Daily State of the Markets 
Friday Morning – September 18, 2009  

After dancing higher for the past nine trading days, yesterday’s day of rest was to be expected and certainly well earned. After all, the S&P had rallied 7.7% in less than two weeks, the Dow had tacked on 511 points, and the NASDAQ managed to gain +8.4% — all since September 3rd.

Although logic would dictate that a pullback should commence any time now and the bears will likely disagree, yesterday appeared to be more of a brief respite than the start of something nasty. The bulls even had an opportunity to keep the dance going as we saw another batch of the type of news that has helped propel stocks skyward lately. However, with the move starting to look a little parabolic on the charts, even the bulls will admit that a pause in the action is probably a good thing.

As the opening bell rang, it looked like it was business as usual for the bull camp as traders used the early economic data to push the Dow up another 40 points or so. Specifically, a report out of China, which quoted a senior government economists as saying China’s GDP would return to double-digit growth in the fourth quarter, definitely helped the global recovery theme. And while the pre-market data here in the U.S. was a little on the weak side, the headline from the Philly Fed report appeared to get traders fired up.

The Philadelphia Fed Index rose to 14.1 in September, which represented quite a jump from the reading of 4.2 seen in August. It was the highest level for the index since June 2007 and well ahead of the consensus estimate for a reading of 8.0. But, unfortunately, the underlying components of the report did not support the early dancing in the street. For example, the New Orders fell to 3.3 from 4.2 in August, the Delivery index slid to -8.9 from -7.0, employment fell to -14.3 from -12.9, and there were some problems in the area of corporate margins.

Although the downside action wasn’t exactly fierce, the day definitely went downhill in a hurry as the inputs for the remainder of the session were less than inspiring. FedEx (FDX) and Oracle (ORCL) spoke of weaker sales, which led to concerns about the potential for disappointment in terms of top line growth during the upcoming earnings season. Bespoke spooked traders with report noting that the S&P had closed more than 20% above its 200-day moving average for the first time since 1983. And Standard & Poors said that it may downgrade up to $578 billion of corporate CDO (Collateralized Debt Obligations) tranches.

All of which led to a whopping decline of 8 points on the Dow. So, while the bears will argue that the party is over and that we should see a retracement of at least 3% to 5% commencing immediately, the bulls suggest that a break was to be expected and yesterday’s action did nothing to break the trend.

Turning to this morning, we don’t have any economic data to review today. However, it is an options expiration Friday, which will likely have some impact on trading.

Running through the rest of the pre-game indicators, the foreign markets are mixed by region with Asia lower and Europe fractionally higher. Crude futures are moving lower with the latest quote showing oil trading off by $0.41 to $72.06. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.42%, while the yield on the 3-month T-Bill is currently at 0.09%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a slightly higher open. The Dow futures are currently ahead by about 40 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 7 points above fair value at the moment.

Upgrades/Downgrades/Brokerage Research:

SanDisk (SNDK) – Upgraded at BofA/Merrill Covanta Holding (CVA) – Downgraded at Barclays WellPoint Health (WLP) – Upgraded at Citi Coventry Health care (CVH) – Downgraded at Citi UnitedHealth (UNH) – Downgraded at Citi Procter & Gamble (PG) – Upgraded at Citi Chevron (CVX) – Upgraded at Credit Suisse Genzyme (GENZ) – Downgraded at Deutsche Bank E*Trade (ETFC) – Upgraded at Goldman Charles Schwab (SCHW) – Downgraded at Goldman KB Home (KBH) – Upgraded at JP Morgan Toll Brothers (TOL) – Upgraded at JP Morgan MDC Holdings (MDC) – Downgraded at JP Morgan Apple (AAPL) – Upgraded at Macquarie Research Starbucks (SBUX) – Upgraded at Piper Jaffray Sonic (SONC) – Downgraded at Piper Jaffray Allscripts-Misys (MDRX) – Upgraded at Piper Jaffray Spring Nextel (S) – Target reduced at UBS

Long positions in stocks mentioned: GS, AAPL

Enjoy your Friday, have a pleasant weekend, 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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