David Moenning's Daily State of the Markets: 2/25

Bears Get AMBAC-ed

Here's a link to listen to an Audio Version of the report:

Although there has been some stabilization in the market over the past few weeks, it is safe to say that the bears have had a pretty easy go of it so far in 2008. Their modus operandi has been to keep investors running scared with projections of doom and gloom for the financial system. And every time their opponents get something going, regardless of how feeble the attempt may be, our furry friends always seem to come up with another shoe that may soon drop in the ongoing financial crisis.

However, on Friday, it was the bears’ turn to do some running – running for cover, that is. Up until the last 45 minutes of the day the bears had managed to keep the bulls at bay and it looked like we were going to finish yet another week on a sour note. But then, at about 3:15 pm eastern time, stocks took off like a shot to the upside and with the exception of the Russell 2000, the major indices all finished with bright green screens.

The reason for the blast higher was simple. CNBC had broken a story that bond insurer AMBAC (ABK) was close to reaching a bailout deal that would give them the capital they need to retain their triple-A rating. So, with the potential for something good to happen over the weekend, the bears scurried for cover, causing the Dow to blast 225 points in a matter of minutes.

Sure enough, at 4:24 am this morning, the Wall Street Journal reported that AMBAC was inching closer to an agreement to restructure the company and raise $3 billion in capital backed by Citigroup (C), UBS (UBS), Royal Bank of Scotland, and Wachovia (WB).

The reason this story is enhancing the mood of markets here and abroad is a bailout of the bond insurers means that we could be nearing an end to the write-downs in the banking and brokerage community. And if there aren’t any new skeletons found in the closets or other shoes yet to drop, then traders just might be able to see that the light at the end of the tunnel is NOT an oncoming train.

But, before you go out and fire up the margin account once again, we should probably point out that one day of short-covering does not a bull market make. In short, there are lots of issues for the market to deal with including an abundance of economic data due this week.

For example, we’ll get the earnings reports from the nation’s retailers all this week. Then looking at the economic calendar, we’ll hear about Existing Home Sales later this morning; PPI, Consumer Confidence, and the Richmond Fed report on Tuesday; the reports on Durable Goods and New Home Sales on Wednesday; GDP and Personal Consumption on Thursday; and finally a report on Personal Income and Spending on Friday.

Running through the rest of the pre-game indicators; with the exception of Chinese markets, the overseas markets are higher across the board this morning. Crude futures are moving up a bit with the latest quote up $0.15 to $98.96. Interest rates are moving higher so far with the 10-yr trading at a yield of 3.83% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a flat open. The Dow futures are currently a few points below fair value; the S&Ps are right at breakeven, while the NASDAQ also looks to be about dead even with fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Lowe's (NYSE: LOW) – Reported $0.28 vs. $0.25

News, Upgrades/Downgrades/Brokerage Research:

Apollo Investment Corp (Nasdaq: AINV) – Downgraded at BMO Capital
American Capital Strategies (Nasdaq: ACAS) – Downgraded at BMO Capital
New York Times (NYSE: NYT) – Downgraded at Deutsche Bank
General Motors (NYSE: GM) – Downgraded at Deutsche Bank
Forest Labs (NYSE: FRX) – Downgraded at Goldman
FMC Technologies (NYSE: FTI) – Downgraded at Goldman
BJ Services (NYSE: BJS) – Upgraded at Goldman
Washington Mutual (NYSE: WM) – Downgraded at Goldman
Federal Home Loan Mort (NYSE: FRE) – Downgraded at Goldman
Federal National Mort Assn (NYSE: FNM) – Downgraded at Goldman
Genentech (NYSE: DNA) – Target increased at Jefferies
Motorola (NYSE: MOT) – Downgraded at Oppenheimer
Citigroup (NYSE: C) – Estimates reduced at Oppenheimer
Juniper Networks (Nasdaq: JNPR) – Upgraded at RBC Capital
Yum Brands (NYSE: YUM) – Upgraded at UBS
Alpha Natural Resources (NYSE: ANR) – Downgraded at UBS
Peabody Energy (NYSE: BTU) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: 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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

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