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David Moenning is a the proprietor of StateoftheMarkets.com. In addition to providing free and subscription-based portfolios on "State", Dave is a full-time money manager and the President and Chief Investment Strategist of a Chicago-based Registered Investment Advisory firm. Dave... More
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Daily State of the Markets
  • Boys And Their Toys 0 comments
    May 7, 2010 9:02 AM

    Daily State of the Markets 
    Friday Morning – May 7, 2010

    Good morning. Ever since October 19, 1987, traders, government agencies, and the various exchanges (all of which have different names now) have been attempting to figure out ways to ensure that The Crash of '87 could never happen again. And although we've definitely seen our fair share of volatility recently as the world fretted over the fate of the U.S. banking industry, nothing compared to the gut-wrenching wreck that occurred on Black Monday. Well, until yesterday, that is...

    To be sure, stocks were not having a good day before 2:00 eastern time. The market was breaking down on a chart basis as traders may have decided that they had seen just about enough of debt problems in Europe. Scenes of violence and protests in Greece did not provide any sort of warm-and-fuzzy feeling that things were going to be fine going forward. Instead, the lack of urgency witnessed from the ECB Thursday led anyone watching the situation closely to fear that things could get worse - a lot worse - in relatively short order.

    But then the fun REALLY started. Frankly, the action yesterday afternoon between 2:00 and 3:00 defies logic. How on earth could Procter & Gamble (NYSE:PG) - you know, the company that makes toothpaste and other household goods that probably isn't impacted all that much by Greece's debt situation - drop 37.2% in a matter of 2 or 3 minutes without any news? How did Accenture (NYSE:ACN) along with seven other well-known, and up to that point, seemingly healthy companies in the S&P trade at $0.01 for a moment? And how did the DJIA lose nearly 750 points in 15 minutes, only to recover 650 points over the next 90 minutes?

    The answer is simple: System errors and computer programmed trades gone wild... Or as I like to call it, "boys and their toys." The NASDAQ has admitted this morning that things didn't go too smoothly during that fateful 20 minute period. The word on the street is that some genius put one too many zeroes into their programmed trade at about 2:20 yesterday afternoon. So, instead of $15 or $20 million worth of trades, the exchange was flooded with $15 - $20 billion. This, of course, triggered every stop loss within 100 miles of the current market and no doubt caused a fair amount of additional programmed trades designed to protect portfolios or profit from downside volatility (anybody remember the idea of "portfolio insurance"?).

    While we can certainly appreciate/understand the idea of a system failure. The fact that something on the order of 8 stocks dropped nearly 100% in a matter of 2-3 minutes and traded at $0.01 simply doesn't make sense. Program trading with a couple billion instead of a couple million would indeed hit the market VERY hard. But to take specific stocks that aren't terribly related to $0.01 creates some head scratching.

    To be sure, we will get a bounce from here (probably a very big bounce) as the market is now down -7.3% from its April 26th high. And it is safe to assume that there will be traders looking to pick up shares at current levels. However, the bigger problem is that of confidence in the market. I've been playing this game for nearly 25 years, and frankly, I am not happy about the idea of things moving 1,000 points in an hour for no reason. And the fact that there is nothing anybody can do about for all those people who sold into the plunge because they didn't know what was happening is sure to cause the public to think twice about venturing back into the stock market anytime soon. If you thought the public was mad at Wall Street before...

    So, unless and until we get a really good explanation of what happened (so far at least, all we're hearing is how wonderfully the exchanges handled the situation) it is probably a good idea to either close your eyes and buy or simply watch from the sidelines for a while.

    Turning to this morning... The Labor Department reported that Nonfarm Payrolls, a key gauge of the state of the economy, grew in the month of April by 290,000. This total was above the consensus estimates of economists surveyed for an increase of 190,000 jobs and represents the fastest pace of job growth in four years. However, the nation’s Unemployment Rate jumped up +0.2% to 9.9%, which was not expected. Part of the problem had to do with rounding as the actual rate was 9.86% from 9.75%. There were revisions to the March payrolls as the Labor Department now shows the economy having gained 230K jobs, which was up from the prior report of 162K.

    Running through the rest of the pre-game indicators, the overseas markets are lower across the board although Europe appears to be attempting to stabalize. Crude futures are up $0.41 to $77.52. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.47%. Next, gold is unchanged at $1197.30 and the dollar is lower against the Yen and Euro but higher versus the Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 40 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 4 points above fair value at the moment.

    Finally, enjoy your Friday and have a pleasant weekend...

    Yesterday's Earnings After The Bell



    Activision Blizzard ATVI $0.09 $0.04
    Carefusion Corp CFN $0.26 $0.34
    Con Edison ED $0.80 $0.81
    Kraft Foods KFT $0.49 $0.44
    Perkin Elmer PKI $0.31 $0.28
    Public Storage PSA $1.15 $1.11

    Earnings Before The Bell



    AES Corp AES $0.26 $0.25
    American Internation Group AIG $0.41* $0.48
    CF Industries CF -$0.09 $1.27
    Edison EIX $0.82 $0.77

    * Report includes items that make comparisons to the consensus estimate questionable

    Wall Street Research Summary


    • Alcoa (NYSE:AA) - BMO Capital
    • Superior Well Services (SWSI) - BMO Capital, Canaccord Adams
    • Brookfield Asset Management (NYSE:BAM) - Credit Suisse
    • Aircastle (NYSE:AYR) - JPMorgan
    • Teradata (NYSE:TDC) - Merriman Curhan Ford
    • TheKnot (KNOT) - Merriman Curhan Ford
    • Sothern Company (NYSE:SO) - Morgan Stanley
    • Life Time Fitness (NYSE:LTM) - Oppenheimer
    • Lamar Advertising (NASDAQ:LAMR) - Oppenheimer
    • Excel Maritime Carriers (NYSE:EXM) - Oppenheimer
    • Autodesk (NASDAQ:ADSK) - ThinkEquity
    • Priceline.com (NASDAQ:PCLN) - ThinkEquity
    • Universal Health (NYSE:UHS) - Wells Fargo



    • Leap Wireless (LEAP) - Citi
    • Transocean (NYSE:RIG) - CLSA
    • Compass Minerals (NYSE:CMP) - JPMorgan
    • Randgold Resources (NASDAQ:GOLD) - Thomas Weisel Partners


      Long positions in stocks mentioned: LAMR

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


      The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.com 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 our websites and TopStockPortfolios publications 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. (NASDAQ: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: LAMR
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