Daily State of the Markets 10/19: Step 1: Admitting You've Got a Problem

Good morning. Ireland took the first step in its twelve-step program to return to financial health on Thursday when the country's Central Bank said they expect to accept a "very substantial loan" as part of EU-backed bail-out. If you will recall, it had been Ireland's refusal to admit they needed help this week that caused traders to fret about the potential for debt contagion in the region. This coupled with the fear that the Chinese would hit the brakes too hard in an effort to control inflation, were the primary drivers of the recent corrective action in stocks.

However, after Ireland finished playing the "Help? We don't need no stinking help" game, traders were quick to brush aside the concerns that had put a 4% dent in the market over the past 8 days. Suddenly, worries about Europe were gone. Suddenly, the fear that China would do something stupid was history. Suddenly, the divergences on the charts didn't matter. And suddenly, those in the bear camp went from hero to zero.

The bulls also got a hand from the economic calendar on Thursday as the Philly Fed Index, which measures the level of manufacturing activity in the Philadelphia region, came in at nearly five times the consensus and almost 22 points higher than the October reading (it also just happened to be the 7th biggest jump the index has ever seen). And for those of you keeping score at home, the "unfilled orders" component of the report showed its biggest gain since August 2005 while the average workweek surged 16.9 points (the most since December 1998). In addition, the Conference Board's Leading Economic Index wasn't half bad. Thus, the data seemed to take away some fodder from the Negative Nancy's out there.

Speaking of getting a little help from your friends, the glass-is-at-least-half-full crowd was very pleased to see the attacks on Ben Bernanke toned down a bit Thursday. With the recent inflation numbers coming in pretty darned low, Fed Governors were out in force yesterday stepping up their defense of QE II. And while this was unlikely to be the last word we'll hear on the subject, the bulls could be heard arguing that less public pressure on the FOMC means the program will continue.

Lest we forget, the media circus that was GM's IPO also seemed to contribute an emotional lift to our heroes in horns. Although I was thoroughly tired of the story by about 6:00 pm Wednesday, the offering was viewed as a triumphant return of an American icon and may have caused some people to adjust their thinking on valuation levels currently in the market.

From a technical standpoint, yesterday's move did provide the bulls with some relief. Prior to the 170 point bounce, the charts were looking more than a little weak and sitting at very important intermediate-term support. And although the pop higher created a gap on the charts of the S&P and NASDAQ, the support zone would appear to be stronger as a result of the move.

Turning to this morning... It's an options expiration event without any economic news to deal with. In the early going, the futures are down a bit in response to a report that French and German officials are pressing Ireland to increase taxes in return for a bailout.

Finally, best of luck on this Friday and be sure to enjoy the weekend!

Pre-Game Indicators

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

* Major Foreign Markets:
o Australia: -0.11%
o Shanghai: +0.81%
o Hong Kong: -0.13%
o Japan: +0.09%
o France: -0.72%
o Germany: -0.36%
o London: -0.75%

* Crude Oil Futures: - $0.35 to $81.50
* Gold: - $4.40 to $1348.60
* Dollar: higher against the Yen and Pound, lower vs. Euro
* 10-Year Bond Yield: Currently trading at 2.888%

* Stocks Futures Ahead of Open in U.S. (relative to fair value):
o S&P 500: -2.60
o Dow Jones Industrial Average: -31
o NASDAQ Composite: -7.0

Wall Street Research Summary

Upgrades:
# Nu Skin Enterprises (NYSE: NUS) - BofA/Merrill
# Thoratec (Nasdaq: THOR) - Barclays
# DTE Energy (NYSE: DTE) - Barclays
# RRI Energy (NYSE: RRI) - Citi
# DuPont (NYSE: DD) - Goldman
# Jabil Circuit (NYSE: JBL) - Mentioned positively at Goldman
# AGCO (Nasdaq: AGCO) - UBS
# Deere & Co (NYSE: DE) - UBS

Downgrades:
# Limited Brands (NYSE: LTD) - BMO Capital
# Eastman Chemical (NYSE: EMN) - Goldman
# Treehouse Foods (NYSE: THS) - Stifel Nicolaus
# Whole Foods (Nasdaq: WFMI) - UBS
# Sasol (NYSE: SSL) - UBS

Long positions in stocks mentioned: None

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

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