Definitely Not Surprising

Daily State of the Markets  Tuesday Morning - May 3, 2011 Good morning. After having sprinted higher in a rather impressive fashion over the past eight days, there is little doubt that the market had become extended from a short-term perspective. And with lots of good news available to traders yesterday morning, it might have been easy to expect to see stocks power higher once again. But then again, the fact that the bears decided to use the news of Osama bin Laden's death to try and get something going for their team wasn't exactly a surprise either. If the concept of a market becoming overbought or extended is foreign to you, pull up a chart of SLV - iShares Silver Trust. The bottom line is this: Trees (regardless of their color or perceived value) don't grow to the sky. And when the chart of a particular security "goes parabolic," (again, see SLV) the trend tends to end in rather spectacular fashion. This is not to say that a pullback, regardless of its severity, means that the run in the market in question is over. No, I'm simply trying to say that when a market - any market - becomes extended, a pullback shouldn't be viewed as a big surprise. Or in the case of the current stock market, a pause in the joyride to the upside shouldn't shock anyone - or be an immediate cause for alarm. Of course, those seeing the glass as half empty were quick to point out that yesterday's reversal is likely an omen for the future. While a pessimistic prognostication from the bear camp isn't terribly surprising, I will take exception to the idea that Monday's action should be viewed as a "key reversal," which, according to my copy of "Technical Analysis for Dummies" is indeed a harbinger of bad things to come. Although stocks did reverse lower and the move may have bolstered the bears' confidence in the short term, yesterday's action simply didn't display the characteristics of a "key" reversal in which stocks tend to move explosively in one direction and then reverse hard. And while it wasn't surprising to hear the bears pull this term out of their bag of tricks yesterday (our furry friends might be getting a little panicky right about now), I'm not sure it is applicable here. Speaking of surprises, I heard a lot of people say that they were surprised that stocks didn't rally on "good news" yesterday. However, the key point to take away here is that Osama bin Laden hasn't been a "market mover" in a VERY long time. So, while the removal of America's #1 Most Wanted, was clearly a positive from a national standpoint, I'm not sure how terribly important the event is to the stock market game right now. In case my overuse of the phrase "not surprising" hasn't made my point abundantly clear, I'm of the mind that yesterday's pullback, which looks like it will continue this morning, shouldn't be something that requires a lot of analysis/attention. In short, stocks became overbought (and, in turn, the dollar became VERY oversold) and the market is now pulling back in what appears to be a rather unspectacular fashion. Is this surprising action? Uh, no. Turning to this morning... While China didn't raise interest rates overnight, India did. In addition, the latest batch of earnings reports are less than inspring. And with the dollar rising so far, it looks like the bears have retained possession in the early going. On the Economic front... We don't have any economic data to reveiw before the bell this morning, but we will get a report on Factory Orders at 10:00 am eastern. Thought for the day: Remember that happiness is a choice. What will you choose today? Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell...   Major Foreign Markets: Australia: -0.85%   Shanghai: +0.71%   Hong Kong: -0.37%   Japan: Closed   France: -0.74%   Germany: -0.88%   London: -0.30   Crude Oil Futures: -$1.15 (May contract) to $112.37   Gold: -$12.20 to $1544.60   Dollar: higher against the Yen Euro, and Pound.   10-Year Bond Yield: Currently trading at 3.257%   Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: -3.90   Dow Jones Industrial Average: -23   NASDAQ Composite: -3.24   Wall Street Research Summary Upgrades: Viacom (VIA.B) - BAC/ML   Arch Coal (ACI) - Brean Murray   Hercules Offshore (HERO) - FBR Capital   Apache (APA) - Target increased at Oppenheimer   General Motors (GM) - UBS   Spirit AeroSystems (SPR) - Wedbush   Downgrades: Int'l Coal (ICO) - Brean Murray   AOL (AOL) - Estimates cut at Citi   Research In Motion (RIMM) - Mentioned cautiously at Oppenheimer   Sara Lee (SLE) - Removed from Short Term buy at Deutsche Bank   Yesterday's Earnings After the Bell Company Symbol EPS Reuters Estimate Automatic Data ADP $0.85 $0.85 Anadarko Petroleum APC $0.72 $0.58 Chesapeake Energy CHK $0.75 $0.70 DaVita DVA $0.96 $0.95 FMC Corp FMC $0.55 $0.49 Hartford Financial HIG $ $1.16 Hologic HOLX $0.30 $0.28 Massey Energy MEE -$0.07* $0.58 Principal Financial PFG $0.71 $0.71 Earnings Before The Bell Company Symbol EPS Reuters Estimate Archer-Daniels ADM $0.86 $0.85 American Tower AMT $0.23 $0.23 Avon Products AVP $0.37 $0.36 Clorox CLX $1.02 $1.04 Cognizant Technology CTSH $0.67 $0.64 Duke Energy DUK $0.39 $0.35 Emerson EMR $0.73 $0.74 Fidelity National Information FIS $045. $0.45 Foster Wheeler FWLT $0.19* $0.38 Health Care REIT HCN $0.70 $0.74 HCP HCP $0.56 $0.46 Henry Schein HSIC $0.82 $0.80 Legg Mason LM $0.77* $0.45 MasterCard MA $4.10 $4.10 Mylan MYL $0.44 $0.44 NiSource NI $0.72 $0.72 MetroPCS Communications PCS $0.15 $0.19 Pfizer PFE $0.60 $0.58 Rowan Companies RDC $0.25 $0.30 Spectra Energy SE $0.54 $0.52 Molson Coors TAP $0.44 $0.44 Tenet Healthcare THC $0.16 $0.13 Wisconsin Energy WEC $0.72 $0.66 * Report includes items that make comparisons to the consensus estimate questionable 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. 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