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Split Decision Equals Green Screens

Daily State of the Markets 
Tuesday Morning - April 20, 2010

Good morning. Stocks staged an impressive rebound on Monday in response to word that the SEC vote on whether or not to proceed with charges against Goldman was not unanimous. While this may sound like an odd reason for the Dow to go from -40 to +73, the bottom line is the SEC prefers to have a unanimous vote when it decides to bring enforcement action against firms - especially high profile firms. Thus, news of the split vote meant that the worry of more suits against more firms might be premature.

As expected, stocks headed lower out of the gate on Monday as markets around the globe reacted negatively to the news that Goldman Sachs had been charged with defrauding investors. To be sure, the headline story that the SEC was taking action against Goldman created a fair amount of uncertainty and questions abounded. Was this the first volley in a new line of populist attacks against the banks? Would the suit help the democrats push through even harsher regulations in their financial reform bill? Would the financial sector, which has led the market higher over the past year, now go into the penalty box?

While the market often acts in a manner that can be considered counterintuitive, yesterday's action was not terribly confusing. As more details about the Goldman case began to surface, the situation became less and less ominous. Sure, the headlines that GS had failed to inform investors that the guy betting against the mortgage market was involved with the design of this particular CDO were bad, and it is a safe bet that Goldman will lose the case (the SEC doesn't bother with suits it can't win). However, the big fear in the market over the weekend was that this would become a big problem in the financial sector. But with details showing that there was just a single transaction involved and word that Goldman actually lost $90 million of its own money on the deal, fears apparently subsided rather quickly Monday.

Although there may have been a buy program or two involved in the rebound, technicians will say the fact that the market did not turn tail and run yesterday is a good sign for those looking for further gains in the market. Yes, the bounce could certainly prove temporary. But, unless the bears can regain possession in a big hurry, we're going to suggest that yesterday was another in a long string of missed opportunities by the glass-is-half-empty crowd.

Assuming the bulls can hold their ground today, the selling seen during Friday and Monday's sessions may have established a support zone in the near-term. So, for those chart-watchers out there, we'd suggest keeping an eye on 10,975 area on the Dow as any break below that level will almost certainly embolden the bears.

Turning to this morning... We don't have any economic data to review before the bell, but easing concerns about volcanic ash disrupting commerce in Europe as well as a surprising surge in investor sentiment in both the Eurozone and Germany have lifted spirits a bit before the open in the U.S.

Running through the rest of the pre-game indicators, the major overseas markets were split with Asia finishing mixed and European bourses now rallying nicely. Crude futures are up $0.99 to $82.44. On the interest rate front, the yield on the 10-yr is currently trading at 3.80%. Next, gold is up $5.30 to $1141.10 and the dollar is lower against the Yen and Pound but higher against the Euro. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 20 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 9.5 points above fair value at the moment.

Yesterday's Earnings After The Bell

Company

Symbol

EPS
Reuters
Estimate
IBM IBM $1.97 $1.93
Zions Bancorp ZION -$0.57 -$0.94

Earnings Before The Bell

Company

Symbol

EPS
Reuters
Estimate
Amphenol APH $0.55 $0.51
Biogen Idec BIIB $1.08* $1.13
Bank of New York Mellon BK $0.59 $0.53
Coach COH $0.50 $0.46
Eaton ETN $0.95* $0.84
Forest Labs FST $0.83 $0.83
Goldman Sachs GS $5.59 $4.07
Harley Davidson HOG $0.29 $0.25
Illinois Tool ITW $0.58 $0.56
Johnson & Johnson JNJ $1.29 $1.27
Coca-Cola KO $0.80 $0.74
Northern Trust NTRS $0.64 $0.73
Omnicom OMC $0.52 $0.50
PACCAR PCAR $0.19 $0.15
Parker-Hannifin PH $0.94 $0.76
Regions Financial RF -$0.21 -$0.28
Snap-On SNA $0.63 $0.50
State Street STT $0.75 $0.75
Supervalu SVU $0.62 $0.60
UnitedHealth UNH $1.03 $0.69
US Bancorp USB $0.34 $0.34

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

Wall Street Research Summary

Upgrades:

  • FPL Group (NYSE:FPL) - BofA/Merrill
     
  • Total (NYSE:TOT) - Citi
     
  • Monster Worldwide (MWWW) - Credit Suisse
     
  • Petrohawk Energy (NYSE:HK) - FBR Capital
     
  • Arkansas Best (ABFS) - FBR Capital
     
  • Pinnacle entertainment (NYSE:PNK) - KeyBanc
     
  • Barry Petroleum (BRY) - KeyBanc
     
  • Apache (NYSE:APA) - Macquarie
     
  • Potash (POT) - Soleil Securities
     
  • Intrepid Potash (NYSE:IPI) - Soleil Securities
     
  • Microchip (NASDAQ:MCHP) - UBS

     

    Downgrades:

  • Waddell & Reed (NYSE:WDR) - BofA/Merrill
     
  • Zions Bancorp (NASDAQ:ZION) - Bernstein
     
  • Mariner Energy (ME) - CLSA
     
  • SAIC (SAI) - Cowen
     
  • Merck (NYSE:MRK) - Removed from short-term buy list at Deutsche Bank
     
  • Pfizer (NYSE:PFE) - Removed from short-term buy list at Deutsche Bank

     

    Long positions in stocks mentioned: none

    Don’t let success go to your head or defeat into your heart...

    David D. Moenning
    Founder TopStockPortfolios.com

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

     


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