David Moenning's Daily State of the Markets: 3/26

Sideways is Just Fine

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

After enjoying a stellar run over the past week, even the staunchest bull will admit that it's probably okay for the major indices to take a break in here somewhere. Everyone can see the resistance looming overhead. Everyone knows that the indices are overbought from a short-term perspective. And every chart watcher worth their salt knows that the volume has been a bit of a problem this week. Thus, a little backing and filling, or perhaps something a bit nastier, is pretty much expected at this stage of the game.

So, with reports showing Consumer Confidence crashing, home prices falling by a record amount, and short-term credit markets still acting a bit sticky, it was little wonder that the Dow wound up moving down nearly 100 points in the early going on Tuesday. And since the end of the quarter coming up fast, no one would have complained too loudly if the bulls simply took a day off.

However, despite the crummy economic news and most everyone looking for a pullback and/or another retest of the lows, it was very interesting to see stocks actually go sideways yesterday. Well, in reality, it was only the Dow that went sideways. There were green screens just about everywhere else you looked and some of the old leaders sprinted back to the forefront for an end-of-quarter run.

While one day does not a trend make, the bulls will argue that this down day that wound up not being a down day, was a very positive event. And for those shouting that the bottom is in, the fact that the bears couldn’t get anything going would seem to support their cause.

But, our furry friends remind us that the economic data wasn't exactly a bowl of cherries yesterday. Consumer Confidence fell a jaw-dropping -11.9 points in March to a reading of just 64.5, which was a far cry from expectations of 73.0 and the lowest level since March 2003. Adding insult to injury on the topic, the Expectations Index gave up 10.1 points and finished at 47.9, which was the worst level since – wait for it – December 1973.

On the housing front, nobody really expected the Case-Shiller report on home pricing to contain any good news. So, since the drop of -11.4% in home prices over the past year was pretty much expected, the market had little reaction.

Turning to this morning, we've got some economic data to sift through before the opening bell. The report on orders for durable goods in February came in below expectations with a loss of -1.7% versus the consensus for an increase of +0.7%. When you strip out transportation, the numbers were equally ugly, showing a drop of -2.6% versus -0.3%. And the all important non-defense capital goods ex-aircraft number, which feeds into GDP, also fell by -2.6%.

Running through the rest of the pre-game indicators; the foreign markets were lower across the board on subprime worries. Crude futures are moving higher with the latest quote up $1.28 to $102.50. Interest rates are moving down with the 10-yr trading at a yield of 3.46% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a down open. The Dow futures are currently off by about 80 points; the S&Ps are down by about 10 points, while the NASDAQ looks to be about 15 points below fair value at the moment.

Finally, I'd just like to remind everyone that I will be traveling with my family for the remainder of the week So, unless something major occurs, my plan is to take Thursday and Friday morning off to recharge the batteries.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Wal-Mart (NYSE: WMT) – Mentioned positively in Barron’s
Telecom Italia (NYSE: TI) – Upgraded at Bear Stearns
Apache Corp (NYSE: APA) – Upgraded at Bernstein
Encana Corp (NYSE: ECA) – Upgraded at Bernstein
XTO Energy (NYSE: XTO) – Upgraded at Bernstein
Hudson City Bancorp (Nasdaq: HCBK) – Downgraded at Friedman Billings
State Street Corp (NYSE: STT) – Removed from Conviction Buy list at Goldman
Alpha Natural Resources (NYSE: ANR) – Upgraded and added to Conviction Buy at Goldman
CONSOL Energy (NYSE: CNX) – Upgraded at Goldman
Arch Coal (NYSE: ACI) – Upgraded at Goldman
Massey Energy (NYSE: MEE) – Upgraded at Goldman
Waters Corp (NYSE: WAT) – Upgraded at JP Morgan

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

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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