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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
  • Just One Story 1 comment
    Aug 11, 2010 8:50 AM

    Daily State of the Markets 
    Wednesday Morning – August 11, 2010

    Good morning. Although there were a handful of important inputs to Tuesday's trading such as China's Trade report, Wholesale Inventory levels, the Small Business Optimism index, and U.S. Productivity, there was really only one story that mattered: The Fed's next move.

    While the opinions on what the FOMC would, could, or should do varied widely, Ben Bernanke's Fed seemed to craft together a statement that at first blush, appeared to satisfy a great many of those offering up ideas. In short, the markets wanted to hear the Fed first acknowledge the weakness in the economy and then offer up some specific plans on what they were planning to do about it. And as I had opined yesterday morning, leaving the status quo intact would have set stocks up for a major disappointment.

    But instead, the FOMC recognized that the economy is not exactly hitting on all cylinders by stating that the pace of the recovery had slowed and that household spending remains constrained, thanks to a really crummy jobs market. The Fed then got creative and decided that this was not the time for exit strategies but rather a time to continue to lend a hand. So, instead of simply taking in the cash from the $1.3 trillion in mortgage backed securities the Fed currently owns whenever these securities mature, the Fed said it would use these proceeds to buy Treasury bonds.

    This plan represents a de facto easing move as the Fed will commit to buying Treasury securities, which keeps rates low and adds cash to the money supply. But it also represents a fairly substantial shift in Fed policy and announces to the world that they still have a few cards to play in this game if needed.

    The good news is the stock market seemed to be fairly receptive to the Fed's announcement. Early in the session, stocks had taken a dive partly in response to the punk economic data and partly to fears that Bernanke and friends would simply stay the course. Therefore, the quick rally after the FOMC announcement meant that traders liked what they had heard. But apparently they didn't love it, as stocks did sell off a bit into the close. However, it should also be noted that volatility is standard fare on Fed days.

    Looking at the stock market, we're of the mind that stocks remain range bound, regardless of the timeframe one chooses. From a short-term perspective, it appears that the low end of the current range is 1100ish, while the high end is clearly at or near 1130. Then from an intermediate-term perspective, stocks are now smack dab in the middle of the April highs and the July 2nd lows. And given the current lack of clarity on the macroeconomic front, this seems to be about right. Thus, we will have to wait and see which team has the stronger argument going forward.

    Turning to this morning... The story seems to have shifted from the Fed to the economy. Overseas markets appear to be unimpressed with the Fed's actions and the pre-market futures would seem to concur that the real problem is the state of the U.S. economy right now. In short, the pre-game indicators are pointing to a rough open.

    On the economic front... The U.S. Trade Deficit widened in June to $49.9 billion, which was below the consensus estimate for a deficit of $42.4 billion and a 12-month high.

    Finally, be sure to take time to breathe today...

    Pre-Game Indicators

    Here are the important indicators we review each morning before the opening bell...

    • Major Foreign Markets:
      • Australia: -1.83%
         
      • Shanghai: +0.47%
         
      • Hong Kong: -0.83%
         
      • Japan: -2.70%
         
      • France: -1.76%
         
      • Germany: -1.70%
         
      • London: -1.51%

       

    • Crude Oil Futures: - $0.83 to $77.42
       
    • Gold: + $10.60 to $1208.60
       
    • Dollar: higher against Yen, Euro and Pound
       
    • 10-Year Bond Yield: Currently trading lower at 2.73%

       

    • Stocks Futures Ahead of Open in U.S. (relative to fair value):
      • S&P 500: -15.06
         
      • Dow Jones Industrial Average: -123
         
      • NASDAQ Composite: -30.94

         

    Wall Street Research Summary

    Upgrades:

    • Family Dollar (NYSE:FDO) - Barclays
       
    • Alliant Techsystems (ATK) - Estimates increased at Cowen
       
    • Macerich (NYSE:MAC) - Added to S.T. Buy at Deutsche Bank

       

      Downgrades:

    • TW Telecom (NASDAQ:TWTC) - BofA/Merrill
       
    • Tractor Supply (NASDAQ:TSCO) - Goldman Sachs
       
    • AvalonBay (NYSE:AVB) - Jefferies
       
    • Equity Residential (NYSE:EQR) - Jefferies
       
    • Supervalu (NYSE:SVU) - Target reduced at UBS

       

      Long positions in stocks mentioned: TSCO, EQR

      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: Long TSCO, EQR
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  • Nikhil Nichani
    , contributor
    Comments (144) | Send Message
     
    A lot of money is flowing into treasuries right now, which are making them more expensive by the day. While this cash flow continues, stocks will be taking a hit because money will be flowing out of them. This will really start to make equities look cheaper as investors start to weigh their options..should they park their money in extremely low yielding treasuries, or should they look for decent to high yielding equities. The lower the yields go for treasuries, the better opportunity it is for investors to make a fortune of equities in the long run. Too bad more than half the people in our economy don't understand that investing is a long run game and will miss out on this opportunity again because of their constant pessimistic views
    11 Aug 2010, 09:06 AM Reply Like
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