David Moenning's Daily State of the Markets: 06/23

Will The Third Time Be A Charm?

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

In case you've been away from your computer for a while, it is now painfully obvious that we’ve got another retest of the lows happening in the stock market at the present time. And for those of you keeping score at home, this will mark the third time that the Dow Jones Industrial Average has tested the 11,700 area. Thus, our heroes in horns will be hoping that the third trip down will be a charm.

The most recent run to the low end of what the bulls are hoping will continue to be a trading range, has been caused by fears that (1) inflation will not abate as expected due to the ongoing rise in commodities such as oil and the grains, (2) the economy is slowing down more than expected, and (3) perhaps the credit crisis has further to run.

It was this three headed monster that once again pushed stocks lower by 220 points on Friday. Well, that and the fact that it was a quadruple options expiration event. The problem here is that the news just keeps getting worse on all three fronts.

Exhibit A would be oil's increase of $2.69 to $134.62 on Friday. Despite the fact that everyone and their Grandmother is talking about how oil has peaked due to slackening demand and more supply on the way, crude simply refuses to yield. But, with Israel executing what looked to be a rehearsal for a bombing attack on Iran’s nuclear facility, it is safe to say that traders are placing some geopolitical risk premium into the price of oil.

Next up, traders got all kinds of negative news stories on the credit front. First, both Merrill Lynch (MER) and JP Morgan (JPM) came out with reports stating that the regional banks are going to have to continue to rebuild reserves. This obviously extends the liquidity problem and means that banks are going to be even less likely to lend going forward. Then there were the credit rating downgrades from Moody’s targeting some old standbys such as Ambac (ABK) and MBIA (MBI) as well as some new faces such as General Motors (GM), Ford (F), and Chrysler.

In short, traders are rethinking their outlooks at the present time and appear to be having a tough time finding a reason to buy stocks. Sure, valuations are good and interest rates are low. But with the world’s central bankers now yapping about raising rates at every turn and the word stagflation being tossed around with regularity, traders will be looking for some sort of reassurance that the sky won’t be falling going forward.

Turning to this morning, we don't have any economic data to review before the bell, or for the rest of the day for that matter. So far at least, it looks like stocks will attempt to rebound after Friday’s shellacking on the back of some M&A activity.

Running through the rest of the pre-game indicators; the foreign markets are mixed by region with Asia down and Europe up. Crude futures are moving up with the latest quote showing oil trading higher by $1.30 to $136.66. Interest rates are also higher this morning with the yield on the 10-yr currently trading at 4.16%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 25 points; the S&P’s are up by about 2 points, while the NASDAQ looks to be about 3 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Owens Illinois (NYSE: OI) – Upgraded at Bank of America
JC Penney (NYSE: JCP) – Upgraded at Deutsche Bank
US Steel (NYSE: X) – Added to Buy list at Goldman
Nucor (NYSE: NUE) – Removed from Buy list at Goldman
Blackrock (NYSE: BLK) – Upgraded at Goldman
First Solar (Nasdaq: FSLR) – Target increased at Lehman
Motorola (NYSE: MOT) – Downgraded at Piper Jaffray
National Oilwell Varco (NYSE: NOV) – Upgraded at RBC Capital
Cummins (NYSE: CMI) – Upgraded 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: [email protected]

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