Daily State of the Markets
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
For more “top stock” portfolios and research, visit TopStockPortfolios.com
The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.com 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 TopStockPortfolios 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. Stocks 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 our websites and TopStockPortfolios publications 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.