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Daily State of the Markets For much of Monday, it appeared that the bears were ready, willing, and able to make a comeback. After the five-week joyride to the upside had created an overbought condition in all the major indices, no one was surprised to see the bears try to jump back in the game yesterday. Frankly, our guess is that even the most ardent supporters of the bull camp welcomed the idea of a respite in the action, regardless of how shallow or brief it might be. However, I’m guessing most analysts expected the pullback to last more than a couple of hours. Armed with uncertainty, some macro headwinds, and more political issues, one might have expected buyers to stand aside yesterday and wait for prices to come in a bit. But given the impressive rebound seen in the afternoon, it is clear that the bulls still have some wind in their sails at this point. The day started off on the right foot as far as the bears were concerned. China’s Premier Wen Jiabao made some stern comments about the U.S. budget deficit and once again voiced concerns about the stability of the dollar. This led analysts to fret that the Chinese might begin to raise interest rates instead of letting the Yuan appreciate. Next up, Moody’s offered up the rather disconcerting idea that while the U.S. and U.K. remain triple-A rated, both countries had moved “substantially” closer to losing those revered ratings. And finally, there was the resurgence of government intervention. Just about the time the bulls had become convinced that intrusive policies weren’t going to happen, the health care debate is back and Chris Dodd announced that the Volcker Rule would indeed be included in his financial regulatory reform bill. The headline stating the Dodd would include the Volcker Rule after all appeared to be particularly upsetting to traders – at least initially. The Dow dove 50 points in response and it looked like the bears had finally found that elusive trigger to get things moving their way. However, a little talk on the M&A front, some decent economic data, and the realization that none of the above was new appeared to be enough to send the buyers back into the game. While there didn’t appear to be any specific catalyst to the afternoon’s upside surprise, we will have to give the bulls credit for once again sticking to their game plan (which apparently includes marching a little higher each and every day) and refusing to yield. From a chart perspective, yesterday’s action had little impact. There wasn’t much of a pullback in the leaders (NASDAQ, Smallcaps, and Midcaps) and the blue chip indices remain trapped at resistance. So, with the Fed on tap this afternoon, it will be interesting to see if the bulls can continue the trend of rallying in front of a Fed announcement. If so, there is a chance that the Dow and S&P could break on through to the other side. Turning to this morning, the government reported that Import Prices for the month of February were down -0.3%, which was a tenth more than the consensus for a drop of -0.2%. In addition, Housing Starts in February fell 5.89% to an annualized rate of 575K, which was a little above the consensus for 570K. The January numbers were revised higher to 611K from 591K. Finally, Building Permits for February fell 1.6% to 612K, but were higher than the consensus of 601K. Running through the rest of the pre-game indicators, the overseas markets are mostly higher with only Japan and Hong Kong showing slight declines. Crude futures are up $0.27 to $80.07. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.71%. Next, gold is moving up $7.30 to $1112.70 and the dollar is lower against the Yen, Euro and Pound. 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 11 points; the S&P’s are up about 3 points, while the NASDAQ looks to be about 4 points above fair value at the moment. Wall Street Research Summary Upgrades: |
Clorox (CLX) – Barclays Domtar (UFS) – Added to Conviction Buy list at Goldman Parexel (PRXL) – Goldman Conventry Health Care (CVH) – Goldman St. Jude Medical (STJ) – Removed from Conviction Sell list at Goldman Medtronic (MDT) – Target increased at Goldman Onyx Pharmaceuticals (ONYX) – Goldman Alexion Pharmaceutical (ALXN) – Added to Conviction Buy list at Goldman Lockheed Martin (LMT) – Target increased at Morgan Stanley Sonic (SONC) – Piper Jaffray Ford (F) – Target increased at UBS Starbucks (SBUX) – UBS
Kimberly Clark (KMB) – Added to Conviction Sell list at Goldman Boston Scientific (BSX) – Added to Conviction Sell list at Goldman Teva Pharmaceutical (TEVA) – Removed from Conviction Buy list at Goldman Wyndham Worldwide (WYN) – Goldman Ship Finance (SFL) – JPMorgan Cheesecake Factory (CAKE) – Piper Jaffray Brinker Intl (EAT) – Piper Jaffray Psychiatric Solutions (PSYS) – Wells Fargo Western Union (WU) – Wells Fargo
Long positions in stocks mentioned: WYN
Remember to smile at least once before lunch and
David D. Moenning
Founder TopStockPortfolios.com
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