David Moenning's Daily State of the Markets: 12/30

December 30, 2008 9:34 AM EST

All Dressed Up

With trading thin and about to get thinner, it is tough to read too much into the action this week. However, we can say that it was once again a modest positive that the bears were not able to drive the market into the ground again yesterday. With the Dow down 150 points around lunchtime, it looked like an abysmal year might go out on an ugly note. And while we do recognize that the indices are at the mercy of whatever programs happen to be run in the final hour, it was nice to see the day finish with only modest losses.

So with most traders resting up and getting ready for the whistle to blow for the 2009 game, the question at hand is if we can take anything away from the current action. And since this is our last report for the year, here’s how we see the market from a short-to-intermediate-term perspective.

In short, the current market appears to be all dressed up, but with no place to go. In English, this means that we’ve gotten some important buy signals, the charts are set up nicely to rally, we’ve got the holiday seasonality in our favor, the indices are sitting at support, and the market is once again oversold from a short-term perspective. Normally, this combination would produce a solid trading rally and in all honesty, this is what we’ve been looking for.

But unfortunately, it appears that the overhang of uncertainty and the daily dose of bad news is keeping the buyers on the sidelines and the expected rally in a holding pattern. Yesterday’s excuse du jour for standing pat was the escalation of the fighting between Israel and Hamas in the Middle East, the corresponding rise in oil, and the fact that a big takeover deal looks like it might not get done due to the lack of funding available for such frivolous activities.

So, with the market all dressed up and ready to go, what the bulls are waiting for is some sort of a trigger – or a reason to rally. But frankly, the longer our gal sits by the door waiting for her date to arrive, the more likely she is to be stood up.

What are we waiting for, you ask? The bulls will tell you that they don’t necessarily need a dose of good news, not that they’d turn it down if it were to show up. You see, at this point in the economic cycle, most of the news is going to be bad – very bad. The unemployment numbers are going to go up. The housing market is going to go down. Bankruptcies will increase. Retailers will disappear. And the earnings reports aren’t going to inspire anyone to do any buying.

So, we shouldn’t expect to suddenly get a report suggesting that everything is hunky dory in the housing market or at the shopping malls. No, what we need to see is some stabilization in the flow of bad news. In short, we need fewer surprises.

The good news is that the market is a discounting mechanism. Thus, when investors become convinced that the worst of the credit disaster is over and we start to see some hint that the massive stimulus that is on the way is beginning to take effect, we will THEN start to see stocks discount a brighter future ahead.

Until then, we still expect a “tradable rally” to occur based on the oversold nature of the market, the extreme sentiment readings, and the buy signals that have been triggered. However, until there is a reason to buy, the indices could remain in a holding pattern. And while this may not sound positive, a sideways market does indeed beat the alternative.

Turning to this morning, as expected, things are fairly quiet in the early going. So far at least, traders appear to be in a decent mood in response to GMAC grabbing some TARP money. Looking at the calendar, we don’t have any economic data to review before the bell but we will get the Chicago Purchasing Managers index at 9:45 and US Consumer Confidence at 10:00 am.

Running through the rest of the pre-game indicators, the major overseas markets are mostly higher. Crude futures are off a bit with the latest quote showing oil futures trading down by $0.43 to $39.59. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.14%, the yield on the 3-month T-Bill is at 0.01%, and overnight LIBOR is at 0.14%. 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 90 points; the S&P’s are higher by about 9 points, while the NASDAQ looks to be about 10 points above fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Yum! Brands (NYSE: YUM) – Upgraded at Argus Research
Citrix Systems (Nasdaq: CRXS) – Estimates reduced at Barclays
RenaissanceRe (NYSE: RNR) – Target increased at Bernstein
Owens Illinois (NYSE: OI) – Estimates reduced at JP Morgan
Greenhill (NYSE: GHL) – Downgraded at Keefe, Bruyette & Woods
Evercore Partners (NYSE: EVR) – Downgraded at Keefe, Bruyette & Woods
Trimble Navigation (Nasdaq: TRMB) – Mentioned positively at Oppenheimer
Starwood Hotels (NYSE: HOT) – Estimates reduced at Thomas Weisel

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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