David Moenning's Daily State of the Markets: 11/18

Just Another Manic Monday

Although the Bangles are hardly a household name, their 1986 hit “Manic Monday” seems to be a fitting lyrical description of yesterday’s action. As expected, stocks initially dove on the back of reports that Japan had entered a recession and that Citigroup (C) was planning to layoff some 50,000 workers. However, the mood improved before lunch and the venerable DJIA actually sported a gain of 70 for a bit before succumbing to the usual last minute dive into the bell.

From a technical standpoint, the bulls will argue that the past couple of weeks have been nothing more than a period of backing and filling, which is a necessary part of the bottoming process. However, the bears can be heard reminding traders that the more a support level is tested, the weaker it becomes.

From a big-picture standpoint, the problem is that things are just not getting any better. The news flow is simply miserable on a daily basis and it remains redemption and tax-selling season.

What traders need right now in order to getting things moving northward are signs that we have actually seen the worst in the credit crisis and that we are about to turn the corner. But instead, just the opposite seems to be occurring. Probably the best example of this is the commercial paper market is still not working well for most companies. After starting out with a bang three weeks ago, the Fed’s new Commercial Paper Funding Facility has not done much lately as total CP borrowings in the financial sector actually fell $16 Billion over the past week.

Other examples of problems in the credit markets include the fact that interbank lending rates moved up yesterday for the third straight session while Fannie Mae (FNM) was forced to pay record spreads to sell a measly $2 billion worth of three and five-year notes.

Then in the category of other shoes to drop, we learned yesterday that credit cards are becoming a problem. Not surprisingly, Capital One (COF) reported that net charge-offs for its US Credit Card unit rose 20 basis points in October to 6.54% and delinquencies rose 25 BP to 4.45%. Then at American Express (AXP), charge-offs jumped to 6.96% last month from 6.14% in August while delinquencies rose to 4.40% from just 3.71% in August.

And under the ticking time bomb column, you may want to read yesterday’s “Heard on the Street” column in the Journal. The article discusses Citi’s ongoing level of leverage and is pretty scary stuff.

Finally, while we can’t really blame Hank Paulson for yesterday’s market troubles, the fact that the Treasury Secretary basically passed the buck, as well as the remaining $410 Billion in the TARP fund, to the incoming administration was not lost on the markets. In short, Mr. Paulson suggested yesterday that there were no plans to use any more TARP funds at the present time unless a worthy cause came along.

Turning to this morning, the dour mood continues in global premarket trading. Although a better-than expected result from Hewlett Packard (HPQ) has helped a good bit. On the economic front, we’ve got some inflation data to review. The October PPI came in down -2.8%, which was significantly better than expectations for a drop of -1.9%. But, when you strip out food and energy, the Core rate of +0.4% was higher than the consensus for an increase of +0.1% and the year-over-year number was the highest since 1989.

Running through the rest of the pre-game indicators, the major overseas markets are down across the board. Crude futures are higher with the latest quote showing oil trading up by $0.14 to $55.09. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 3.63% while the yield on the 3-month T-Bill is at 0.11% and overnight LIBOR is at 0.40%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 50 points; the S&P’s are down about 7 points, while the NASDAQ looks to be about even with fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

Hewlett-Packard (NYSE: HPQ) – Reported preliminary Q4 EPS of $1.03 vs. $0.99
Home Depot (NYSE: HD) – Reported $0.45 vs. $0.39
Medtronic (NYSE: MDT) – Reported $0.70 vs. $0.71
Saks (NYSE: SKS) – Reported -$0.13 vs. -$0.03

News, Upgrades/Downgrades/Brokerage Research:

Research in Motion (Nasdaq: RIMM) – Estimates reduced at BMO Capital
Target (NYSE: TGT) – Price target reduced at Citi
Deutsche Telecom (NYSE: DT) – Downgraded at Deutsche Bank, Goldman
Evergreen Solar (Nasdaq: ESLR) – Downgraded at JP Morgan
Southern Copper (NYSE: PCU) – Downgraded at Morgan Stanley
Freeport McMoRan (NYSE: FCX) – Estimates reduced at Morgan Stanley
Albemarle (NYSE: ALB) – Downgraded at Oppenheimer
Coca Cola (NYSE: KO) – Downgraded at UBS
PepsiCo (NYSE: PEP) – Downgraded at UBS
Kellogg (NYSE: K) – Downgraded at UBS
Chicos FAS (NYSE: CHS) – Upgraded at UBS
BJ Services (NYSE: BJS) – Downgraded at Wachovia

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.

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