David Moenning's Daily State of the Markets: 5/14

�A Long Way to Go?

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

The common thinking in the market is that the worst of the credit crisis is over and it has been this theme that has helped power gains of 11% off the bottom in the Dow. However, one of the key points we’ve learned recently is that the credit crisis itself is actually far from over. In fact, yesterday, Mr. Ben Bernanke himself told us in a prepared statement that we have a long way to go before we see an end to the problems created by the subprime slime.

Mr. Bernanke wasn’t alone yesterday in offering up opinions on the state of the credit crisis, the economy, and interest rates as not one, not two, but count ‘em, seven members of the Fed went on the record yesterday. But, believe it or not, other than a couple of statements telling us not to expect a quick recovery in housing, there wasn’t much of anything new provided and the markets had little or no reaction to all the Fedspeak.

But it wasn't just Fed governors who were telling us to be cautious about the future as recent market darling Wal-Mart (WMT) kicked off the session with a less than robust outlook for the rest of the year. Although their earnings were right on target with the estimates, the company noted that “there are still uncertainties about the rest of the year.”

Speaking of the consumer, investors appeared to like the report on Retail Sales, which showed that when you ignore the sale of autos, retail sales in April actually increased by a strong +0.6%. This was higher than forecasted and provided hope that despite rising food and gasoline costs, the consumer has yet to stop spending time at the malls.

On the subject of oil, anyone dumb enough to bet against the relentless rise in crude prices was once again slapped upside the head yesterday. Crude futures initially pulled back after the IEA cut their forecast for oil demand by about 18% for the year. Then with the dollar rallying and word that Congress had passed legislation to stop filling the Strategic Petroleum Reserve, one might have expected crude to finally take a dive. Maybe it had something to do with position squaring as the June contract goes away this week. But, despite all the negative influences, oil continued to trudge higher and closed up $1.57 to $125.80.

At the end of the day, not much had changed as the Dow dropped 44, the S&P barely budged, and the NASDAQ actually gained some ground. So, with the charts still sitting in a precarious position, we may indeed have a long way to go before the bulls start to sing a happy song again.

Turning to this morning, all eyes are on the CPI numbers so let’s get right to them. Although the data might appear to be a bit counterintuitive, the government just reported that the CPI rose by +0.2% in April, which was below the estimates for an increase of +0.3%. And when you strip out food and energy, the Core rate rose by just +0.1%, which, again, was a tenth under expectations. The futures, as expected, have turned higher on the data.

Running through the rest of the pre-game indicators; the foreign markets are mixed. Crude futures are moving down a little with the latest quote showing oil trading lower by $0.28 to $125.52. Interest rates are moving up as the yield on the 10-yr is currently trading at 3.92%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a fairly nice open. The Dow futures are currently ahead by about 40 points; the S&P’s are up by about 8 points, while the NASDAQ looks to be about 7 points above fair value at the moment.

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:

Applied Materials (AMAT) – Reported $0.24 vs. $0.22
Electronic Arts (ERTS) – Reported $0.09 vs. $0.00
Whole Foods (WFMI) – Reported $0.29 vs. $0.30

Today’s Earnings Before the Bell:

Deere & Co. (NYSE: DE) – Reported $1.74 vs. $1.74
Diana Shipping (NYSE: DSX) – Reported $0.71 vs. $0.67
Federal Home Loan Mortgage (NYSE: FRE) – Reported -$0.66 vs. -$1.57
Macy’s (NYSE: M) – Reported $0.02 vs. -$0.02
AcelorMittal (NYSE: MT) – Reported $1.69 vs. $1.80
Sony (NYSE: SNE) – Reported $0.28 vs. $0.13

News, Upgrades/Downgrades/Brokerage Research:

Electronic Data Sys (NYSE: EDS) – Downgraded at Bernstein
Genzyme (Nasdaq: GENZ) – Upgraded at Bernstein
Bear Stearns (NYSE: BSC) – Estimates reduced at Goldman
Lehman (NYSE: LEH) – Estimates reduced at Goldman
Morgan Stanley (NYSE: MS) – Estimates reduced at Goldman
Staples (Nasdaq: SPLS) – Upgraded at Jefferies
RF Microdevices (RFMD) – Upgraded at Merrill
Cameco Corp (NYSE: CCJ) – Downgraded at UBS
Sun Microsystems (Nasdaq: JAVA) – Upgraded at Wachovia
Fluor Corp (NYSE: FLR) – Mentioned positively at UBS, Downgraded at Stanford Group

Disclosure: Mr. Moenning and/or related firms hold long positions in: WMT, AMAT

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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