Daily State of the Markets 
Friday Morning – March 12, 2010  

To the casual observer, Thursday’s late-day melt-up may have been a head-scratcher. After all, stocks declined in the early going on the back of new inflation fears in China and then had spent most of the day trying to recover. So, the sudden pop higher in the last hour may not make sense. However, upon closer inspection, it appears that traders were reacting to some news and focusing on the new market leaders – the banks.

As has been the case for the past six sessions, the banking group finished strong again on Thursday. While much of the advance seen lately has been tied to short-covering and some bottom fishing based on the perception that values are improving, yesterday’s rally continuation appears to have been sponsored by Washington. To say that the administration is looking for ways to tax/punish the banks after their role in the credit crisis is a bit of an understatement. So, when word got out yesterday that bipartisan talks on financial reform had broken down in the senate, well, the buying/short-covering continued unabated.

Whether or not the banks will continue to lead the bulls to the Promised Land remains to be seen. However, there is no denying that the group is on a roll. And this time, we’re not talking just about the Government Sponsored companies such as AIG (AIG), Fannie (FNM), and Freddie (FRE). No, the move has been much broader than that. To be sure, the BKX (the KBW Bank Index) has put on an impressive show of late, moving higher by 1.7% yesterday and +7.5% in the last six sessions alone. (For comparison purposes the Dow has gained +2.01% during that same timeframe.)

Another explanation for the sudden and largely unexpected pop in the indices in the last hour was a Bloomberg report which highlighted the managed care group (think HMO’s). The report noted that a new Senate ruling could make it more difficult for the Democrats to use the “reconciliation” route to pass some sort of healthcare reform legislation. Politics aside, the bottom line is Wall Street generally believes that less is more in terms of government involvement.

The end result was the S&P finally joined the NASDAQ, Russell, and Midcap indices in new-cycle high territory (meaning a new high for this “mini bull” market move). However, we should note that you have to squint pretty hard to see the move in the S&P as the venerable market index managed to best its January high by just 0.01 points. Thus, the bears are not likely to concede a “breakout” and continue to suggest that the two major blue-chip indices are struggling with overhead resistance.

Finally, we should continue to note that the market has become overbought and extended from a short-term perspective. As such, traders of all shapes and sizes are probably looking for some sort of a pullback to buy into. However, with only one down day in the last ten sessions (which amounted to a drop of just 0.20 on the S&P 500), we have to recognize that the bulls are on a roll here. And in my experience this type of situation tends to continue until the opponents can come up with a reason to stop playing follow the leader.

Turning to this morning, the Commerce Department reported that Retail Sales rose in the month of February by +0.3%, which was above the consensus for an decline of -0.2%. When you strip out the sales of autos, sales were up by +0.8%, which, again, was a better than the consensus for an increase of +0.1%. And when you take out autos and gasoline, sales improved by +0.9%, which was also above the +0.3% consensus and January’s reading of +0.6%

Running through the rest of the pre-game indicators, the overseas markets are mixed by region with most of Asia lower and Europe higher. Crude futures are up $0.86 to $82.97. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.76%. Next, gold is moving up $6.20 to $1114.40 and the dollar is lower against the Yen, Euro, and Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing higher once again. The Dow futures are currently ahead by about 48 points; the S&P’s are up about 6 points, while the NASDAQ looks to be about 7 points above fair value at the moment.

Wall Street Research Summary


Corning (GLW) – Estimates increased at Bernstein Potash (POT) – Target increased at Canaccord Adams Agrium (AGU) – Target increased at Canaccord Adams International Paper (IP) – Mentioend positively at Deutsche Bank Google (GOOG) – Target increased to $715 at Oppenheimer Aeropostale (ARO) – Piper Jaffray Goldman Sachs (GS) – Initiated Buy at Societe Generale Morgan Stanley (MS) – Initiated Buy at Societe Generale


Abbott Labs (ABT) – Citi Pacific Sunwear (PSUN) – FBR Capital

Long positions in stocks mentioned: GOOG

Enjoy your Friday, have a pleasant weekend, and

David D. Moenning
Founder TopStockPortfolios.com

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


The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.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. 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 TopStockPortfolios 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 our websites and TopStockPortfolios publications 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.