Daily State of the Markets 
Tuesday Morning – October 13, 2009  

With the S&P and NASDAQ higher for the sixth straight session and the Dow within striking distance of the magical 10,000 mark on Monday morning, it looked like the bulls were ready to don the party hats. However with the banks and the bond market closed, and a scary headline hitting the wires after lunch, traders appeared happy to simply wait for the earnings parade before making their next move.

It is no secret that the market indices are oftentimes more volatile when some of the players are missing and trading is a little on the thin side. Yesterday proved that point once again as a misleading headline created a swift selloff around 1:45 pm eastern from which the indices were unable to recover.

The headlines that came across the wires read something along the lines of: Homeland Security Secretary Napolitano says terrorists with ties to Al-Qaeda now in U.S. If you were simply reading the headline, you might be led to believe that Homeland Security was reporting a new terrorist threat here in the U.S. And although this was most definitely NOT the case, it didn’t stop stocks from diving 60 points or so in a matter of minutes yesterday afternoon.

However, after reading the story behind the provocative headline, which borders on irresponsible reporting, it became clear that there was no new threat. In an interview with Bloomberg, Napolitano said that it is fair to say that there are terrorists with ties or at least leanings toward Al-Qaeda living here in the U.S. Napolitano specifically pointed to the recent arrest in Denver as an example and talked about how the increase in technology has helped officials keep tabs on suspected terrorists.

Stocks did manage to recover a bit into the close but the low volume, the lack of attendance, and the trepidation in front of the earnings parade were probably the most prominent factors involved with yesterday’s session.

In short, traders have bid up stocks in front of the earnings season in anticipation of an improving economy and another round of better-than-expected corporate reports. This week, we’ve got reports from Johnson & Johnson (JNJ), Intel (INTC), CSX Corp (CSX), IBM (IBM), General Electric (GE), JP Morgan (JPM), Goldman Sachs (GS), Citigroup (C) and Bank of America (BAC). Thus, it will be very interesting to see if companies can come through with enough top-line growth to keep traders happy or whether this earnings season will turn out to be a “sell the news” type of affair.

Turning to this morning, we don’t have any economic data to review before the bell today but we will get some Fedspeak this afternoon from Vice Chairman Kohn and New York Fed President Dudley. In addition, Johnson & Johnson has come in with a report that was above expectations this morning.

Running through the rest of the pre-game indicators, the foreign markets are mixed by region with Asian markets up nicely and European markets hovering around breakeven. Crude futures are moving up again with the latest quote showing oil trading higher by $0.96 to $74.23. On the interest rate front, we’ve got the yield on the 10-yr trading up to 3.33%, while the yield on the 3-month T-Bill is currently at 0.06%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a flattish open. The Dow futures are currently off by about 17 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about a point above fair value at the moment.

Today’s Earnings Before the Bell:

Johnson & Johnson (JNJ) – Reported $1.20 vs. $1.13, Guides full year to $4.54 – $4.59 vs. $4.52

Upgrades/Downgrades/Brokerage Research:

Macerich (MAC) – Downgraded at BofA/Merrill Lam Research (LRCX) – Upgraded at Barclays StanCorp Financial (SFG) – Upgraded at Credit Suisse Ameriprise Financial (AMP) – Downgraded at Credit Suisse MetLife (MET) – Downgraded at Credit Suisse Lincoln National (LNC) – Downgraded at Credit Suisse Citi (C) – Initiated Buy at Deutsche Bank Pacific Sunwear (PSUN) – Upgraded at FBR Capital eBay (EBAY) – Estimates increased at Goldman Posco (PKX) – Added to Conviction Buy list at Goldman Cypress Semiconductor (CY) – Upgraded at Jefferies F5 Networks (FFIV) – Upgraded at Jefferies Juniper Networks (JNPR) – Upgraded at Jefferies Advanced Micro (AMD) – Upgraded at JMP Securities Joy Global (JOYG) – Downgraded at KeyBank DryShips (DRYS) – Upgraded at Lazard Goldman Sachs (GS) – Downgraded at Meredith Whitney Advisory

Long positions in stocks mentioned: GS, IBM

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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