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Daily State of the Markets By most accounts, Monday’s round probably should have gone to our friends in fur. After running higher since the middle of December, stocks have become overbought, sentiment is a little too giddy, and the rally is getting long in the tooth. So, when stocks failed to follow their overseas brethren higher in response to all the good economic news out of China, we weren’t terribly surprised to see the bears start to make some noise. But just about the time I started reminding myself that a pullback is to be expected and unlikely to do much damage, the bears up and left the room. And from about the time the lunch bell rang, stocks started into a slow and steady march higher. The move really wasn’t anything to write home about as the NASDAQ, Russell, and Midcaps all finished a smidge lower, but the message was clear – it sure looks like people are putting money to work into any and all pullbacks right now. Everybody knows that the first week or so of January is traditionally strong due to money flowing into the market from money managers. And with the government bond market being overvalued by just about every measure known to man, it’s a safe bet that we’re probably seeing some of the asset allocators shifting money from bonds to stocks. But if you are wondering what the phrase “a liquidity driven market” looks and feels like, simply take a look at the intraday action of the stock market over the past couple of weeks. Perhaps yesterday morning’s sloppiness was due to the apprehension about the upcoming earnings parade. After all, the expectations for another strong earnings season might be growing since every analyst knows the year-over-year comparisons should be akin to hurdling a bar placed in a ditch. Or maybe there was some concern about Mr. Chavez playing around with his currency again. Or perhaps the resumption of the selling in tech caused traders to worry about the purported rotation from tech to financials picking up steam. But in any event, it sure felt like the market might roll over and do some downside testing about mid-morning. Frankly, I was a bit surprised that the bear’s moment in the sun was so brief yesterday. There is certainly some room to roam on the downside as support on the charts is a ways away. And the fact that there wasn’t much in the way of data inputs during the session could have left the market susceptible. But, with managers busy putting money to work, the downside just didn’t happen. Turning to this morning, it looks like the bears will have another shot at getting something going today after Alcoa kicked off earnings season after the bell with a thud and the Chinese raised rates on bank reserve requirements overnight. Thus, it will be interesting to see if money continues to come into this market during today’s anticipated pullback. On the economic front, the November trade deficit widened to $36.4 billion, which was larger than the consensus of $34.6 billion and October’s revised deficit of $33.2 billion. The report showed that Exports increased by 0.9% while Imports rose +2.6%; all largely due to an increase in oil prices. Running through the rest of the pre-game indicators, the overseas markets that were open after the move on rates in China are all lower. Crude futures are down with the latest quote showing oil off by $1.57 to $80.95. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.74%, while the yield on the 3-month T-Bill is at 0.04%. Next, gold is moving down by $3.70 and the dollar is higher against the Yen and Euro, but lower versus the Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 75 points; the S&P’s are down about 9 points, while the NASDAQ looks to be about 13.5 points below fair value at the moment.
* Report includes items that makes comparisons to the consensus estimate questionable Wall Street Research Summary Upgrades: |
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Infosys (INFY) – BofA/Merrill Alcoa (AA) – BofA/Merrill, Macquarie Procter & Gamble (PG) – BofA/Merrill Principal Financial (PFG) – Barclays Aflac (ALFL) – Barclays Prudential Financial (PRU) – Barclays QLogic (QLGC) – BMO Capital American Express (AXP) – Calyon Domino’s Pizza (DPZ) – Citi Under Armour (UA) – Target increased at Citi Gold Fields (GFI) – Credit Suisse DaVita (DVA) – Target increased at Deutsche Bank Comerica (CMA) – Goldman Sachs American Eagle (AEO) – Goldman Sachs MGM Mirage (MGM) – Goldman Sachs Cypress Semiconductor (CY) – Jefferies Atheros Comm (ATHR) – Jefferies Marvell (MRVL) – Jefferies Texas Instruments (TXN) – Jefferies Public Storage (PSA) – JP Morgan Camden Property (CPT) – JP Morgan Noble Energy (NBL) – Morgan Stanley UDR Inc (UDR) – Oppenheimer
Illinois Tool (ITW) – Argus Research Analog Devices (ADI) – BofA/Merrill Altera (ALTR) – BofA/Merrill Xilinx (XLNX) – BofA/Merrill PMC-Sierra (PMCS) – BofA/Merrill New York Community Bancorp (NYB) – BofA/Merrill Colgate-Palmolive (CL) – BofA/Merrill Alcoa (AA) – BMO Capital Gap (GPS) – Goldman Sachs Family Dollar (FDO) – Goldman Sachs EOG Resources (EOG) – Morgan Stanley Leap Wireless (LEAP) – Piper Jaffray
Long positions in stocks mentioned: INFY, AXP, AEO
Remember to smile at least once before lunch and until next time, “May the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
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