David Moenning's Daily State of the Markets: 7/7

Escape!

One hour into yesterday’s Wall Street wrestle mania match, the bears had their opponent flat on their back and it looked like our heroes in horns were about to be pinned. It was actually a sad sight to see the once proud bull’s eyes darting frantically back and forth under the weight of the grizzly and in short, it looked like panic had set in. But, just as the referee was about to slap the mat, something distracted the bull’s opponent and in the blink of an eye, our hero escaped and was back on his feet, er hooves.

In case my Tuesday morning metaphor doesn’t make much sense, I was attempting to dramatize the VERY close call the bulls had with the neckline of a potential head-and-shoulders top formation yesterday. As you can see in the chart provided, at 10:30 am, the Dow Jones Industrial Average had broken down below the neckline of the formation (the thin blue line connecting the two “shoulders”), which, if it had held, would have completed the formation and likely triggered a downside move of something on the order of 520 points.�

But, just about the time market technicians were busy arguing about whether the S&P needed to confirm or if it was best to use closing or intraday data to make a downside projection, the bears got distracted and let the bulls off the hook (well, for now at least).

That “distraction” turned out to be a better-than expected report on the services sector of the economy. The ISM Non-Manufacturing Index came in a point better than expectations and marked the third straight monthly rise. The Business Activity Index rose to 49.8 from 42.4, which was the best level since last September, while the New Orders component rose 4.2 points to a reading of 48.6. And finally, more managers reported growth than contraction for the first time in a year.

While the ISM report didn’t exactly trigger an avalanche of buy orders, the news did allow the bulls to get up off the mat and resume the fight. And with the help of some late buying at the end of the day, both the Dow and S&P 500 enjoyed green screens into the close while the NASDAQ languished in the red.

Although there wasn’t any real catalyst for the last-minute flurry of buying, some argue that it was the S&P bouncing up off of its 200-day moving average or the surge in the defensive stocks that helped the blue chips indices find their way into the plus column on the day. But in any event, given the close call encountered earlier in the session, the bulls will gladly accept the opportunity to play another day.

Turning to this morning, we don’t have any economic data to review before the bell but the Treasury’s auction of 3-year notes is sure to attract some attention at 1:00 pm eastern.

Running through the rest of the pre-game indicators, the major overseas markets are mixed by region with Asia down and Europe up nicely. Crude futures are moving up a little with the latest quote showing oil trading higher by $0.43 to $64.48. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.54%, while the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a slightly lower open. The Dow futures are currently off by about 11 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about 2 points below fair value at the moment.

Stocks “In Play” This Morning:

Upgrades/Downgrades/Brokerage Research:

Anadarko Petroleum (NYSE: APC) – Upgraded at BofA/Merrill
Steel Dynamics (Nasdaq: STLD) – Upgraded at BofA/Merrill
Intel (Nasdaq: INTC) – Upgraded at BofA/Merrill
LSI Corp (NYSE: LSI) – Upgraded at BofA/Merrill

Marvell (MRVL) – Upgraded at BofA/Merrill
National Semiconductor (NYSE: NSM) – Upgraded at BofA/Merrill
Hess Corp (NYSE: HES) – Upgraded at Barclays
Telmex (NYSE: TMX) – Upgraded at Goldman
Dicks Sporting Goods (NYSE: DKS) – Upgraded at Goldman
Jones Apparel (NYSE: JNY) – Upgraded at Goldman
Kohl’s (NYSE: KSS) – Upgraded at Goldman
BJ’s Wholesale (NYSE: BJ) – Downgraded at Goldman
Southern Copper (NYSE: PCU) – Upgraded at Morgan Stanley
Companhia Vale do Rio Doce (Nasdaq: VALE) – Upgraded at Morgan Stanley
CenturyTel (NYSE: CTL) – Upgraded at UBS

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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