Daily State of the Markets
Thursday Morning – January 5, 2012

Good Morning. I’ll be honest; I was not a happy camper at about 8:30 am mountain time Wednesday morning. Stocks were reacting badly to a renewed stream of negatives from across the pond and frankly, it felt like the bad old days had returned. Deep down, I knew that we had enjoyed a respite from the news-driven nightmare during Santa’s visit to the corner of Broad and Wall last week. But it was still discouraging to see the market tick to new fresh new lows after each and every miniscule bounce in the early going yesterday.

Although the optimist in me hoped to see some follow-through from Tuesday’s jaunt to the upside, I also saw that the news flow didn’t favor the bulls. You had a report that Spain was in talks to borrow directly from the EU/IMF, which meant that the contagion had claimed another country. You had Italy’s big bank, UniCredit being forced to discount its capital offering by 43% in order to attract buyers. You had Hungary cancelling their auction after rejecting all bids from their prior auction due to the fact that rates were over 9%. You had a lukewarm auction in Germany. And you had a host of reports talking about Greece leaving the Eurozone. So, my guess was that the bears were going to have a field day.

However, a funny thing happened on the way to the wipeout (or what I felt could quickly become a very bad outing). Just about the time things were getting ugly, Ford reported that they had sold more cars and trucks than analysts had expected. Oh and a few minutes prior to that, the U.S. banking index made a u-turn and started to move higher. Just like that, the nastiness started to dissipate. And by lunchtime, the DJIA had clawed its way back into the green.

So, what should we make of this? Should we assume that the bears merely ran out of reasons to sell Wednesday morning? Or should we recognize that despite the rebound, the bulls were unable put up any kind of follow-through from Tuesday’s rally? Or should we assume that mutual funds were reallocating funds at the beginning of the year into weakness or that the fast-money was waiting on the results of France’s auction? (Yes, I actually heard all of these arguments bandied about yesterday.)

While we won’t know for sure until the next really bad thing happens in Europe, it appears that the U.S. stock market was able to brush off the sovereign debt worries for another day. And in my humble opinion, each day we don’t get trashed on account of Europe’s woes is a day closer to the end of the crisis. So, I’m of the mind that we just need to take it one day at a time right now and recognize the good stuff when we see it.

Finally, I will note that the technical picture is exceptionally muddy right now and that there is a chart for just about everyone these days. For example, if you’re feeling bullish, you will likely enjoy the chart of the DJIA. The Dow appears to have broken out and is embarking on a new leg higher. However, if you prefer to dress in fur these days, you will want to focus on the NASDAQ where the chart is still less than positive. Then the midcaps go to the bears while the smallcaps look to be siding with the bulls. And as for the S&P, well, it appears to be doing its best Switzerland imitation right now and remains neutral.

So, which team has it right here? Frankly, I’m not sure and since my investing strategy isn’t based on the use of a crystal ball, I’m going to keep an open mind and continue to, yep, you guessed it; take it one day at a time.

Turning to this morning… Alhthough demand was considered strong at France’s latest bond auction, yields did rise (to 3.29% from 3.18% in December on the 10-year). In addition, Greece’s PM announced that the country could default in March if unions don’t agree to pay cuts. In addition, there is more talk of downgrades in France, big problems in Hungary and hefty losses on stocks in Italy and Spain. Finally, Chinese stocks continue to fall. All of the above have combined to push European markets and U.S. futures lower.

On the Economic front… ADP reported that the private sector job market expanded by 325K jobs during December, which was well above the consensus expectations for a gain of about 179K.

Next up, Initial Claims for Unemployment Insurance for the week ending 12/31 fell by 15,000 to 372K,which was below the consensus estimate for 375K and also last week’s revised total of 387k (from 381K). Continuing Claims for the week ending 12/24 came in at 3.595M vs. consensus of 3.617M and last week’s 3.617M.

Finally, we’ll get Bloomberg Consumer Comfort at 9:45 and most importantly, the ISM Services report at 10:00 am eastern.

Thought for the day… Remember, no one plans to fail…

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

  • Major Foreign Markets:
    • Australia: +0.46%
    • Shanghai: -0.96%
    • Hong Kong: -1.01%
    • Japan: -0.83%
    • France: -0.95%
    • Germany: -0.70%
    • Italy: -3.19%
    • Spain: -2.05%
    • London: -0.41%
  • Crude Oil Futures: -$0.30 to $102.92
  • Gold: +$2.00 to $1614.70
  • Dollar: lower against the Yen, higher vs. Euro and Pound
  • 10-Year Bond Yield: Currently trading at 2.003%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -4.05
    • Dow Jones Industrial Average: -27
    • NASDAQ Composite: -1.41

Positions in stocks mentioned: None

For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com

The opinions and forecasts expressed herein are those of Mr. David Moenning 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 StateoftheMarkets.com 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. One 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 this report 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.