In U.S. Market, Sea Changes and New Tensions

Includes: DD, KCP, LMT, LXK, SNY, X
by: Wall Street Strategies
By Charles Payne
There's a different type of tension in the air all of a sudden. A kind of feeling that one has to be long rather than short or flat. In a market where it seems like most professionals have their minds made up, and most individuals sway with the wind, gaining traction is hard, but changing course is an even more arduous task. Without a doubt, however, there was a sea change last week that carried over into Monday. Once it was automatic that stocks sold off into the last hour of trading, yesterday they picked up momentum. Caution is still thick enough you could cut it with a knife. Still, enough investors have stopped mourning long enough to whistle as they walk across the graveyard.

Volume was impressive in several individual names like Kenneth Cole (NYSE:KCP) and Alberto Culver (NYSE:ACV), as consumer oriented stocks act great. Talk about contrarian action. There were no takeovers to greet investors but serious hot scuttlebutt in the biotech sector with perennial takeover candidate Genzyme (GENZ) thought to be in the scope of several large drug companies. I'd love to see a bidding war over GENZ; if Terrell Owens can have a couple teams vying for his services then it's not unreasonable for a couple of drug companies with thin product pipelines and aging patents to try and bolster their line of products. On that note, it's conceivable we could see major acquisition action in numerous industry groups as the market begins to rebound.

Everyone is so snakebit it's hard to say (or write) out loud when the market looks to be on the cusp of taking off. Volumes were impressive, the close was encouraging, and there is still a ton of skepticism out there... all the pieces I like when a market is breaking out. The notion of a market rally is counterintuitive to be sure. Hell, what has changed? It's all there...

* Heart-wrenching unemployment
* Real estate in a sinkhole
* Lack of confidence
* An avalanche of regulations, higher taxes, and discouragement.

Admittedly, it's the contrarian in me that feels most confident simply because common sense suggests we should all be cowering in a bunker somewhere. But, how long are we going to cower? That's not what we are all about.

Technically, the market looks like a screaming buy. Closing at a very pivotal resistance point on okay volume and stretching above those key moving averages (exponential). Dare I say 10,900 is possible with the next leg higher on the Dow.
Presidents present budgets, but they must be approved and amended by Congress. I bring this up because of the campaign to suggest the Mount Everest of debt being compiled by the current Administration belongs to the last guy. Not true. In fact, after the Bush tax cuts, the deficit began to decrease until the Democrats took over Congress in 2007. Massive omnibus spending was snuck into the budget by Pelosi and Reid, and this calamity has only gotten worse. I'm just saying.

Earnings & Guidance More Convincing

* DuPont (NYSE:DD): $1.17 per share versus consensus of $0.93 per share; revenue +26%, also beating the Street.
* Lockheed Martin (NYSE:LMT): Mixed report here. Company was light on revenue, but beat consensus earnings by $0.18. Earnings guidance, in light of the strong earnings beat, was soft. The company increased its earnings per share outlook for 2010 to a range of $7.15 to $7.35 from April guidance of $7.00 to $7.20, saying it reflected a reduction in average shares outstanding due to higher than expected share repurchases during the second quarter. The big profit beat appears to stem from a tax benefit and the increased share repurchase activity.
* US Steel (NYSE:X): Hard to decipher whether the company missed mightily or missed to a lesser degree. Either way, the company looks to have missed on earnings, and suggested shipments and production are planned lower in current quarter. Emerging markets cooling?
* Lexmark (NYSE:LXK): The standout earnings report for the morning as the company beat by a whopping $0.30. Management called out new product lines and positive industry trends (shift to inkjet) as the drivers of the better than planned bottom line. Revenue also meaningfully surpassed consensus.

Economic Data

Case-Shiller Index

The Case Shiller index for May increased by 1.3% from April, and was 4.6% higher year over year. Considering May was the first month without the federal tax credit for home purchases, it would not have been surprising to see a decrease, so it's good to see home prices are still able to show some stability. That being said, the people who make the report noted that there is likely a residual effect from the tax credit for homes that were ordered but not closed yet. In addition, May is a seasonally a strong month. Nevertheless, the market takes price increases whenever it can get them; we are glad to see anything but a plunge (take for instance the positive market reaction to yesterday's new home sales report which increased from the lowest level on record to the second lowest).

Disclosure: None