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Any Meaning?

Daily State of the Markets 
Wednesday Morning – July 21, 2010

Good morning. I received a handful of emails yesterday afternoon asking first what was behind the big reversal and second if the move had any meaning. Frankly, the first question is relatively easy to answer but the second, well, that's a little tougher.

Coming into Tuesday morning, long positions may have felt like an anchor around the necks of investors as the mood was dour and the open looked like it was going to be ugly. The talk of the town was about the steady stream of revenue misses from the likes of Bank of America (NYSE:BAC), IBM (NYSE:IBM), Citi (NYSE:C), Johnson & Johnson (NYSE:JNJ) and Goldman Sachs (NYSE:GS). Investors worried that the lack of expanding revenues may not bode well for the economy going forward.

True to form, the DJIA opened down hard, even harder than the pre-market futures had projected as the venerable index found itself 147 points in the red within 7 minutes of the opening bell. And given the negativity in the air, it felt like a retest of the recent lows was in the cards.

But a funny thing happened on the way to the slaughter. Instead of the HFT boys piling on and making things worse, the dip buyers actually came out of the woodwork and started to nibble. Although it was touch and go for a while, all the talk about the "values" being created by the recent selloff seemed to catch on and before you could remember where you had stashed that Dow 10K hat, the DJIA had bounced off the important line in the sand and was moving higher.

After the requisite stall before lunch, a rumor started making the rounds that the Fed would soon announce it was going to do away with the interest currently being paid on banks' excess reserves sitting at the Federal Reserve. This, while unlikely to occur, would mean that (1) the Fed had enough confidence in both the economy and the banking system to make the move and (2) the banks might need to return to the business of lending money. From there, one thing led to another as the shorts ran for cover, the dip buyers continued to do their thing, and the Dow soon found itself in the green.

Getting back to question number two posed of me yesterday afternoon, I'm not completely convinced that yesterday's joyride to the upside had much meaning. But, my technical analysis friends were quick to remind me that there was a lot of good happening on the charts yesterday. I was told of the "outside day" (which often signifies a change in trend), the key reversal action (ditto), the successful test of support, and the move back above various moving averages (25-, 10-, and 5-day ma's). Thus, the chartists will tell you that the day was indeed meaningful.

For me though, I'm going to ask the market to show me a little something more than one day's worth of fun in the summer sun and will withhold judgment until the S&P can break above 1100 and stay there for a while. Call me skeptical if you must, but a move that comes out of nowhere without any news leaves me less than convinced.

Turning to this morning... we don't have any economic news to review today. However, Apple's (NASDAQ:AAPL) earnings after the bell were encouraging and all eyes will be on Mr. Bernanke this afternoon when he presents part one of his two-day semiannual testimony on monetary policy.

Finally, remember that there is more to life than increasing its pace...

Pre-Game Indicators

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

  • Major Foreign Markets:
    • Australia: +0.23%
       
    • Shanghai: +0.26%
       
    • Hong Kong: +1.10%
       
    • Japan: -0.23%
       
    • France: +1.84%
       
    • Germany: +1.29%
       
    • London: +1.70%

     

  • Crude Oil Futures: + $0.60 to $78.16
     
  • Gold: + $2.50 to $1194.20
     
  • Dollar: lower against Yen, Euro and Pound
     
  • 10-Year Bond Yield: Currently trading higher at 2.95%

     

  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +7.07
       
    • Dow Jones Industrial Average: +40
       
    • NASDAQ Composite: +15.37

       

Wall Street Research Summary

Upgrades:

  • Harley-Davidson (NYSE:HOG) - Barclays
     
  • Devon Energy (NYSE:DVN) - Barclays
     
  • Zions Bancorp (NASDAQ:ZION) - Citi
     
  • Frontline (NYSE:FRO) - JPMorgan
     
  • General Maritime (NYSE:GMR) - JPMorgan
     
  • Overseas Shipholding (NYSE:OSG) - JPMorgan
     
  • MEMC Electronic Materials (WFR) - Kaufman Bros
     
  • Goldman Sachs (GS) - Keefe, Bruyette & Woods
     
  • Watson Pharmaceuticals (WPI) - Standard & Poors
     
  • Health Care REIT (HCN) - Stifel Nicolaus
     
  • State Street (NYSE:STT) - Stifel Nicolaus

     

    Downgrades:

  • Stericycle (NASDAQ:SRCL) - BofA/Merrill
     
  • Gilead Sciences (NASDAQ:GILD) - Citi, RBC Capital
     
  • Masco (NYSE:MAS) - Goldman
     
  • Ship Finance Intl (NYSE:SFL) - JPMorgan

     

    Earnings Before The Bell

    Company

    Symbol

    EPS
    Reuters
    Estimate
    Abbott Labs ABT $1.01 $1.00
    Amphenol APH $0.68 $0.61
    Airgas ARG $0.83 $0.72
    Check Point Software CHKP $0.58 $0.56
    Comerica CMA $0.39 $0.23
    Quest Diagnostics DGX $1.07 $1.06
    EMC EMC $0.28 $0.27
    Eaton Eaton $1.36 $1.17
    Freeport McMoRan FCX $1.40 $1.28
    Hudson City Bancorp HCBK $0.29 $0.28
    Host Hotels & Resorts HST $0.23 $0.23
    Coca-Cola KO $1.02 $1.03
    Altria MO $0.50 $0.50
    Morgan Stanley MS $0.80* $0.48
    Northern Trust NTRS $0.82 $0.74
    Stanley Black & Decker SWK $1.24 $0.78
    Textron TXT $0.29 $0.10
    US Bancorp USB $0.40 $0.38
    United Technologies UTX $1.20 $1.16
    Wells Fargo WFC $0.55 $0.49

    * 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

     


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Disclosure: AAPL