Daily State of the Markets 
Tuesday Morning – September 15, 2009  

By all accounts, Monday probably should have been a down day. After rallying for five straight days and then stalling on Friday, it appeared that all the bears needed was some sort of a trigger to knock their opponents back from whence they came. So, with talk of trade wars and protectionism sending the global markets lower Monday morning, it looked as if the bulls – like Roger Federer – might have met their match.

While the bickering over tires between the U.S. and China got most of the attention in the pre-market, there was plenty of negativity to go around. There was talk about how the weak dollar, which by the way, seems to make new 52-week lows with regularity of late, will weigh on the global recovery. There were comments from Moody’s regarding bank losses in the U.K. There was some angst over what the President might say on Wall Street. And there was a good deal of red ink in the foreign markets.

So, not unexpectedly, stocks opened to the downside and before you could hit the mute button on the remote, the Dow was down 70 points. At this point, the technically inclined were busy measuring the morning’s low against the late-August highs and gauging the potential for the dreaded breakout fakeout. But as has been the case lately, the dip buyers showed up for no real reason and saved the day.

Well, okay, while they weren’t headline grabbers, there may have been a couple of decent reasons to hit the buy button besides the brief encounter with red numbers. First off, there was some new M&A speculation and we all know how Wall Street loves their M&A deals. The London Telegraph reported that Deutsche Telekom (DT) had retained advisors to explore a transaction with Sprint Nextel (S), which was up 10.1% on the session. In addition China Investment Corp is talking about taking a stake in AES Corp (AES). And speaking of utilities, the group was one of the day’s best performers after getting some kind words over the weekend in Barron’s.

In addition, with all the talk of protectionism and the potential for a trade war with China, somebody put a pencil to the situation and discovered that tires account for less than one-tenth of 1% of China’s total exports. Thus, it would appear that the tariff imposed was more of a minor gripe than the start of a serious argument.

So, while the bears definitely had an opportunity yesterday, they once again didn’t do anything with it as the bulls were able to push the S&P, NASDAQ, and Russell to another batch of new cycle highs.

Turning to this morning, we’ve got a host of economic data to sift through, so let’s get right to it. The August Producer Price Index came in with a gain of +1.7%, which was higher than the consensus for +0.8% and July’s -0.9%. When you strip out food and energy, the so-called Core Rate saw an increase of +0.2% vs. +0.1%. Next up, Retail Sales for August rose by +2.7% vs. expectations for +1.9% and then, ex-autos, sales were +1.1% vs. +0.4%. Finally, the Empire Manufacturing Index came in at 18.88, which was above the consensus for a reading of 15 and August’s level of 12.08. And as you might expect, stocks have moved up on the report despite the fact that the retail sales headline was once again impacted by the cash-for-clunkers program.

Running through the rest of the pre-game indicators, the foreign markets are fractionally mixed. Crude futures are moving higher with the latest quote showing oil trading up by $0.53 to $69.39. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.46%, while the yield on the 3-month T-Bill is currently at 0.13%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 15 points; the S&P’s are up about 2 points, while the NASDAQ looks to be about 2 points above fair value at the moment.

Today’s Earnings Before the Bell:

Best Buy (BBY) – Reported $0.37 vs. $0.41 Cracker Barrel (CBRL) – Reported $0.99 vs. $0.94

Upgrades/Downgrades/Brokerage Research:

Goodrich (GR) – Downgraded at BofA/Merrill Xerox (XRX) – Upgraded at Barclays Yahoo! (YHOO) – Upgraded at Bernstein ArcelorMittal (MT) – Upgraded at Citi Adobe Systems (ADBE) – Target increased at Credit Suisse Molson Coors (TAP) – Mentioned positively at Deutsche Bank OSI Pharmaceuticals (OSIP) – Upgraded at Goldman Cardinal Health (CAH) – Upgraded at Goldman AmerisourceBergen (ABC) – Target increased at Goldman McKesson (MCK) – Target increased at Goldman FLIR Systems (FLIR) – Downgraded at JP Morgan Teradyne (TER) – Upgraded at Oppenheimer eBay (EBAY) – Upgraded at Piper Jaffray, UBS Health Net (HNT) – Downgraded at UBS CBS (CBS) – Upgraded at Wells Fargo Cooper Industries (CBE) – Upgraded at Wells Fargo

Long positions in stocks mentioned: GS, TAP

Remember to smile at least once before lunch 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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