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Are They Real?

Apr. 13, 2011 8:51 AM ET
David Moenning profile picture
David Moenning's Blog
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Portfolio Strategy, ETF investing, Long/Short Equity

Seeking Alpha Analyst Since 2009

David Moenning is founder and Chief Investment Officer at Heritage Capital Research, a Registered Investment Advisor. Heritage is an independent, privately owned, investment management firm located in the Denver area. Mr. Moenning has more than 33 years of portfolio management experience and focuses on a risk-managed approach to capital markets via modernized portfolio development and dynamic adaptation to ever-changing macro environments. Most recently Chief Investment Officer for a $1.3 billion RIA firm.

Daily State of the Markets 
Wednesday Morning - April 13, 2011

Good morning. Having been away from my desk a fair amount over the past two days, the biggest question I have at the current time is if the current fears relating to the waning of global economic recovery expectations are real, or merely the latest excuse du jour for the fast-money to go the other way for a while.

Everybody knows that pullbacks are part of the game in the stock market. And most everybody could see that as of a week ago, stocks had become overbought again and that the major indices were struggling with resistance. Thus, a pullback - even one that produces four straight down days and some VERY ugly action in the energy/commodity/materials names - was to be expected. However, if the concerns about the global recovery are justified, then the current dance to the downside may have some room to run yet.


One argument for the type of action we've seen over the past week and a half is that the vacuum of data inputs in front of a very important earnings parade has kept the buyers on the sidelines and thus, allowed the bears to finally get something going to the downside. We note that the economic calendar has been sparse of late, that it is an options expiration week, and that the Q1 earnings season doesn't really get going until tomorrow. Therefore, with the indices either at or near their recent highs, buyers may have decided to stand aside until the questions/concerns about the impact of oil/commodity prices on earnings can be answered.

Speaking of oil and commodities, it was another really ugly day in the energy patch yesterday. With Goldman Sachs continuing to espouse the idea that much of the recent run-up in commodity prices in general and oil in particular has more to do with speculation than global demand, more than a few traders have been fleeing the scene. And while we're on the subject of the fast-money types, we should also point out that there has been a great deal of talk about the Yen carry trade being unwound due to another pop in Japan's currency.

If this one makes you shake your head a little, join the club. However, the concept is as follows. The renewed focus on Japan (the upping of the crisis level at Fukushima Dai-ichi to the level of Chernobyl and yet another aftershock bearing a magnitude above 7.0) is causing the Yen to rise. Thus, anyone borrowing in Yen in order to make trades in other areas is now losing money on the "carry" portion of the trade. I know it sounds a little silly, but this is a big-time game for some of the big money out there and as such, we need to keep an eye on such matters.

Getting back to the matter at hand, the question of the day is if the global recovery is at risk due to what the IEA deemed "demand destruction" in the oil pits. In English, the question is if rising oil prices are going to cause consumers to use less crude products and/or pull back on their spending. On that note, a CNBC poll on Tuesday showed that 53% of those surveyed said that higher gas prices were already affecting their spending habits.

However, given that there is very little concrete evidence at this stage of the game that supports the idea that the economic recovery is at risk, we're going to suggest that the current decline is based more on fear than data. As such, we would expect to see a healthy bounce the next time some good news actually hits the tape. I know, I know; the bears tell me that this is merely wishful thinking on my part and that stocks are headed down 20% from here. But until I get some data that justifies the view, I'm going to stick to the idea that this is a run-of-the-mill pullback that is likely to produce declines in the major indices of 3% - 5%.

But, of course, I will reserve the right to say I was wrong if the data begins to show that the fears are real.

Turning to this morning... The mood seems to have improved a bit after the first four-day pullback since mid-November. Earnings from JPMorgan, a decline in the Yen, and some improvement in tech appears to be responsible for the green on the screens in the early going.

On the Economic front... The Commerce Department reported that Retail Sales rose in the month of March by +0.4%. This was a tenth below the consensus for +0.5%. But, when you strip out the sales of autos, sales were up +0.8%, which was a tenth above the consensus for an increase of +0.7%.

Thought for the day: Why not do something nice for someone today for no reason at all...

Pre-Game Indicators

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


  • Major Foreign Markets:
    • Australia: +0.19%
    • Shanghai: +0.95%
    • Hong Kong: +0.66%
    • Japan: +0.90%
    • France: +1.10%
    • Germany: +1.22%
    • London: +1.15%

  • Crude Oil Futures: +$0.23 (May contract) to $106.48
  • Gold: +$6.20 to $1460.10
  • Dollar: lower against the Yen, Euro and Pound
  • 10-Year Bond Yield: Currently trading at 3.537%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +8.04
    • Dow Jones Industrial Average: +76
    • NASDAQ Composite: +16.20


Wall Street Research Summary


  • Altera (ALTR) - Auriga
  • Xilinx (XLNX) - Auriga
  • Henry Schein (HSIC) - Goldman Sachs
  • Perrigo (PRGO) - Goldman Sachs
  • CareFusion (CFN) - JPMorgan
  • Murphy Oil (MUR) - Target increased at Oppenheimer
  • Riverbed Technology (RVBD) - Oppenheimer
  • PetSmart (PETM) - Mentioned positively at Oppenheimver
  • First Solar (FSLR) - Mentioned positively at UBS
  • Fastenal (FAST) - UBS



  • Sunoco (SUN) - Benchmark
  • Advance Auto Parts (AAP) - JPMorgan
  • O'Reilly Auto (ORLY) - JPMorgan
  • New York Times (NYT) - Mentioned cautiously at UBS
  • Procter & Gamble (PG) - Estimates reduced at PG


    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.

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