David Moenning's Daily State of the Markets: 6/24

June 24, 2009 9:23 AM EDT

The Pressure’s On

After the bulls were turned away from the 950 area on the S&P, a pullback to the low end of the range certainly made sense. As the market bumped into resistance for something like nine straight days, the pressure grew for the bulls to break on through to the other side. And once our heroes in horns failed to “get ‘er done,” the whoosh to the downside wasn’t exactly surprising from a technical standpoint.

However, now that the Dow and S&P are flirting with the low end of the trading range that began in early May, the shoe appears to be on the other foot as the bears are undoubtedly beginning to feel some pressure to keep moving the ball down the field.

To be sure, the 880 zone on the S&P as well as the 8220 area on the Dow are clear lines of defense for the bull camp. And we might go so far as to say that this line in the sand is more important to the bulls than breaking above the 950 area. In our humble opinion, a break below would likely usher in additional selling from the technical crowd while holding the line would embolden the bulls for another attempt at the top end of the range. Thus, it will suffice to say that the battle for the line just below will be well worth watching.

Tuesday’s market action lacked an overriding theme as the indices appeared to meander around waiting for the results of today’s Fed meeting. There was some news – most of it negative – but traders largely ignored the housing data, the talk of appraisers undervaluing homes, word that some banks can’t meet their TARP dividend payments, and the delay of Boeing’s new airplane, and instead decided to focus on the Fed.

While there is no expectation for a change in interest rates or current policy, there is a great deal of debate surrounding the Fed’s so-called exit strategy. Traders in the bond pits are concerned about when the Fed will end the extraordinary liquidity programs put in place to battle the credit crisis and actually begin to raise rates. Although such talk would appear to be premature, there are growing concerns about future inflation and how the Fed will deal with this potentially unintended consequence.

So, with the lines drawn and the two teams about to take the field, it will be very interesting to see what comes out of the woodwork to give one of the combatants the edge.

Turning to this morning, orders for Durable Goods in May increased by +1.8%, which was well above the expectations for a drop of -0.9%. When you strip out transportation, orders also gained ground by +1.1% versus the consensus of -0.5% and last month’s revised reading of +0.4%. And as you might expect, stock futures have moved up in response to this report.

Running through the rest of the pre-game indicators, the major overseas markets are higher across the board. Crude futures are moving down with the latest quote showing oil trading lower by $0.39 to $68.85. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.67%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 70 points; the S&P’s are up about 8 points, while the NASDAQ looks to be about 10 points above fair value at the moment.

Stocks “In Play” This Morning:

Upgrades/Downgrades/Brokerage Research:

Franklin Resources (NYSE: BEN) – Downgraded at Argus Research
EMC Corp (NYSE: EMC) – Upgraded at Barclays
Deutsche Bank (NYSE: DB) – Upgraded at Citi
Black & Decker (NYSE: BDK) – Upgraded at Credit Suisse
Freeport McMoRan (NYSE: FCX) – Upgraded at Friedman Billings Ramsey
MEMC Electronic Materials (NYSE: WFR) – Downgraded at JP Morgan
Alliance Data Systems (NYSE: ADS) – Downgraded at JP Morgan
American Tower (NYSE: AMT) – Upgraded at JP Morgan
Boeing (NYSE: BA) – Downgraded at Morgan Stanley, Oppenheimer
Frontier Oil (NYSE: FTO) – Downgraded at Oppenheimer
Sunoco (NYSE: SUN) – Downgraded at Oppenheimer
Tesoro (NYSE: TSO) – Downgraded at Oppenheimer
Valero (NYSE: VLO) – Downgraded at Oppenheimer

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.TopStockPortfolios.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.

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