David Moenning's Daily State of the Markets: 11/24

A Quick Study

With the market returning to full-on crash mode last week in response to (1) Hank Paulson’s announcement that he was passing the TARP to the new administration, (2) a big technical breakdown on the charts, (3) a grim outlook for the nation’s now not-so “big three” automakers, and (4) Citigroup (C) looking like it was about to be fitted for a headstone, traders were beginning to feel like all hope was lost by the end of last week. So with the S&P down -48.9% on the year coming into Friday and everyone and their uncle predicting more pain ahead, who could really blame investors for feeling a little glum?

During much of Friday’s session, the focus was on the saga at Citi. Shares of C were pounded again during the session and reached an intraday low of $3.05, which represented a drop of another 35%, just after lunch. The latest issue had to do with conflicting reports as to what the banking behemoth was planning as their next move. Since traders remember all too well that too much hemming and hawing cost Lehman their very existence, rumors that Citi was refusing to part with Smith Barney created a great deal of consternation. It also didn’t help that executives at Citigroup had decided to publically “blame it on the shorts” as this tack rang hollow given the balance sheet concerns that are at the root of the problem.

Other issues giving traders pause on Friday included the ongoing problems in the credit markets and the worry over the fate of the automakers. In short, the negative news flow gave traders no reason to expect that the last hour of the session wouldn’t become a repeat of the week’s devastation.

However, it appears that the President-Elect may be a quick study in terms of managing the markets. While it has been a long time since we’ve heard anyone talk about the “Crash Protection Team,” Mr. Obama may be resurrecting the concept as word that Timothy Geithner would be nominated as Treasury Secretary was leaked at precisely 3:00 pm on an options expiration Friday.

Friday's are not typically big down days in a bear market to begin with; owed largely to the fact that shorts often cover before heading home – just in case something good happens over the weekend. So, if you were looking to get something positive going, a late day announcement on a Friday might just give you the maximum bang for your buck.

The announcement that Geithner would be taking over the Treasury job did just that. Traders felt that the NY Fed Chief would be a good choice to head up the Treasury and ran for cover instantly after the NBC story hit the wires.

So, will Friday’s blast of almost 600 points in the last 90 minutes give the bulls something to work from? Only time will tell for certain; but we can say that a year-end rally would seem to make a lot of sense.

Turning to this morning, the government’s rescue of Citigroup (C) late last night is definitely helping equities in the early going as it removes the fear that yet another major U.S. financial institution will go under. Citi is trading higher by almost 60% in the early going.

Running through the rest of the pre-game indicators, the major overseas markets are mixed as Asia was lower and Europe is up nicely. Crude futures are rebounding a bit with the latest quote showing oil trading up by $0.88 to $50.81 On the interest rate front, we’ve got the yield on the 10-yr currently trading at 3.22%, the yield on the 3-month T-Bill is at 0.02%, and overnight LIBOR has jumped to 0.81%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 125 points; the S&P’s are up about 14 points, while the NASDAQ looks to be about 21 points above fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Medco Health Solutions (NYSE: MHS) – Mentioned positively in Barron’s
Baxter Intl (NYSE: BAX) – Mentioned positively in Barron’s
Berkshire Hathaway (NYSE: BRK.A) – Mentioned positively in Barron’s
Ameriprise (NYSE: AMP) – Upgraded at Citi
Cigna (NYSE: CI) – Upgraded at Citi
New York Times (NYSE: NYT) – Upgraded at Citi
LM Ericsson (Nasdaq: ERIC) – Downgraded at Credit Suisse
Rio Tinto (NYSE: RTP) – Downgraded at ING
Anglo American (Nasdaq: AAUK) – Downgraded at ING
GlaxoSmithKline (NYSE: GSK) – Downgraded at Merrill

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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