Daily State of the Markets 
Wednesday Morning – October 14, 2009  

The bears had a pretty decent chance to go the other way yesterday, but, as has been the case lately, they once again failed to capitalize on their opportunities. And with Intel (INTC) knocking the ball out of the park after the close, it looks like the bulls will be off and running again this morning.

Our furry friends appeared to have the upper hand at the outset of trading on Tuesday. They had some disappointing data from across the pond as German economic expectations fell for the first time in four months. They had disappointing earnings guidance out of Johnson & Johnson (JNJ). They had a couple of bearish reports from Bloomberg, with one entitled “Credit’s Divorce From Stocks Signals End of Rally.” And finally, they had their favorite cheerleader, Meredith Whitney, saying it’s time to take profits in bank stocks and actually downgrading everybody’s favorite financial – Goldman Sachs (GS).

Given that Ms. Whitney has made a name for herself being negative on the banking industry – a stance she has been reluctant to change – it isn’t exactly surprising that she would come out with a less-than optimistic call on the sector. However, with her name now on the door, one would assume that she was thorough in her assessment that it was time to take profits and actually put a ‘sell’ on GS. In addition, we would be remiss if we didn’t point out that Whitney did make a ‘buy’ call on the banking sector in general and Goldman in particular a while back. And although Ms. Whitney is not a market-timer per se, after a 22% gain in the S&P on the call, it actually makes a little sense that she would now say it is time to bank some gains.

In addition to the negative inputs in the early going, the bears also had the passage of healthcare reform legislation in the Senate Finance Committee to deal with as well as the idea that traders were waiting on Intel. Thus, it is easy to see that the glass-is-half-empty crowd could have enjoyed a day in the sun.

But instead, the bulls were able to hang around; making a game of it for the entire session. Our heroes in horns then got a big shot in the arm after the close as Intel reported earnings that were well above expectations. The company went on to say all the right things and traded 5% higher in the after-hours session.

To be clear, this earnings season isn’t just about beating the bottom-line EPS numbers. At this stage of the game, beating expectations is probably expected and may even be “priced in.” No, what the bulls want to see from this quarter’s earnings parade are signs of actual improvement in business conditions. So everybody cheered when Intel said that their results were more than just cost cutting and more than inventory replacement. And when they said that they are seeing strengthening demand for PC’s, well, the bulls got downright excited and the chant of Dow 10,000 started up again.

Turning to this morning, Retail Sales for September came in at -1.5%, which was actually a bit better than the expectations for -2.1%. And when you strip out the sales of autos and gasoline, sales were also stronger than expectations at +0.4% vs. unchanged.

Running through the rest of the pre-game indicators, with the exception of Japan, the foreign markets are up nicely across the board. Crude futures are moving up again with the latest quote showing oil trading higher by $0.56 to $74.71. On the interest rate front, we’ve got the yield on the 10-yr trading up to 3.42%, while the yield on the 3-month T-Bill is currently at 0.07%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a strong open. The Dow futures are currently ahead by about 100 points; the S&P’s are up about 15 points, while the NASDAQ looks to be about 20 points above fair value at the moment.

Yesterday’s Earnings After the Bell:

Altera (ALTR) – Reported $0.19 vs. $0.19 CSX Corp (CSX) – Reported $0.74 vs. $0.71 Intel (INTC) – Reported $0.33 vs. $0.28

Today’s Earnings Before the Bell:

Abbott Labs (ABT) – Reported $0.92 vs. $0.90, guides higher ADTRAN (ADTN) – Reported $0.34 vs. $0.32 WW Grainger (GWW) – Reported $1.51 vs. $1.34 Host Hotels & Resorts (HST) – Reported $0.12 vs. $0.08 JP Morgan Chase (JPM) – Reported $0.80 vs. $0.52

Upgrades/Downgrades/Brokerage Research:

Apartment Investment (AIV) – Downgraded at BofA/Merrill AMR Corp (AMR) – Upgraded at Barclays Continental Airlines (CAL) – Upgraded at Barclays JetBlue (JBLU) – Downgraded at Barclays Air Tran Holdings (AAI) – Downgraded at Barclays Quicksilver Resources (KWK) – Upgraded at Canaccord Adams Computer Sciences (CSC) – Upgraded at Goldman Goldcorp (GG) – Upgraded at JP Morgan Barrick Gold (ABX) – Upgraded at JP Morgan AGCO Corp (AGCO) – Downgraded at JP Morgan Intuitive Surgical (ISRG) – Target increased at Soleil Securities Valero (VLO) – Downgraded at Soleil Securities EMC (EMC) – Upgraded at Thomas Weisel Harley-Davidson (HOG) – Estimates increased at UBS Johnson Controls (JCI) – Target increased at UBS

Long positions in stocks mentioned: GS, AAI

Remember to smile at least once before lunch and until next time, “may the bulls be with you!”

David D. Moenning
Founder TopStockPortfolios.com

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


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