Daily State of the Markets: Foreshadowing?

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 |  Includes: BAC, CLR, CP, CQP, ESV, FDX, FST, JCI, KSU, MOS, POT, RHI, TSCO, TSN, UNFI, WLL, ZION
by: David Moenning

Good morning. I have been saying for a week or so now that we're smack in the middle of a news-driven market. This basically explains the volatility and the manic depressive behavior seen recently as stocks tend to be up one day and then down the next. However, the only problem with this assessment is that the news really didn't drive the market on Tuesday.

I'm sure you too saw all of the reports yesterday suggesting that stocks were higher in response to a decline in oil prices. However, with oil closing down a whopping $0.42 to $105.02, it is hard to get too fired up about the idea that it was this bit of "news" that drove the Dow up 124 points. And I do understand that Brent crude was down more, but again, this is hardly the stuff from which celebrations are born.

I know, I know ... there was the news from Bank of America (NYSE:BAC) where CEO Brian Moynihan had good things to say about the future. And then there was the report out of China that the powers-that-be may have rolled back the reserve requirements for certain banks (which would be an indication that the Chinese might not be dumb enough to completely kill the Chinese economy with their tightening campaign after all). And yes, there was the news relating to the possible postponement of the news fees for the credit card companies. Oh, and there was the rumor du jour that Gadhafi was stepping down.

However, none of the above really justifies the nearly complete reversal of Monday's dance to the downside. The bulls could be heard arguing that it is the fourth successful test of the 1305 area on the S&P that we should be paying attention to. But then again, our furry friends in the bear camp are quick to point out that the overhead resistance remains solidly in place.

So, if it wasn't the news that drove the action on Tuesday, what was it? While I can clearly be accused of "just spitballin' here," I'm of the mind that we might be seeing some foreshadowing of good things to come.

Here's my thinking (and please note that I reserve the right to retract this idea upon a moment's notice if proven wrong, because, remember, this game isn't about being right!). The bears have had more than a couple opportunities to swing the momentum to their side of the field lately. But, with the market trading in a relatively tight range, you've got to admit that the glass-is-half-empty crowd hasn't been able to do much with their opportunity.

Next up, my hunch is that if traders truly believed that the Libyan situation was going to have an impact on the global economy, or that there was going to be serious problems in Saudi Arabia later this week, then we might be seeing the S&P trade down to the 1280 zone right about now. Remember, the battle cry amongst the fast-money traders is "panic first and ask question later." But instead, the bulls appear to be holding up pretty well as the S&P is currently just -1.6% from its recent high.

Finally, most technicians understand that a market tends to exit a consolidation pattern heading in the same direction it was moving when it entered the pattern. So, unless the bears can get their act together tout suite, I'm going to assume that every trader who has ever read "Technical Analysis for Dummies" will soon be looking for a breakout to pile onto.

Turning to this morning ... Stock futures are a little above fair value as the risk trade seems to be waning a bit of late. In the news this morning, we have Libyan officials flying to Cairo carrying a message from Gadhafi, a less-than inspiring auction in Portugal, and mixed foreign markets.

On the Economic front ... We don't have any economic data to reveiw before the bell, but we will get the report on Wholesale Inventories at 10:00 am eastern.

Thought for the day: Consider raising your expectations. As Michelangelo said, the danger is not that your hopes are too high, but rather...

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell ...

  • Major Foreign Markets:
    • Australia: -0.80%
    • Shanghai: +0.11%
    • Hong Kong: +0.42%
    • Japan: +0.61%
    • France: +0.22%
    • Germany: +0.33%
    • London: -0.28%
  • Crude Oil Futures: +$0.17 to $105.19
  • Gold: +$9.10 to $1436.30
  • Dollar: higher against the Yen, lower vs. Euro and Pound
  • 10-Year Bond Yield: Currently trading at 3.529
  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -0.30
    • Dow Jones Industrial Average: +9
    • NASDAQ Composite: -2.8

Wall Street Research Summary

Upgrades:

  • Johnson Controls (NYSE:JCI) - Barclays
  • Cheniere Energy Partners (NYSEMKT:CQP) - Citi
  • Ensco PLC (NYSE:ESV) - Credit Suisse
  • Tyson Foods (NYSE:TSN) - Deutsche Bank
  • Tractor Supply (NASDAQ:TSCO) - RW Baird
  • Zions Bancorp (NASDAQ:ZION) - Stifel Nicolaus
  • Forest Oil (NYSE:FST) - Susquehanna

Downgrades:

  • United Natural Foods (NASDAQ:UNFI) - Argus
  • Mosaic (NYSE:MOS) - Citi
  • Potash (NYSE:POT) - Citi
  • FedEx (NYSE:FDX) - Estimates reduced at JPMorgan
  • Canadian Pacific (NYSE:CP) - Estimates reduced at JPMorgan
  • Kansas City Southern (NYSE:KSU) - Estimates reduced at JPMorgan
  • Continental Resources (NYSE:CLR) - Morgan Keegan
  • Whiting Petroleum (NYSE:WLL) - Morgan Keegan
  • Robert Half (NYSE:RHI) - Morgan Stanley

Disclosure: Long positions in stocks mentioned: KSU