David Moenning's Daily State of the Markets: 11/12

November 12, 2008 11:06 AM EST

No Harm, No Foul?

Traders spent the first half of yesterday’s session watching the major indices break down below their recent support levels. The thinking among the chart watching crowd was that if last Thursday’s low didn’t hold, the bears would resume complete control and it would be “game on” in terms of another full-fledged retest of the lows.

At that point in time, the indices were effectively in never-never land from a chart standpoint as they were neither overbought nor oversold and there wasn’t much in the way of short-term support to look to as a possible stopping point on the way down. So, with the Dow down more than -300 points, things were not looking very good.

The problems of the day were many. Global growth concerns were growing on the back of oil prices were diving below $60. However, it turns out that the decline in oil was really tied to two very large hedge funds being forced to dump their holdings and shut their doors. Next up, there was worry that Goldman Sachs (GS) might not be telling us everything. Then, the report from Toll Brothers (TOL) told of record lows in terms of traffic, an 11% drop in prices, and a 54% plunge in the company’s home building backlog. There was word that Genworth (GNW) had been cut off from the using the Government’s program to sell commercial paper due to its rating downgrade. There was the report that Russia’s stock market had been closed after yet another 10% decline. And finally, GM’s (GM) march toward $0 continued as the car company finished at $2.92 – a 65-year low.

But then it happened. Just before 2:00 pm, word got out that Tontine Partners had finished dumping their energy holdings. And at about the same time we got a headline announcing a few details of the government’s Streamline Modification Program (SMP) which is a program designed to help restructure the mortgages of struggling homeowners. This combination caused traders to “go the other way” and the market surged up off the bottom. And within 30 minutes, the Dow had gone from down 300+ points to breakeven.

Of course the good cheer didn’t last and the indices finished with losses in the range of -2%. However, the good news is that the support levels that appeared to be toast before lunch wound up holding. So, at the end of the day, the bulls could be heard saying, “no harm, no foul” and argued that so far at least, they had a “higher low” working for them. Whether or not this holds up is anybody’s guess, but at least our heroes in horns have a positive to cling to at the moment.

Turning to this morning, we don’t have any economic data to review before the bell. However, the report that Best Buy (BBY) has just cut its 2009 forecast due to “rapid, seismic changes in consumer behavior” is keeping the mood downbeat in the early going.

Running through the rest of the pre-game indicators, the major overseas markets are mixed by region as Asia is lower while Europe is higher. Crude futures are down again with the latest quote showing oil trading lower by $0.57 to $58.76. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 3.72% while the yield on the 3-month T-Bill is at 0.23% and overnight LIBOR is at 0.38% which is up again from Monday. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 70 points; the S&P’s are down by about 9 points, while the NASDAQ looks to be about 17 points below fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Bob Evans Farms (Nasdaq: BOBE) – Reported $0.37 vs. $0.44
Brooks Automation (Nasdaq: BRKS) – Reported -$0.16 vs. -$0.05
NBTY Inc (NYSE: NTY) – Reported $0.40 vs. $0.56

Today’s Earnings Before the Bell:

Diana Shipping (NYSE: DSX) – Reported $0.77 vs. $0.74
Macy’s (NYSE: M) – Reported -$0.08 vs. -$0.19
Penn West Energy (NYSE: PWE) – Reported $2.73
Ralcorp Holdings (NYSE: RAH) – Reported $0.90 vs. $0.84

News, Upgrades/Downgrades/Brokerage Research:

Gilead Sciences (Nasdaq: GILD) – Mentioned positively in Barron’s
Best Buy (NYSE: BBY) – Announced reduction in guidance for 2009
Google (Nasdaq: GOOG) – Target reduced at Citi
Rockwell Automation (NYSE: ROK) – Upgraded at Citi
Progressive Corp (NYSE: PGR) – Upgraded at Citi
Arcelor Mittal (NYSE: MT) – Downgraded at Citi
Petrobras (NYSE: PBR) – Downgraded at Credit Suisse
Intel (Nasdaq: INTC) – Estimates reduced at Goldman
Orbitz Worldwide (NYSE: OWW) – Downgraded at Goldman
Bed Bath & Beyond (Nasdaq: BBBY) – Upgraded at Goldman
British American Tobacco (NYSE: BTI) – Upgraded at Goldman
Banco Santander (NYSE: SAN) – Downgraded at JP Morgan
Banco Bilbao Vizcaya (NYSE: BBV) – Downgraded at JP Morgan
Canadian National Railway (NYSE: CNI) – Downgraded at Merrill
Altera (Nasdaq: ALTR) – Downgraded at Morgan Stanley
Lattice Semi (Nasdaq: LSCC) – Downgraded at Morgan Stanley
Broadcom (Nasdaq: BRCM) – Downgraded at Morgan Stanley
Linear Technology (Nasdaq: LLTC) – Upgraded at Morgan Stanley
Analog Devices (NYSE: ADI) – Upgraded at Morgan Stanley
Intuit (INTU) – Target reduced at UBS
Plum Creek Timber (NYSE: PCL) – Upgraded at UBS
Equity Residential (NYSE: EQR) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: GILD, RAH

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.

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