Daily State of the Markets 
Wednesday Morning – January 6, 2010  

Good morning. Although the S&P did manage to finish with a second straight day of gains, the rest of the major indices were mixed on Tuesday. With some big economic numbers due out this week (ISM Non-Manufacturing this morning and Employment on Friday) and a mixed bag of data on Tuesday morning, it was logical for stocks to pause after opening the year with a bang on Monday. In short, traders may need some reassurance from the data before they chase stocks higher at this stage of the game.

Logic would seem to dictate that the economic data remains a driving force right now. But unfortunately, yesterday’s data didn’t provide much direction. For example, after rising for 10 consecutive months, the National Association of Realtors reported that Pending Home Sales fell 16% in November. The report was significantly weaker than the expectations for a smaller decline of 2% and seemed to run counter to the idea that the extension of the Tax Credits for homebuyers would help buoy the market.

Yet, the report on Factory Orders came in much better than expectations and seemed to offset the punk data on housing. The commerce department reported that Factory Orders increased by 1.1% in November, which was more than double the expectations for a gain of 0.5%. And in digging into the numbers, there was good news on the inventories and capital good fronts.

So, with something for everyone on the economic front, the bulls and bears were left to duke it out. And while the bears seemed to have the upper hand throughout much of the day, the bulls did manage to save some energy for an afternoon rebound. The move up off the bottom kept the Dow above the top end of the old trading range and the rest of the indices in an uptrend.

Although the action was sloppy for much of the day, there were definitely pockets of strength seen in the market as the January Effect appears to be in full swing in certain areas. Also supporting the market at this time of year is the flow of funds as pension fund managers generally put the new money they’ve received to work.

While the economic data and the reports on auto sales got most of the headlines yesterday, we would be remiss if we didn’t point out that the weakness in the stock indices mid-day did seem to correspond to some strength in the dollar. So, with conflicting data, an overbought market, big numbers on the horizon, and some movement in the dollar, it is little wonder that traders appeared to think twice for much of the session on Tuesday.

Turning to this morning, we got some news on the jobs front this morning as Challenger, Gray & Christmas reported that December’s planned job cuts fell to their lowest level since December 2007 and that private sector job losses were at their best level since March 2008. However, the headline number from the ADP report shows that the economy lost 84,000 jobs in December, which was above the consensus for 75K. In addition, we’ll get the ISM Non-Manufacturing report at 10:00 am eastern.

Running through the rest of the pre-game indicators, the overseas markets are mostly higher – once again, more so in Asia than in Europe. Crude futures are down a smidge with the latest quote showing oil off by $0.11 to $81.66. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.77%, while the yield on the 3-month T-Bill is at 0.06%. Next, gold is moving up by $9.00 and the dollar is higher against the Euro and Pound, but lower versus the Yen. Finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to another flat-to-down open. The Dow futures are currently off by about 5 points; the S&P’s are down about a point, while the NASDAQ looks to be about a point below fair value at the moment.

Wall Street Research Summary

Upgrades:

Brinker Intl (EAT) – BofA/Merrill Cree (CREE) – BofA/Merrill Covanta Holdings (CVA) – BofA/Merrill Dow Chemical (DOW) – Barclays Brooks Automation (BRKS) – Barclays Ameriprise Financial (AMP) – A top pick for 2010 at Bernstein Manpower (MAN) – Citi Robert Half (RHI) – Citi Cytec (CYT) – Removed from Conviction Sell list at Goldman Schnitzer Steel (SCHN) – Goldman Worthington (WOR) – Goldman Martin Marietta Materials (MLM) – Added to Americas Conviction Buy at Goldman 3M (MMM) – Added to Conviction Buy at Goldman SAIC (SAI) – JP Morgan British American Tobacco (BTI) – Nomura Securities Fastenal (FAST) – Piper Jaffray Lincoln Electric (LECO) – Piper Jaffray Cerner (CERN) – RW Baird

Downgrades:

Commercial Metals (CMC) – Goldman Lockheed Martin (LMT) – Goldman Time Warner Telecom (TWTC) – Jefferies IRobot (IRBT) – JP Morgan Philip Morris (PM) – Nomura Securities Kansas City Southern (KSU) – UBS Deutsche Telekom (DT) – UBS

Long positions in stocks mentioned: MMM, CERN

Make the decision to have a great day 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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