David Moenning's Daily State of the Markets: 5/19

May 19, 2008 10:34 AM EDT

Oil Still the Story

Here's a link to listen to an Audio Version of the report

Although the stock market wound up little changed on Friday, traders had plenty of input to chew on during the session. In short, oil, economic data, and an options expiration event kept traders on their toes. And while the volatility paled in comparison to the bad old days of the first quarter, the move down and then back up – despite another record for oil – illustrates that the environment isn’t half bad right now.

Stocks traded higher out of the gate on the back of an unexpected 8.2% increase in Housing Starts for April and a nice improvement in Building Permits. With all the talk about the government trying to invent ways to "backstop" both the mortgage and housing market, it was indeed interesting to see the housing numbers actually increase during April.

However, the next piece of economic news wasn’t quite so upbeat. The preliminary Consumer Sentiment Index for May fell 3.1 points to 59.5, which was the most pessimistic reading since June 1980 and below the expectations for a decline to 61.0. The Current Conditions index shed 5.3 points while the Expectations reading drifted down 1.6 points to its lowest level since October 1990. Finally, although the government and the Fed have been telling anyone that will listen that inflation is not a problem, the consumer seems to feel otherwise as the Inflation Expectations index soared to rate of 5.2%, which was the most since February 1982.

With stocks falling hard on the consumer data (remember that the consumer still is responsible for nearly 70% of the country’s GDP) and oil prices spiking higher, one might have expected stocks to take a dive. But, somehow, some way, the bulls managed to hold it together as the S&P 500 once again closed at its highest level since January 3rd.

While the economic data did garner a lot of attention, it is really the price of oil that remains the story of the day. And although crude futures did close well off the intraday high of $127.82, the final price of $126.29 did represent an increase of $2.17 on the day.

The jump in crude was caused by a multitude of factors. First, there is the ongoing supply disruptions from places such as Nigeria, where protesters continue to blow up pipelines. Then Goldman Sachs got traders’ attention on Friday by raising their projection for crude prices for the second half of the year from $107 to $141. Given the firm’s well-publicized prediction for a spike back in 2005 and several timely calls since then, traders sat up and took notice. And finally, the dollar took a turn for the worse after several days of moving in an upward direction. So, once again, anyone attempting to short all the bubble talk in oil was simply run over on Friday.

Turning to this morning, we don’t have any economic data before the bell, but we will get a look at the Index of Leading Economic Indicators at 10:00 am.

Running through the rest of the pre-game indicators; the foreign markets are all higher. Crude futures are moving up again with the latest quote showing oil trading higher by $0.96 to $127.25. Interest rates are moving down a bit as the yield on the 10-yr is currently trading at 3.84%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a rather flat open. The Dow futures are currently down by about 10 points; the S&P’s are up by about a dime, while the NASDAQ looks to be about a point or so above fair value at the moment.

Stocks "In Play" This Morning:

Today's Earnings Before the Bell:
Lowe's (NYSE: LOW) – Reported $0.41 vs. $0.40

News, Upgrades/Downgrades/Brokerage Research:

Akamai Technologies (Nasdaq: AKAM) – Downgraded at Citi
National City (NYSE: NCC) – Upgraded at Citi
Texas Instruments (NYSE: TXN) – Upgraded at Citi
American Eagle Outfitters (NYSE: AEO) – Downgraded at Friedman Billings
Amazon.com (Nasdaq: AMZN) – Added to Conviction Buy list at Goldman
Intel (Nasdaq: INTC) – Goldman upgrades semis. Also positive on TSM, ADI, XLNX, BRCM
Chesapeake Energy (NYSE: CHK) – Target increased at Jefferies
Alaska Air Group (NYSE: ALK) – Upgraded at JP Morgan
Jet Blue (Nasdaq: JBLU) – Upgraded at JP Morgan
Dicks Sporting Goods (NYSE: DKS) – Mentioned cautiously ahead of earnings at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com 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 of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: DMoenning@HeritageCapitalManagement.com

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Related Entities

• Goldman Sachs Conviction Buy List
• UBS
• JPMorgan
• Goldman Sachs
• Citi
• Jefferies & Co
• Friedman, Billings, Ramsey

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