David Moenning's Daily State of the Markets: 8/06

Gaining Some Clarity?

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

In our weekend report, we opined that there were many questions that remain unanswered regarding the macro picture. And while yesterday’s session didn’t exactly provide any real answers, the feeling now is that just maybe the big picture is not quite as murky as it was.

For starters, we got some clarity with regard to the reason oil has been getting smashed lately. And while we will have to admit that it wasn’t a hedge fund biting the dust that caused the carnage, it does look like the selling was driven by a hedge fund type. The rumor in the pits is that the CFTC changed the label of a particularly large player – from “hedger” to “speculator.” If you will recall, the evil speculators are now required to put up much bigger margins than a true “hedger.” As the story goes, this particular player held something like 25% of the open contracts in oil. So, when faced with either putting up a whole bunch of cash or selling positions, the firm in question appears to have chosen the latter.

This, when coupled with all the talk about “demand destruction” and a global slowdown, took oil to its lowest level in almost 3 months as crude closed at $119.17. And regardless of whether you believe that the most recent drop is being driven by technical or macro factors, the bottom line is that lower oil prices will mean improved inflation readings in the next couple of months.

Next up, with John Thain telling us yesterday that Mother Merrill is now (and once again) “well capitalized” and there is no need to cut the dividend, some of the fears over the credit crisis seem to be abating – well, at least for now.

On the economic front, the fear has been that the current slowdown is going to morph into something much more serious. And while one piece of economic data hardly represents a trend, it was modestly positive that the ISM said yesterday that the services sector is in better shape than analysts had expected. The Institute for Supply Management reported that the service sector activity index rose to 49.5 in July, which, while still below the all-important 50 level, was better than the expectations for a reading of 48.2.

Finally, while we won’t bore you with all the details of the Fed statement, we can say that the verbiage, which accompanied the announcement that the FOMC had decided to leave rates unchanged, provided some reassurance that Mr. Bernanke and friends weren’t about to go out and do something stupid. So, while Mr. Fisher continues to fret about inflation, the rest of the Fedheads seem to recognize that keeping the banking system afloat is a little more important than worrying about a little commodity-based inflation right now.

When all was said and done, the bulls were quite pleased with their handiwork and had put up a 3-spot on the board. And although the move really doesn’t change much of anything just yet, it is indeed a step in the right direction.

Turning to this morning, once again we don’t have any economic data to review before the bell. And at least in the early going, it looks as if stocks may take a breather after yesterday’s big run.

Running through the rest of the pre-game indicators; the major foreign markets are mixed with Japan up and European bourses battling breakeven. Crude futures are moving up a smidge with the latest quote showing oil trading up by $0.11 to $119.28. Interest rates are higher this morning with the yield on the 10-yr currently trading at 4.02%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a softer open. The Dow futures are currently off by about 56 points; the S&P’s are down about 5.50 points, while the NASDAQ looks to be about even with fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

American Capital (Nasdaq: ACAS) – Reported $0.71 vs. $0.72
Sotheby’s (NYSE: BID) – Reported $1.46 vs. $1.41
Bio Rad Labs (NYSE: BIO) – Reported $1.58 vs. $1.08
Cisco Systems (Nasdaq: CSCO) – Reported $0.40 vs. $0.39
Enersys (NYSE: ENS) – Reported $0.48 vs. $0.47
Forest Oil (NYSE: FST) – Reported $1.54 vs. $1.48
J2 Global (Nasdaq: JCOM) – Reported $0.40 vs. $0.40
Blue Nile (Nasdaq:NILE) – Reported $0.20 vs. $0.17
News Corp (NYSE: NWS.A) – Reported $0.43 vs. $0.34
Priceline (Nasdaq: PCLN) – Reported $1.55 vs. $1.40
Quest (Nasdaq: QSFT) – Reported $0.17 vs. $0.21
Wendy’s (NYSE: WEN) – Reported $0.30 vs. $0.37
Whole Foods (Nasdaq: WFMI) – Reported $0.24 vs. $0.31

Today’s Earnings Before the Bell:

Dean Foods (NYSE: DF) – Reported $0.33 vs. $0.32
Devon Energy (NYSE: DVN) – Reported $3.39 vs. $3.29
El Paso (NYSE: EP) – Reported $0.39 vs. $0.40
Federal Home Loan (NYSE: FRE) – Reported -$1.63 vs. -$0.28
Marsh & McLennan (NYSE: MMC) – Reported $0.41 vs. $0.35
Mylan (NYSE: MYL) – Reported $0.16 vs. $0.10
NASDAQ OMX Group (Nasdaq:NDAQ) – Reported $0.48 vs. $0.43
Qwest (NYSE: Q) – Reported $0.11 vs. $0.10
Transocean (NYSE: RIG) – Reported $3.45 vs. $3.30
Sprint Nextel (NYSE: S) – Reported $0.06 vs. $0.03
Time Warner (NYSE: TWX) – Reported $0.24 vs. $0.23

News, Upgrades/Downgrades/Brokerage Research:

Whole Foods (Nasdaq: WFMI) – Target reduced at Citi
Health Net (NYSE: HNT) – Downgraded at Citi
Zion Bancorp (Nasdaq: ZION) – Removed from Conviction Sell list at Goldman
Boeing (NYSE: BA) – Removed from Conviction Sell list at Goldman
Exelon (NYSE: EXC) – Removed from Conviction Buy list at Goldman
Mosaic (NYSE: MOS) – Removed from Conviction Buy list at Goldman
Cisco Systems (Nasdaq: CSCO) – Downgraded at Lehman
Elan (NYSE: ELN) – Upgraded at Lehman
Sonic Corp (Nasdaq: SONC) – Downgraded at Merrill
FMC Technologies (NYSE: FTI) – Upgraded at UBS
Brinker Intl (NYSE: EAT) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: CEDC

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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