David Moenning's  Instablog

Daily State of the Markets 
Tuesday Morning – December 28, 2010

Good morning. Once again the bears had an opening on Monday. With China surprising nearly everyone on Christmas day by raising interest rates for the second time since mid-October, our furry friends had ample ammunition to spread some fear. However, it appears that our furry friends must have been snowed in Monday morning and just didn't have the energy to make it into work.

While most analysts had expected China to hike rates again before the end of the year, the timing of the move seemed to catch everyone off guard. Thus, it is easy to jump to the conclusion that Chinese officials are worried and have decided to get aggressive. And given that this could be considered a divergence from the stated goal of returning monetary policy to a more "prudent" mode, it would not have been surprising to see stocks take a hit on the move.

One argument for the reason stocks failed to take a dive on Monday would be the fact that the east coast was buried in snow. However, given the state of technology these days, I'm guessing that if traders really wanted to get the selling party started they could have easily done so from their Droids or iPads, or laptops.

Another thought as to why the rate hike in China didn't cause much of a stir is that the Chinese are merely returning their monetary policy to more normal levels. Thus, the fact that China is moving from a "moderately loose" monetary policy and moving toward a "more prudent" stance means that officials aren't exactly declaring war on inflation/asset bubbles at this point. And remember, the time to invoke the "don't fight the fed" rule is when a central bank is "on a mission" and not when they are simply adjusting policy for conditions.

One other thought as to why all the indices save the DJIA found their way into the green by the end of the session on Monday has to do with the alligators and the dippers. I don't know about you, but I've spent much of the last two weeks working on positioning portfolios for the New Year. Therefore, this is the time when the asset allocators (aka the "alligators) are busy moving things around. And since bonds are very overvalued while stocks are, at worst, fairly valued, those making allocation decisions are said to be moving money into U.S. stocks.

On that note, it is also interesting to recognize that 2011 is being talked about as the year of the U.S. in equities. Thus, it appears that the dip-buyers continue to do their thing each and every time stocks meander into the red for any length of time. And while we could certainly see this continuing into the New Years Eve celebrations, the real question is if the buyers will continue after the page on the calendar is turned.

To be sure, stocks are overbought and sentiment has reached extremes. As such, we need to understand that the market is vulnerable to disappointment at this stage. Therefore, while it is the season to celebrate and it does look like the first half of 2011 could be fun for equity investors; this is no time to become overly complacent.

Turning to this morning... Things are exceptionally quiet during this holiday-like week although the markets continue to have a buoyant feel so far.

On the economic front... We dont't have any data to reveiw before the bell, but we will get the Case-Shiller Home Price Index at 9:00 eastern and then Consumer Confidence at 10:00.

Thought for the day: You can choose a peaceful mode at any point of any day...

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: closed
     
  • Shanghai: -1.74%
     
  • Hong Kong: -0.93%
     
  • Japan: -0.61%
     
  • France: +0.42%
     
  • Germany: +0.08%
     
  • London: closed

   

• Crude Oil Futures: + $0.20 to $90.40
   
• Gold: + $14.30 to $1378.60
   
• Dollar: higher against the Yen, lower vs. Euro and Pound
   
• 10-Year Bond Yield: Currently trading lower at 3.339%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value):
  • S&P 500: +1.66
     
  • Dow Jones Industrial Average: +22
     
  • NASDAQ Composite: +3.70

Wall Street Research Summary

Upgrades:

• General Motors (GM) - Initiated Buy at BofA/Merrill
   
• General Motors (GM) - Initiated overweight at Barclays, Credit Suisse
   
• HiSoft Technology (HSFT) - Initiated outperform at BMO Capital
   
• LPL Financial (LPLA) - Initiated Buy at Goldman Sachs, UBS
   
• Terremark Worldwide (TMRK) - Target increased at Kaufman Bros

Downgrades:

• None

Long positions in stocks mentioned: None

For more "top stock" portfolios and research, visit TopStockPortfolios.com

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

Daily State of the Markets 
Thursday Morning – December 23, 2010

Publishing Note: Given the holiday trading environment, we will not publish a "Daily State" report on Monday unless conditions warrant. Regular reports will return Tuesday morning.

Good morning. Ho hum, another day, another day of Santa-related gains for the stock market. Although the trading was very quiet (and likely to get quieter for the next week) stocks did find a way to continue the Santa Claus rally by grinding higher on Wednesday. Although there did not appear to be any meaningful driver behind the price action, the path of least resistance looks to be higher as concerns relating to the macro issues (specifically Europe and China) are being pushed to the back burner for now.

It is true that the economic data wasn't bad as it is now painfully obvious that a double-dip is off the table. Heck, even the report on existing home sales came in above expectations. And with banks providing some upside leadership and M&A picking up on a daily basis, it does indeed appear that just about everything is an "equity positive" these days.

Which brings us to the question du jour. How far can the current rally go? Or better yet, since everybody on the planet seems to be suggesting that 2011 is going to be gangbusters for stocks, how far can this bull market go?

To be sure, playing the prediction game with regularity is a fool's errand. However, 'tis the season for looking ahead, so we might as well jump into the fray, right?

On a short-term basis, since the indices are moving to new cycle-highs on a daily basis, there is no meaningful resistance overhead. Thus, it appears that as long as the valuations don't get out of whack and/or the macro issues don't come screaming back to the forefront, traders are free to "buy higher" as they continue to position themselves for the New Year.

From a big-picture standpoint, it is important to recognize that at least part of the current run for the roses has to do with the fact that valuations are no worse than neutral right now and that most everybody expects both the economy and corporate earnings to continue to improve next year. It is this type of thinking that led Goldman Sachs to suggest this week that stocks could earn more than 20% next year.

One of my favorite ways to look at the upside potential of the market is to compare the current valuations to the valuation range of the past 50 years or so. Doing so tells us that using the consensus earnings estimates and applying a traditionally "high" P/E of about 20 times earnings, we could see the S&P trade above 1540 in 2011. This would represent a gain of more than 22% from Wednesday's levels.

However, our cycle research also suggests that after a nice run in anticipation of the economy gaining some momentum in the first half of the year, things could get dicey in the fall. So, while we remain upbeat about the potential for the stock market next year there are two things to keep in mind. First, we are due for a pullback in the near-term. Second, this remains a secular bear market environment and as such, continuing to employ a buy-and-sell approach makes a lot more sense to us than suddenly deciding it is okay to jump back into the buy-and-hope game.

So there you have it; predictions made. Now let's get back to reality!

Turning to this morning... Comments from a Chinese Ministry spokesman that China was willing to help the Eurozone recover from the financial crisis is lending some support to the early mood. However, we've got a full plate of economic data to review so let's get to it...

On the economic front... Orders for long-lasting goods fell in November. The Commerce Department reported that Durable Goods orders fell by -1.3% during the month, which was below the consensus expectations for -1.0%. The October reading was revised higher to -3.1%% from -3.4%. When you strip out the volatile orders for transportation, orders rose by +2.4%, which was above the consensus for +1.0%. The prior reading was revised higher to-1.9% from -2.7.

Next up, Personal Incomes rose by +0.3% in November, which was above the consensus expectations for an increase of +0.2% but below the October level of +0.4%. Personal Spending for the month rose by +0.4%, which below the expectations of +0.5% and the October reading of +0.7% (September: +0.3%, August: +0.5%).

Finally, the Labor Department reported that initial claims for unemployment insurance for the week ending December 18 fell by 3,000 to 420K. The week’s total was in line with the Reuters consensus for a reading of 420K. Continuing Claims for unemployment for the week ending December 11 were below consensus at 4.064M vs. expectations for 4.078M.

Thought for the day: Here's wishing you and yours a very Merry Christmas...

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: +0.38%
     
  • Shanghai: -0.79%
     
  • Hong Kong: -0.62%
     
  • Japan: closed
     
  • France: -0.46%
     
  • Germany: +0.06%
     
  • London: +0.13%

   

• Crude Oil Futures: - $0.03 to $90.45
   
• Gold: - $8.80 to $1378.60
   
• Dollar: higher against the Yen and Euro, lower vs. Pound
   
• 10-Year Bond Yield: Currently trading higher at 3.364%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value):
  • S&P 500: -1.45
     
  • Dow Jones Industrial Average: -9
     
  • NASDAQ Composite: -3.20

Wall Street Research Summary

Upgrades:

• Bed Bath & Beyond (BBBY) - Target increased at Goldman Sachs
   
• BHP Billiton (BHP) - Sarasin

Downgrades:

• Hovnanian (HOV) - BofA/Merrill
   
• PrivateBancorp (PVTB) - BMO Capital
   
• LM Ericsson (ERIC) - Goldman Sachs
   
• Cisco Systems (CSCO) - Estimates and target reduced at UBS

Long positions in stocks mentioned: None

For more "top stock" portfolios and research, visit TopStockPortfolios.com

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

Daily State of the Markets 
Wednesday Morning – December 22, 2010

Good morning. Don't you love this time of year? No, I'm not referring to the joyous time with family, the shopping, the decorations, or the holiday celebrations. No, I'm talking about the generalizations toward the market offered up by the talking heads on T.V. when referencing the upcoming calendar change.

On that note, I've noticed that there is a new phrase that seems to have caught fire with the commentators. While the term "equity positive" is not really a new Wall Street-ism, I must admit that it's been awhile since I've heard this one being bandied about with such regularity. In short, after hearing nothing but fear and loathing for months about the outlook for the stock market, all of a sudden EVERYTHING is "equity positive."

It's as if somebody finally figured out that stocks are up nicely from the March 2009 lows and that they aren't going back to revisit those lows anytime soon. It's as if the analysts being put on the T.V. sets are telling people that after an 85% rise in the stock market, it's time to get back in. And what's surprising is that everyone, everywhere seems to be buying it.

For example, just this week, we've been told that an increase in inflation is an equity positive right now (Yes, I get it; this is what the Fed is after. But say that sentence out loud and see if it doesn't sound just a little strange.). The rise in interest rates? Yep, an equity positive as it shows the economy is improving. The new highs in commodity prices? No worries - that's an equity positive too!

The point this morning is that with stocks up +12% on the year and +85% off of the bottom, suddenly everybody is exuding confidence and telling us how wonderful 2011 is going to be. Where were these guys back in the summer when double-dip was the phrase of the day? Where were they when just about everyone was sure that the European debt mess was going to bring down the global recovery?

As a point of reference, the average gain seen from the bull markets since 1900 has been something on the order of 81%. And those bull markets labeled as a "cyclical bull within a secular bear" have seen gains that are a bit less than that. So, while I DO believe that stocks CAN CERTAINLY go higher from here based on valuations, earnings, etc., I think the goal of the stock market game is to be most bullish at the bottom and most bearish at the top.

However, given that just about everything under the sun is now an "equity positive" and the sentiment readings are quickly reaching extreme levels, it would appear that just the opposite is occurring. So, while the trend is your friend and it is important to never ever pick a fight with the Fed when they are on a mission, I'm going to suggest that this may not be the best time to fire up that margin account again in order to buy those triple-long ETF's in 2011.

Turning to this morning... Things are fairly quiet in the early going as the news flow is limited and foreign markets are mixed-to-slightly lower. Stock futures in the U.S. are pointing to a flat(ish) open.

On the economic front... The government’s second revision of the nation’s third quarter GDP shows the economy grew at an annualized rate of 2.6% in the quarter. This was below the consensus expectations for a growth rate of 2.8% but above the first revision of 2.5%. (Recall that the final Q2 rate was +1.7% and Q1 was +3.7%). Looking at the all-important consumer activity, the Personal Consumption component of the report came in slightly below expectations with a gain of 2.4% vs. the consensus for 2.5% and the first revision’s +2.8%. (Last quarter was 2.2%)

Thought for the day: Laughter is great execrise - it's like jogging for the soul...

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: +0.15%
     
  • Shanghai: -0.90%
     
  • Hong Kong: +0.22%
     
  • Japan: -0.23%
     
  • France: -0.02%
     
  • Germany: +0.01%
     
  • London: +0.37%

   

• Crude Oil Futures: + $0.37 to $90.19
   
• Gold: + $0.60 to $1389.40
   
• Dollar: higher against the Yen and Pound, lower vs. Euro
   
• 10-Year Bond Yield: Currently trading lower at 3.311%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value):
  • S&P 500: +1.30
     
  • Dow Jones Industrial Average: +3
     
  • NASDAQ Composite: -0.30

Wall Street Research Summary

Upgrades:

• Constellation Energy (CET) - Citi
   
• Foot Locker (FL) - Added to Top Picks Live at FBR Capital
   
• WABCO (WBC) - Target increased to $70 from $60 at KeyBank
   
• ABB Limited (ABB) - Sterne, Agee
   
• Doral Financial (DRL) - Sterne, Agee
   
• Priceline.com (PCLN) - ThinkEquity

Downgrades:

• Krispy Kreme (KKD) - BGB Securities
   
• Nabors Industries (NBR) - Removed from s.t. buy at Deutsche Bank
   
• Franklin Resources (BEN) - Susquehanna
   
• Tenet Healthcare (THC) - Wells Fargo

Long positions in stocks mentioned: WBC

For more "top stock" portfolios and research, visit TopStockPortfolios.com

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.