David Moenning's Daily State of the Markets: 9/2

China Takes The Prize

Although Friday's session was not well attended ahead of the long holiday weekend, there were four pretty big stories that shaped the day's trading. There was Dell's disappointment, some economic data that included both good and bad news on the state of the consumer, the worry over Hurricane Gustav, and the report that China has been bailing out of Fannie Mae (FNM) and Freddie Mac (FRE).

While it would be easy to argue that worries over the potential damage from Gustav to oil installations as well New Orleans might have been the story of the day, the fact that crude oil actually dropped -$0.13 on the session to close at $115.26, made this concept a tough sell into the close.

Next up, Dell's miserable earnings report certainly did attract an awful lot of attention from those that were actually at their desks on Friday. After missing estimates badly, the company admitted to screwing up by lowering prices too much during the quarter and then went on to talk about the conservative IT spending environment in the US extending into Western Europe and Asia. This prompted a bunch of downgrades from the likes of UBS, Friedman Billings, Bank of America (BAC), Citibank (C), and Deutsche Bank (DB) and a plunge of -13.8% for symbol DELL.

Then there was the economic data. While the University of Michigan's Consumer Confidence index did come in a full point better than expectations at 63.0 and was the highest reading in the last six months, the details on personal income was a bit of a downer. Apparently the fact that the government has finished handing out $91.6 billion in stimulus checks took its toll on incomes as Personal Incomes fell by -0.7% in July, which was the biggest drop in three years, and significantly less than expectations for a drop of -0.4%.

However, the big winner in the news derby on Friday was the report that the Bank of China has been bailing on its exposure to GSE agency debt. According to the story, the BOC pared back its holdings by nearly 30% over the past month on concerns surrounding a government bailout for Fannie, Freddie, and friends.

The end result was a down day for the market as it didn't appear that anyone wanted to step in and buy with Gustav barreling towards the Gulf.

Turning to this morning, while we don't have any economic data to review before the bell, most everyone is breathing a sigh of relief that Gustav weakened as it approached the U.S. and caused far less damage than had been feared. While a Category 2 hurricane is nothing to sneeze at, the levees held, oil installations are still standing, and the storm was not the monster that Katrina turned out to be. As a result, oil is falling and stocks are rising this morning in the early going.

Running through the rest of the pre-game indicators, with the exception of Japan, the foreign markets are higher across the board. Crude futures are moving down hard with the latest quote showing oil trading lower by $7.91 to $107.55. Interest rates are moving up with the yield on the 10-yr currently trading at 3.84%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a strong open. The Dow futures are currently ahead by about 115 points; the S&P's are up by about 12 points, while the NASDAQ looks to be about 27 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Gilead Sciences (Nasdaq: GILD) - Downgraded at Bank of America
Priceline.com (Nasdaq: PCLN) - Upgraded at Credit Suisse
Bank of America (NYSE: BAC) - Added to America's Buy list at Goldman
Lowes (NYSE: LOW) - Upgraded at Goldman
Ensco (NYSE: ESC) - Downgraded at JP Morgan
Visa (NYSE: V) - Estimates increased at Morgan Stanley
MasterCard (NYSE: MA) - Estimates increased at Morgan Stanley
Pepsi Bottling Group (NYSE: PBG) - Upgraded at Morgan Stanley
Dean Foods (NYSE: DF) - Downgraded at Morgan Stanley
Research In Motion (Nasdaq: RIMM) - Estimates increased at Piper Jaffray
Monsanto (NYSE: MON) - Estimates increased at UBS

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

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.

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