, don’t let success go to your head or defeat into your heart…

Pre-Game Indicators

Here are the important indicators we review each morning before the opening bell…

  • Major Foreign Markets:
    • Australia: +0.34%
    • Shanghai: +0.80%
    • Hong Kong: +0.44%
    • Japan: -0.39%
    • France: +0.11%
    • Germany: +0.26%
    • London: +0.80%

     

  • Crude Oil Futures: – $0.13 to $75.96
  • Gold: – $5.30 to $1204.50
  • Dollar: higher against Yen, Euro and Pound
  • 10-Year Bond Yield: Currently trading lower at 3.036%

     

  • Stocks Futures Ahead of Open in U.S. (relative to fair value): 
    • S&P 500: -4.44
    • Dow Jones Industrial Average: -31
    • NASDAQ Composite: -4.94  

Wall Street Research Summary

Upgrades:

FedEx (FDX) – BB&T Capital Markets Medtronic (MDT) – BMO Capital Monsanto (MON) – Citi Con-way (CNW) – Deutsche Bank Repsol (REP) – Deutsche Bank Lorrilard (LO) – Conviction Buy at Goldman Sachs Microsoft (MSFT) – Janney Capital Cabela’s (CAB) – JPMorgan Weyerhaeuser (WY) – UBS SanDisk (SNDK) – UBS

Downgrades:

Tyco Electronics (TEL) – BofA/Merrill Molex (MOLX) – BofA/Merrill Northrop Grumman (NOC) – Added to Conviction Sell at Goldman Sachs Corning (GLW) – Goldman Sachs Acxiom (ACXM) – RW Baird Valassis (VCI) – RW Baird Aetna (AET) – UBS Marriott (MAR) – Wells Fargo

Long positions in stocks mentioned: None

For more “top stock” portfolios and research, visit TopStockPortfolios.com

 

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