David Moenning's Daily State of the Markets: 4/10

Crude’s Rude Redux

Here’s a link to listen to an Audio Version of the report: http://PlayAudioMessage.com/play.asp?m=496226&f=ATESKN&ps=13&c=FFFFFF&pm=2&h=25

Stocks drifted lower again yesterday and the Dow has now finished in the red in four of the last five sessions. While the declines have paled in comparison to the extreme volatility seen over the past six months, the bulls have to be a bit concerned that they have been unable to attract any follow-through buying after last Tuesday’s terrific blast.

Although there wasn’t any one single news story associated with yesterday’s pullback, the weight of oil finishing at another record high and tepid guidance from United Parcel Service (UPS) seemed to keep traders on the defensive. This combination was enough to raise new concerns about the state of the economy. Yes, everybody knows we are in a recession. However, the key question right now is just how steep the contraction in economic growth will be.

With oil moving higher in reaction to a big decline in crude inventories and Triple-A telling us that gasoline prices are likely to average nearly $3.50 a gallon during the summer driving season, investors are beginning to have serious doubts about the consumer’s ability to just keep shopping. Remember, the US consumer is faced with a steep decline in their home values, losses in their stock portfolios and 401(k) plans, and increasing prices at the grocery store and at the gas pump. So, can we REALLY expect John Q. Public to ignore it all and just keep spending?

In addition, investors learned a new term yesterday emanating from the credit crisis as some big names such as Goldman Sachs (GS), Morgan Stanley (MS), and Lehman Brothers (LEH) revealed significant increases in “Level 3 Assets.” For those not familiar with the interworkings of the brokerage industry, Level 3 Assets are those pesky securities that no one wants to make a bid for these days.

However, despite the rise in crude, the concerns about the consumer, the never ending stream of bad news from the financial sector, and the fact that stocks are overbought and near the top of the range, the bears have been unable to get much of anything going to the downside. So, while stocks do appear to be drifting lower, there is some consternation in the bear camp at the moment because time may be running out on their “no-brainer short opportunity.”

Turning to this morning, we’ve got a healthy batch of news items but again, not much movement in stock prices in the early going. As expected, the Bank of England cut rates by 0.25% to 5.00%. Word is that Lehman has liquidated three of its money market funds. Both Wal-Mart (WMT) and DuPont (DD) have raised earnings guidance this morning. The Same-Store Sales numbers from retailers are coming in on the punk side. And finally, the Weekly Jobless Claims numbers were weak, but much better than last week’s scary number.

Running through the rest of the pre-game indicators; with the exception of Hong Kong, the foreign markets were down about 1%. Crude futures are moving sideways at the moment with the latest quote showing oil higher by $0.05 to $110.92. Interest rates are moving down with the 10-yr trading at a yield of 3.46% so far. 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 ahead by about 5 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about 5points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Intel (Nasdaq: INTC) – Upgraded at Bank of America
Kellogg (NYSE: K) – Bear Stearns expects Q1 to be above consensus
Corning (NYSE: GLW) – Estimates increased at Bernstein
Nokia (NYSE: NOK) – Target reduced at Citi
PetroChina (NYSE: PTR) – Downgraded at Citi
Boeing (NYSE: BA) – Target reduced at Credit Suisse
Halliburton (NYSE: HAL) – Upgraded at Goldman
Weatherford Intl (NYSE: WFT) – Downgraded at Goldman
Ralcorp Holdings (NYSE: RAH) – Downgraded at JP Morgan
Cheniere Energy (NYSE: LNG) – Downgraded at Lehman
MasterCard (NYSE: MA) – Target increased at UBS
Nationwide Financial (NYSE: NFS) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: WMT

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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