David Moenning's Daily State of the Markets: 3/06

March 6, 2008 9:54 AM EST

Suddenly Resilient

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

It is safe to say that the emotions of the market have certainly been all over the map recently. And frankly, with the market flirting with the January lows, it is hard to tell which way traders will lean from one day to the next. For example, yesterday the bears appeared to have things well in hand again. And yet, for the second day in a row, our furry friends failed to push in for the score.

Even after the very reason that prices reversed higher on Tuesday – the Ambac deal – turned out to be a big disappointment, somehow, some way, the bulls managed to hold the line. So, even with a new record for oil prices and another plunge in the dollar, the bulls managed to put up another “W” on the board Wednesday.

After Tuesday's impressive stand, the bulls were able to use the early economic data to their advantage. The ISM Non-Manufacturing Composite rose by a record 4.7 points in February, which was significantly better than the expectations for an increase of 1.9. Despite the fact that the index reading of 49.3 technically still indicates a contraction mode for the services sector, the reading supports the thinking that January was abnormally low and that the economy is not falling off of a cliff at the present time.

This new warm and fuzzy feeling about the economy pushed the Dow up by as much as 120 points by mid-day and although commodity prices were surging, it looked like the bulls might be on a roll. But then, Ambac Financial (ABK) announced a stock offering designed to protect their triple-A rating. Given that the rumor mill had been cranking out stories of a big-bank bailout, the reaction to the news of a run-of-the-mill offering was something along the lines of “are you kidding me?” Stocks sold off instantly, and within minutes the gains were gone and red numbers were flashing.

So, with the dollar plunging for the seventh straight day and both gold and oil prices hitting record highs (oil closed the session at $104.52 a barrel), it would not have been terribly surprising to see the bears rally the troops and push prices through the line in the sand. But instead, the bulls managed to put up a surprisingly resilient front and once again staved off a chart-based disaster.

Turning to this morning, not surprisingly, there is more talk about subprime and credit issues. After the close yesterday, Thornburg Mortgage (TMA) disclosed that it was technically in default, which triggers all kinds of problems for the company and the stock fell more than 40% after the news. In addition, the WSJ reported that the short-term lending markets among banks remain under pressure. So, with red numbers flashing in the early going, it will be interesting to see if the bulls can remain resilient today.

On the economic front, both the ECB and the Bank of England have left interest rates unchanged, which was expected. The weekly unemployment claims were a bit better than expected and we’ll get a report on Pending Home sales at 10:00. But in reality, traders are really waiting for tomorrow’s big jobs report.

Running through the rest of the pre-game indicators; foreign markets are split by region as the Asian markets were higher while the major European markets are lower across the board. Crude futures are moving up so far with the latest quote higher by $0.11 to $104.63. Interest rates are moving down with the 10-yr trading at a yield of 3.64% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to another lower open. The Dow futures are currently off by about 70 points; the S&Ps are lower by about 9 points while the NASDAQ looks to be about 10 points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Wal-Mart (NYSE: WMT) – Feb Same Store Sales +2.6% vs. 1.1%
Target (NYSE: TGT) – Feb Same Store Sales +0.5% vs. -0.2%
Kroger (NYSE: KR) – Mentioned positively at Bank of America
Saks (NYSE: SKS) – Downgraded at Bank of America, Estimates reduced at Morgan Stanley
Fluor Corp (NYSE: FLR) – Upgraded at Citi
Dish Network (Nasdaq: DISH) – Upgraded at Credit Suisse
China Unicom (NYSE: CHU) – Upgraded at Credit Suisse
Tenaris (NYSE: TS) – Upgraded at Credit Suisse
Oracle Corp (Nasdaq: ORCL) – Upgraded at Merrill Lynch
Tyson Foods (NYSE: TSN) – Upgraded at Merrill Lynch

Mr. Moenning holds Long positions in stocks mentioned: WMT, CHU

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: DMoenning@HeritageCapitalManagement.com

Related Categories

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Stocks Mentioned

Related Entities

• Credit Suisse
• ISM Non-Manufacturing
• Pending Home Sales
• Citi
• Morgan Stanley
• Merrill Lynch
• Banc of America

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