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David Moenning is a the Chief Investment Officer at Heritage Capital Management. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987.... More
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Daily State of the Markets
  • Time To Panic Again? 2 comments
    Feb 16, 2012 8:57 AM

    Daily State of the Markets
    Thursday Morning - February 16, 2012

    Good Morning. After running up more than 12% since the December 19th low, stocks did something that while common last fall has been rare lately - they went down in an ugly fashion. With futures spiking higher in the pre-market on word that China was still planning on lending a hand to Europe eventually (at the right price, of course), it looked like it was going to be just another day at the office for the bulls. European bourses were up more than 1%, Asian markets had enjoyed strong gains, and our stock futures were sporting a bright shade of green.

    But unfortunately, the expected breakout to the upside, a move that might have caused every last one of the bears to finally throw in the towel during this options expiration week, didn't happen. Instead word that the EU finance ministers were now talking about changing their tune with Greece caused the bears to sit up and take notice. In short, the guys who control the purse strings in Europe said yesterday that they may want to wait until after the April elections to let go of that €130 billion in bailout loans. This so that they might be able to hold the feet of the new leaders to the fire in terms of sticking to the deal. Needless to say, this caused anyone who has been watching this saga to roll their eyes and perhaps even throw up their hands.

    Now toss in the idea that the S&P had once again failed at an important technical area and it became clear that the bears were suddenly emboldened. As such, sell programs were run and the green screens turned to red. In short, nervous bulls probably felt like the day was starting to slip away, especially given that this is an options expiration week.

    But the coup de grace for the bear camp yesterday was the action in the Apple. To say that the King of Cool has been on a roll lately is clearly an understatement (as of noon eastern time yesterday, AAPL sported a gain of 29.9% on the year) as the stock has clearly "gone parabolic." And as is the case with all such moves, they eventually reverse. So yesterday at noon on the dot, AAPL began to take it on the chin and what had been a gain of nearly $17 wound up being a loss of nearly $12. This was clearly a "key reversal day" from a chart perspective and is something that the bears can hang their hat on here as Apple has done a lot of the market's heavy lifting this year.

    Next came the Fed minutes. And while I completely understand that Mr. Bernanke's bunch doesn't want to take any chances right now, to hear that several FOMC members say that more QE might be necessary sort of punches a big 'ol hole in the thesis that the U.S. economy is on the road to recovery. So, this too gave the bears something to growl about yesterday.

    So, we've got an overbought market that is bumping into resistance. We've got sentiment indices reaching extreme levels. We've got the bulls getting more than a little complacent. And then we've got a new strategy out of Greece, an options expiration week, a big reversal in Apple, the Fed saying things aren't that hot, and frustrated camp full of bears. In sum, a triple digit decline on the Dow wasn't exactly surprising.

    However, the bears tell us that this is just the beginning and that the bad old days will surely return given the global macro backdrop. So, is time to panic? Is it time to jump on the short side or run to cash? And is it time to start buying the dollar and government bonds again?

    In a word, no. Sure, the bears could get something going for a while here. This is what pullbacks in an uptrend are all about. And keep in mind that the average correction in this type of market is somewhere in the range of 2.5% - 3.5%. Hardly a reason to crawl back under the desk. And let's keep in mind that yesterday's "scary" action didn't even cause the S&P 500 to cross its 10-day moving average - or the recent support at 1335-40ish.

    And while our furry friends may indeed be able to punch through near-term support, this is when "giving the bulls the benefit of the doubt" comes into play. Yes, it would be easier to just abandon ship and start snatching up some SDS shares. But experience has taught me that unless there is something fundamental going on, when the bulls go on the type of run they're currently enjoying it is usually best not to panic just yet.

    Turning to this morning... Reports that Moody's is set to downgrade a boatload of global banks and European financial institutions as well as the uncertainty in Greece pushed global markets lower. However, US futures have rebounded on better-than-expected economic data.

    On the Economic front... Initial Claims for Unemployment Insurance for the week ending 2/11 fell by 13,000 to 348K, which was below the consensus estimate for 366K and also last week's revised total of 361k. Continuing Claims for the week ending 2/4 came in at 3.426M vs. consensus of 3.518M.

    Next up, Housing Starts rose in January to an annualized rate of 699K, which was above the consensus for 672K. Building Permits for January rose to a rate of 676K. This was also above the consensus of 672K and last month's unrevised reading of 671K.

    Finally, The Labor Department reported the Producer Price Index for January rose by +0.1%, which was below the consensus estimate for a rise of +0.4%. When you strip out food and energy, the so-called Core PPI came in at +0.4%, which was hotter than the consensus for +0.2% and last month's +0.3% .

    Thought for the day... Laughter is great exercise - 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: -1.62%
      • Shanghai: +0.42%
      • Hong Kong: -0.41%
      • Japan: -0.24%
      • France: -0.82%
      • Germany: -1.23%
      • Italy: -2.00%
      • Spain: -2.97%
      • London: -0.80%
    • Crude Oil Futures: -$0.50 to $101.30
    • Gold: -$16.90 to $1711.20
    • Dollar: lower against the euro, higher vs. pound and yen
    • 10-Year Bond Yield: Currently trading at 1.946%
    • Stock Futures Ahead of Open in U.S. (relative to fair value):
      • S&P 500: -0.34
      • Dow Jones Industrial Average: +10
      • NASDAQ Composite: +2.99

    Positions in stocks mentioned: None

    For more of Mr. Moenning's thoughts and research, visit StateoftheMarkets.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 StateoftheMarkets.com 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. One 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.

    Disclosure: I am long AAPL.

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Comments (2)
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  • great breakdown of yesterday's action
    16 Feb 2012, 03:19 PM Reply Like
  • Author’s reply » Thanks for taking the time to comment and the kind words.
    17 Feb 2012, 09:10 AM Reply Like
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