David Moenning's Daily State of the Markets: 12/15

Surprisingly Resilient

Stocks were surprisingly strong again on Friday and resilient would seem to be the best adjective to describe the action. Make no mistake about it; things definitely didn’t start off well and then the news at the end of the day wasn’t exactly positive either. But through the politicking, the bad news, and the admission of fraud, stocks hung in there – which, of course, is a good thing.

The session definitely got started off on the wrong foot after the Senate decided that bickering and finger pointing was much more important than keeping a couple million U.S. citizens employed through the holiday season. And as the futures had projected, stocks opened down more than 200 points.

However, the mood quickly improved when the headline crossed the wires that the White House had done an about-face and said they would consider dipping into the TARP if they had to in order to keep the automakers afloat a while longer. And as luck would have it, the Treasury just happens to have $15 billion still lying around under the TARP that has not yet been committed.

So, with the likelihood being that stocks would not have to discount the related fallout of a General Motors (GM) bankruptcy, the major indices turned on a dime and the screens quickly went green.

But from there, the news flow was a mixed bag. The report on Retail Sales was an on-the-one-hand type of affair as sales fell by 1.8% in November, which marked the fifth straight month of falling sales numbers. But on the other hand, the decline was actually smaller than analysts had projected and then when you stripped out the auto figures, sales were actually up +0.3% for the month.

Unfortunately though, the economic news from around the globe wasn’t nearly as upbeat. For example, India’s Industrial Production fell for the first time in 15 years and Eurozone Industrial Production fell by 5.3% year-over-year. In addition, it was revealed that port activity here in the U.S. has simply fallen off a cliff.

While the bad economic data did take some of the wind out of the bulls’ sails, one might have thought that the news of Bernie Madoff being led away in handcuffs would have sent stocks lower on concerns over hedge funds and confidence in Wall Street. In short, Mr. Madoff, who was a respected market maker serving big names and institutions, had told senior employees that his asset management business was “a giant Ponzi scheme” that had been insolvent for years.

While the news of Madoff’s admission sparked a great deal of concern about liquidity and deleveraging in the hedge fund community – especially in the fund-of-funds arena – the major indices responded with a yawn and went about their business of moving higher. And for that we are obliged to tip our cap to the bulls for once again avoiding what could have been an ugly session.

Turning to this morning, President Bush has said that a deal for the automakers is not imminent, which leaves the market with an overhang of uncertainty during this week which already includes the Fed meeting and quadruple-witch expiration event.

On the economic front, the December Empire Manufacturing report came in just about as expected. The manufacturing index for the New York region fell to a reading of -25.76, which was a smidge better than the expectations for -28. In addition, we’ll get reports on Industrial Production and Capacity Utilization at 9:15 am eastern.

Running through the rest of the pre-game indicators, the major overseas markets are higher. Crude futures are higher with the latest quote showing oil trading up $2.48 to $48.76. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 2.55%, the yield on the 3-month T-Bill is at 0.02%, and overnight LIBOR is at 0.12%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are now pointing to a modestly higher open. The Dow futures are currently ahead by about 55 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 5 points above fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Tellabs (Nasdaq: TLAB) – Upgraded at Barclays
Kroger (NYSE: KR) – Downgraded at Credit Suisse
Devon Energy (NYSE: DVN) – Downgraded at Deutsche Bank
Range Resources (NYSE: RRC) – Downgraded at Deutsche Bank
Southwestern Energy (NYSE: SWN) – Downgraded at Deutsche Bank
KB Home (NYSE: KBH) – Debt downgraded at Fitch
Lennar (NYSE: LEN) – Debt downgraded at Fitch
Kansas City Southern (NYSE: KSU) – Downgraded at Goldman
Urban Outfitters (Nasdaq: URBN) – Added to Conviction Buy list at Goldman
Genworth Financial (NYSE: GNW) – Upgraded at Goldman
AT&T (NYSE: T) – Downgraded at Goldman
Apple (Nasdaq: AAPL) – Downgraded at Goldman
Altria Group (NYSE: MO) – Upgraded at JP Morgan
Lorillard (NYSE: LO) – Downgraded at JP Morgan
JP Morgan (NYSE: JPM) – Downgraded at Merrill
Best Buy (NYSE: BBY) – Upgraded at Piper Jaffray
Choice Hotels (NYSE: CHH) – Upgraded at UBS
Vail Resorts (NYSE: MTN) – Upgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: T

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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