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Let's Not Get Ahead of Ourselves

Apr. 05, 2011 8:55 AM ET
David Moenning profile picture
David Moenning's Blog
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Daily State of the Markets 
Tuesday Morning - April 5, 2011

Despite the green screens seen at the close, the bulls basically took a break on Monday. After a steady two-week rally that pushed prices either back to or above recent highs, traders may have decided that there is no need to get ahead of themselves in front of an important earnings parade. Thus, Monday's pause in the action was to be expected. And cutting to the chase, we just might see some additional waffling until earnings season starts in earnest next week.

Lest we forget, stocks have been on a one-way street for the vast majority of the last seven months. With the exception of the brief and shallow interruptions centered on Egypt, Libya, and Japan, the driving factor behind the bulls' run for the roses has been an improving U.S. economy. Heck, even the jobs market looks to be on the verge of gaining some momentum. Hence the addition of 2700 Dow points (or about 28%) since September 1, 2010.

It is safe to say that earnings have also been an important component in the bull's formula for success. In short, the earnings parades have been joyous events for the past couple of quarters and the upcoming earnings season is also expected to produce strong numbers. However, given that there is clearly some commodity inflation now entering the system, traders have been expressing some concerns about the sustainability of profit margins. Thus, you can bet dollars to doughnuts that traders will be listening closely for any mention of cost increases or cuts in margins over the next month.

Let's keep in mind that many companies have already talked about rising costs. Remember P&G's little pronouncement a couple week's back? Or how about Wal-Mart, which is best known for "everyday low prices," saying last week that it might have some trouble with job one going forward due to, yep, you guessed it; rising costs. And while the market has taken this stuff in stride so far, we should remember that in the stock market, things don't matter until they do - and then they matter a lot. Thus, we will be keeping an ear to the ground for any word that inflation is starting to matter to traders.

From a chart perspective, the bears could be heard yesterday talking about how the resistance held firm and that the bulls don't have the firepower to push the DJIA, S&P, and NASDAQ to new highs at the present time. Yet on the other side of the aisle, our heroes in horns were seen yawning and pointing to the charts of the Russell 2000 and Midcap indices. And from an objective observer's point of view, as long as the Middies and Russell stay above their February highs, we would suggest leaning toward the bulls' side of the argument.

But in the near-term, we might expect to see things get a little sloppy. As I mentioned earlier, there is a decent chance that traders don't want to get too far ahead of themselves at this stage of the game. As such, we'd expect to see some backing and filling and some testing of support and resistance until the rope is dropped on the upcoming earnings parade.

Turning to this morning... Despite the big deal announced between Texas Instruments and National Semi, the rate hike in China and Moody's downgrade of Portugal's debt has the indices on the defensive in the early going. In addition, the upcoming rebalancing of the Nasdaq-100 index is putting pressure on market darling Apple, which is also a drag on the indices at this point.

On the Economic front... There is no economic data to review before the bell this morning. But we will get the ISM Non-Manufacturing report at 10:00 am eastern.

Thought for the day: Are you feeling inspired today?

Pre-Game Indicators

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


  • Major Foreign Markets:
    • Australia: +0.28%
    • Shanghai: NA
    • Hong Kong: NA
    • Japan: -1.06%
    • France: -0.56%
    • Germany: -0.28%
    • London: -0.27%

  • Crude Oil Futures: -$0.30 (May contract) to $108.17
  • Gold: +$3.20 to $1436.20
  • Dollar: lower against the Yen and Pound, lower vs Euro
  • 10-Year Bond Yield: Currently trading at 3.407%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -4.20
    • Dow Jones Industrial Average: -27
    • NASDAQ Composite: -8.5


Wall Street Research Summary


  • Analog Devices (ADI) - Auriga
  • Linear Technology (LLTC) - Auriga
  • Olin Corp (OLN) - BAC/ML
  • Ciena (CIEN) - BAC/ML
  • Citi (C) - Bernstein
  • National Semiconductor (NSM) - Citi
  • Pentair (PNR) - Citi
  • Digital Realty Trust (DLR) - FBR Capital
  • SL Green Realty (SLG) - FBR Capital
  • Netflix (NFLX) - Mentioned positively at Oppenheimer
  • Ctrip.com (CTRP) - Susquehanna



  • Marriott (MAR) - Argus
  • Westlake Chemical (WLK) - BAC/ML
  • Analog Devices (ADI) - Cowen
  • Maxim Integrated (MXIM) - Cowen
  • Cree (CREE) - Morgan Stanley
  • National Semiconductor (NSM) - Susquehanna


Long positions in stocks mentioned: AAPL

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.

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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.

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