Daily State of the Markets 
Tuesday Morning – November 17, 2009  

Once again, it was a falling U.S. dollar that helped the stock market advance smartly yesterday. However this time around, the market had some help as traders found a handful of reasons to push the major indices up through important resistance areas and on to new cycle highs.

To be sure, it was the dollar that was the focal point at the outset of trading. With the greenback falling to its lowest level since August 2008, the carry trade took on new life as the appetite for “risk assets,” particularly in the area of commodity stocks, appeared to surge.

And once again, it was what wasn’t said that helped push the dollar to its second lowest level ever. As was the case with the G20 meeting, officials at the APEC (Asia-Pacific Economic Cooperation) meeting did pledge support for stimulus measures and did NOT utter a single word about the dollar’s decline, the idea of supporting the greenback, or worries about the impact of a falling dollar. And although Ben Bernanke did mention that the Fed was monitoring the U.S. currency, he reinforced the idea that rates would stay low for an extended time. So, with literally no one in the world seeming to object in any way, shape, or form, to the ongoing decline in the dollar, investors continued to pile into the dollar carry trade in the knowledge that they were safe from central bank intervention for a while longer.

If you have any doubt that the dollar is the tail wagging the dog at the present time, feel free to pull up a 5-minute chart of yesterday’s trading for both the dollar index and the S&P 500. Pay particular attention to the action in the last hour of trading of both indices. While the bears will say that the buyers simply got tired and stocks pulled back into the close, it was actually a meaningless late-day rebound (likely due to some short-covering) in the dollar that caused stocks to give up some of their gains on the day as the S&P went tick-for-tick with the greenback.

However, it wasn’t just the latest dive in the dollar that was responsible for the move to new high ground for stocks. Both the bulls and bears had been watching the 1100 level on the S&P 500 with great interest as it had become obvious that this was a line in the sand from a chart standpoint. And while the dollar may have been the initial catalyst for additional stock buying, the bulls also got some help from a better than expected headline from the report on Retail Sales, word that General Motors (MTLQQ) will start repaying government loans early after generating a cool $3.3 billion in cash during the third quarter, and continued improvement in the charge-offs at credit card companies.

It was also encouraging that the breadth of the market was solid and that the volume picked up a bit on yesterday’s advance. So, as long as the bulls can avoid the dreaded “breakout fakeout” over the next few days, it would appear that the year-end rally is alive and well.

Turning to this morning, the government reported that the Producer Price Index (PPI) for the month of October gained +0.3%; below the expectations for a gain of +0.5% and above September’s reading of -0.6%. When you strip out food and energy, the so-called Core Rate was reported at -0.6%; well below the consensus for +0.1% and September’s decline of -0.1%.

Running through the rest of the pre-game indicators, with the exception of Shanghai, the foreign markets are fractionally lower across the board on the back of Ben Bernanke’s comments about significant headwinds remaining for the economy. Crude futures are lower with the latest quote showing oil trading down by $0.26 to $78.64. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.37%, while the yield on the 3-month T-Bill is currently at 0.05%. 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 30 points; the S&P’s are down by about 3 points, while the NASDAQ looks to be about 9 points below fair value at the moment.

Earnings Before The Bell
Dillard’s DDS -$0.03 -$0.51
Home Depot HD $0.41 $0.35
Jacobs Engineering JEC $0.63 $0.68
Saks SKS $0.01 -$0.11
Target TGT $0.58 $0.50
TJX Companies TJX $0.81 $0.80


Wall Street Research Summary


Exxon Mobil (XOM) – Barclays Intuitive Surgical (ISRF) – Mentioned positively at Deutsche Bank Applied Materials (AMAT) – First Global Palm (PALM) – Kaufman Bros Alkermes (ALKS) – Leerink Swann Adobe Systems (ADBE) – Named Top Trend Long at Research Edge Motorola (MOT) – Named Top Trend Long at Research Edge Google (GOOG) – Named Top Trend Long at Research Edge Hess Corporation (HES) – UBS Illinois Tool (ITW) – UBS National Fuel Gas (NFG) – UBS Devon Energy (DVN) – Wells Fargo


Smith Intl (SII) – Credit Suisse SunPower (SPWRA) – FBR Capital, Piper Jaffray BT Group (BT) – JP Morgan Vertex Pharmaceuticals (VRTX) – Merriman Curhan Ford Joy Global (JOYG) – UBS

Long positions in stocks mentioned: GOOG, TJX, NFG

* Report includes items that make comparisons to the consensus estimate questionable

Remember to think positive 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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