Daily State of the Markets 
Monday Morning – January 4, 2010  

Good morning and welcome to the 2010 edition of the game. Stocks ended the year on a down note Friday as sell programs hit the indices hard when no one was looking. The action was not positive from a technical perspective as the DJIA was pushed back into its trading range. Thus, the question of the day is if the late-day dive was simply “hedge fund follies” or a prelude of things to come?

In the early going, it looked as if the bulls might be able to keep their end-of-year romp going as the report on Weekly Jobless Claims showed that initial filings for unemployment insurance fell 22,000 to 432,000; the lowest level since July 2008. In addition, ongoing claims for unemployment fell to 4.981 million, which was not only below the 5 million mark, but also under the consensus for a reading of 5.1 million.

However, the report was met with instant skepticism. First, the seasonal adjustments may have wreaked havoc with the data. And second, with the number of people collecting benefits for more than 26 weeks continuing to rise, the report suggests that while layoffs have eased, hirings have not yet picked up.

Although the jobs data wasn’t bad, stocks headed lower out of the gate. The major press outlets called it profit taking, but in reality, it was the bond market that was the primary source of the problem on Friday – well, until the programs kicked in, that is.

Everybody knows that rising interest rates are not good for stocks. Everybody also knows that the Fed has no plans to raise interest rates anytime soon as most economists project that the FOMC will stay on the sidelines throughout 2010. However, it is important to keep in mind that the Fed doesn’t control market rates. And don’t look now fans, but interest rates spiked in December.

Although anyone who was actually at their desk on Friday would have preferred to see another lazy up day to pad their gains for the year, the move in the yield of the 10-year T-Note to a new high for the year was simply impossible to ignore. So, with yields pushing through 3.9% and the dollar rising, stocks moved lower and spent most of the day down 60 Dow points or so.

Then, just about the time everyone started packing up the briefcase and was checking on their dinner reservations and party plans, somebody somewhere decided to have some fun with their computers. The sell programs pushed stocks down 75 points in about 20 minutes and with nobody home in the bull camp to defend their turf, stocks finished at the lows of the day.

The good news is that only the DJIA, which has been a laggard for the past month, wound up in trouble on a chart basis after the dust settled. For the S&P, NASDAQ, and Russell, the quick drop appeared to be simply a pullback in an ongoing uptrend. So, unless rates continue to rise or something comes out of the woodwork, we’ll chalk up Friday’s action to fun and games with computers and get ready to start the game anew this morning.

Turning to this morning, we don’t have any economic data to review before the bell. However, we will get the ISM Manufacturing and Construction Spending reports at 10:00 am eastern.

Running through the rest of the pre-game indicators, the overseas markets are mostly higher. Crude futures are up with the latest quote showing oil trading higher by $1.62 to $80.98. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.85%, while the yield on the 3-month T-Bill is at 0.08%. Next, gold is moving up by $22.50 and the dollar is higher against the Yen and Pound, but lower versus the Euro. Finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to nice start to 2010. The Dow futures are currently ahead by about 50 points; the S&P’s are up about 6 points, while the NASDAQ looks to be about 17 points above fair value at the moment.

Wall Street Research Summary


Boeing (BA) – Barclays Joy Global (JOYG) – Target increased to $67 for $64 at Barclays UnitedHealth (UNH) – Citi Morgan Stanley (MS) – Credit Suisse, UBS Frontier Oil (FTO) – Deutsche Bank Tesoro (TSO) – Deutsche Bank Sunoco (SUN) – Deutsche Bank Valero (VLO) – Deutsche Bank Ultra Petroleum (UPL) – Added to Conviction Buy at Goldman Sachs Beckman Coulter (BEC) – JP Morgan Priceline (PCLN) – Estimates and target increased at Piper Jaffray Morton’s Restaurant (MRT) – Piper Jaffray Ruth’s Hospitality (RUTH) – Piper Jaffray UPS (UPS) – RW Baird Heartland Express (HTLD) – RW Baird Intel (INTC) – RW Baird Patterson Companies (PDCO) – RW Baird Edwards Lifesciences (EW) – RW Baird Las Vegas Sands (LVS) – UBS Wynn Resorts (WYNN) – UBS Broadcom (BRCM) – Wells Fargo Alcon (ACL) – Wells Fargo FPL Group (FPL) –Wells Fargo


Expedia (EXPE) – Credit Suisse Chesapeake Energy (CHK) – Goldman Sachs Telecom Italia (TI) – Morgan Stanley Wellcare Health Plans (WCG) – Oppenheimer Boston Scientific (BSX) – RW Baird Brinker Intl (EAT) – UBS Infosys (INFY) – Wells Fargo

Long positions in stocks mentioned: JOYG, PCLN, EXPE, INFY

Try smiling at everyone you meet today 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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