Daily State of the Markets Good morning. It was confidence, or in this case, a lack thereof, that was the focal point of trading on Tuesday. Just about the time traders still on the fence about the direction of the market decided they’d best get onboard the bull train, a crisis of confidence hit them smack between the eyes and the Dow for a triple digit decline. Okay, that might be a touch dramatic. But there is little doubt that the word confidence was everywhere yesterday, and I do mean everywhere. Things got off to a weak start (unless you were long the dollar) after Germany’s IFO Business Climate Index fell unexpectedly in February, marking the first decline in 11 months. Then there were similar reports (although not quite as dire) out of the Italy and France. There was the comment from Bank of England Governor King, who noted that the UK economy was fragile and that the recovery may have stalled out across the pond. And there was some uneasiness over a Greek bond issue as well as Fitch’s downgrade of the country’s four largest lenders. Now toss in back-to-back declines in China as investors returned from a week off to celebrate the Chinese New Year and the report from the Conference Board that consumers’ current view of the U.S. economy fell to its lowest level in 27 years, and well, you’ve got a reason or three to hit the sell button. While I don’t want to spend too much time in the bitter barn, there is the chance that the market’s recent 8% dance to the downside and all the politicking going on in Washington has consumers convinced that things just aren’t going to improve anytime soon. And it is for this reason that the warm fuzzies of the last two weeks went away in a hurry after the Conference Board released their report on Tuesday. However, there may have been a couple other factors at work yesterday. First, as I’ve mentioned a time or twenty, the stock market has been led around by the nose by the U.S. dollar for some time now. Thus, if you’ve been paying attention, you probably won’t be surprised to learn that the greenback made another new cycle high yesterday. But from where I sit, one of the main reasons for yesterday’s shellacking was a vacuum of buyers. One short day ago, I was talking about buying the dips again and that the corrective phase had likely run its course. And one short day ago, I would have considered adding to long positions into Tuesday’s tumble. However, the reason I didn’t do any nibbling yesterday is that Ben Bernanke is scheduled to offer up his semiannual testimony before the House and Senate on Wednesday and Thursday this week. Why worry about what Mr. Bernanke has to say, you ask? Prior to last Thursday, this would have been a very good question. But after the Fed surprised us by raising the Discount Rate out of the blue, can you really blame me or anybody else for sitting on their hands Tuesday? In all honesty, we don’t expect any “tape bombs” to come out of the Bernanke testimony. But after last week’s little Fed maneuver, which we’ve been assured was meaningless, traders really can’t be sure. So in short, anybody thinking about buying yesterday probably figured it couldn’t hurt too much to first hear what Mr. Bernanke has to say. Turning to this morning, although we will get a report on New Home Sales later this morning, all eyes will be on Mr. Bernanke who begins his testimony at 10:00 am eastern . Running through the rest of the pre-game indicators, the overseas markets are mixed with most of Asia lower and European bourses waffling around breakeven. Crude futures are up $0.39 to $79.25. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.71%. Next, gold is moving down by $8.30 to $1094.90 and the dollar is lower against the Yen, Euro, and Pound. Finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a better open. The Dow futures are currently ahead by about 25 points; the S&P’s are up about 2.5 points, while the NASDAQ looks to be about 8 points above fair value at the moment.
* Report includes items that make comparisons to the consensus estimate questionable Wall Street Research Summary Upgrades: |
Apple (AAPL) – Estimates increased at Bernstein Salix Pharmaceuticals (SLXP) – BMO Capital ONEOK Partners (OKE) – Citi Maguire Properties (MPG) – Credit Suisse FPL Group (FPL) – Credit Suisse McDonald’s (MCD) – Reiterated Buy at Deutsche Bank EOG Resources (EOG) – Goldman Exco Resources (XCO) – Added to Conviction Buy at Goldman US Steel (X) – Mentioned positively at Morgan Stanley AK Steel (AKS) – Mentioned positively at Morgan Stanley Under Armour (UA) – Morgan Stanley Autodesk (ADSK) – Needham FMC Technologies (FTI) – RBC Capital Cracker Barrel (CBRL) – Estimates and Target increased at RBC Capital Lamar Advertising (LAMR) – Wedbush Securities
Downgrades:
Apache (APA) – Goldman Ultra Petroleum (UPL) – Removed from Conviction Buy at Goldman Noble Energy (NBL) – Oppenheimer Kindred Healthcare (KND) – RBC Capital
Long positions in stocks mentioned: AMT, AAPL, OKE, LAMR
Regardless of the color on the screen, make every effort to enjoy the day and until next time, “May the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
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