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Daily State of the Markets |
Good morning. With stocks having skyrocketed on Monday in response to the G-20 saying it was okay to continue shorting the dollar; one might have expected to see some profit-taking on Tuesday. After all, the S&P had run up +5.4% in just six days and the Dow had broken out to a fresh new cycle high. But instead of a scary pullback that might have given the bears some hope, the market simply paused yesterday and awaited fresh inputs.
Tuesday was the kind of day that gives those of us trying to keep the commentary on the action interesting a bit of a challenge. In short, the dollar was up a little and while the Dow managed to forge ahead to another new high, the rest of the indices finished with modestly red numbers. All in all, not a bad effort.
In addition to what could have been deemed a break in the action, since 90% of the S&P 500 companies have reported earnings, the lack of direction during the day could also have been attributed to the lack of fresh inputs. And with a big batch of economic data due out of China Tuesday night, a day of waffling wasn’t exactly surprising.
Speaking of China, it should not be a surprise to anyone at this stage that it is the Chinese economy that is leading the global economic recovery. Thus, if you are looking for guidance on what to expect next from an economic standpoint, you need to acquaint yourself with the economic indicators in China.
The good news is that the basket of data released overnight was favorable. With no fewer than six economic indicators released, it was encouraging to see that nary a one pointed to signs of any kind of slowdown in the Chinese economy. For example, the report on Industrial Production – an indication of factory output – jumped to a 19-month high in October. And while the stock market response in Shanghai was muted, the reports on CPI, PPI, Retail Sales, and the October Trade Balance were all encouraging. The one sore spot was the fact that new loans originated in October were reported at CNY 253 billion, which was well below the expectations for a range of CNY 370 – 380 billion.
However, with Asian markets up nicely over the past week, we should recognize that some sort of a pullback may be in order. And while one can never tell whether it will be the U.S. market leading Asia or Asia leading the U.S., some profit taking wouldn’t be terribly surprising at this stage of the game.
In terms of how to play a pullback in stocks both here and abroad, we should also keep in mind that the period from mid-November through February has historically been very strong in the U.S. And if the Dow continues to be the leader, any pullback to the old highs (10,100ish) which is also accompanied by light volume could be used as a buying opportunity. The only fly in the ointment at the present time is the fact that the S&P and NASDAQ have yet to break on through to the other side, which is something that we will need to closely monitor.
Turning to this morning, once again there is no economic data to review before the bell. And with it being Veteran’s Day, the bond market and many banks are closed today. Therefore, unless something pops up to give traders a reason to get excited, it might be an opportunity to work on your early-season ski technique or get that one last round of golf in.
Running through the rest of the pre-game indicators, Asian markets were mixed while European Bourses are up nicely across the board. Crude futures are higher with the latest quote showing oil trading up by $0.40 to $79.45. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.47%, while the yield on the 3-month T-Bill is currently at 0.05%. Finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 60 points; the S&P’s are up by about 8 points, while the NASDAQ looks to be about 17 points above fair value at the moment.
| Yesterday’s Earnings After The Bell | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| Bob Evans | BOBE | $0.50 | $0.48 |
| Ralcorp Holdings | RAH | $1.14 | $1.24 |
| Weight Watchers | WTW | $0.68 | $0.64 |
| ZOLL Medical | ZOLL | $0.16 | $0.08 |
| Earnings Before The Bell | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| Flowers Foods | FLO | $0.34 | $0.34 |
| Macy’s | M | -$0.03 | -$0.07 |
Wall Street Research Summary
Upgrades:
Wynn Resorts (WYNN) – BofA/Merrill Fluor (FLR) – Citi FPL Group (FPL) – Citi T. Rowe Price (TROW) – Credit Suisse Banco Bilbao Vizcaya (BBV) – Credit Suisse Dicks Sporting Goods (DKS) – Estimate and target increased at Deutsche Bank Smithfield Foods (SFD) – Deutsche Bank Hewitt Associates (HEW) – Deutsche Bank Crown Castle (CCI) – Morgan Stanley Toll Brothers (TOL) – Wells Fargo
Allegheny Energy (AYE) – Citi Priceline.com (PCLN) – Credit Suisse Gamestop (GME) – Removed from Conviction Buy at Goldman Cytec (CYT) – Added to Conviction Sell at Goldman Tyson Foods (TSN) – JP Morgan Adobe Systems (ADBE) – Oppenheimer
Long positions in stocks mentioned: GS
* Report includes items that make comparisons to the consensus estimate questionable
Don’t forget, ego is the enemy… 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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