David Moenning's Daily State of the Markets:

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

http://PlayAudioMessage.com/play.asp?m=476593&f=HBBMYW&ps=13&c=FFFFFF&pm=2&h=25


Let The Games Begin

Everyone who has ever been through one of these waterfall declines knew that there was a bounce coming at some point. After all, even in a bear market, stocks don’t go straight down without a respite now and then. The problem was that most folks believed that the bounce was going to occur on Tuesday in response to Helicopter Ben's surprise rate reduction. So, when it didn’t happen and then ECB President Trichet started talking stubbornly about inflation, things looked like they would get ugly in a hurry yesterday morning.

And ugly it was as stocks opened down more than 200 points. In case you don’t hang on every word that the central bankers of the world utter, yesterday’s opening plunge was sponsored by the ECB’s President talking about ignoring those "other" central banks and continuing to fight the good fight against inflation. So, with the realization that there was no central banker coordination designed to put an end to the credit crisis, stocks sold off. And by mid-morning the Dow had taken another breathtaking plunge of -326 points.

So, with stocks sitting at Tuesday’s low, you could feel the nervousness in the bull camp. All eyes were glued to the charts because everybody who has ever drawn a trendline knew what would happen if the indices breached the Tuesday low – another heart-stopping whoosh down. So, with a line clearly drawn in the sand, the bulls tried to make a stand.

But without a catalyst, the bulls appeared to be fighting a losing battle as the sentiment had become so extreme that nobody was willing to step in and be a hero. But, then it happened. With about two hours left in the session, the rumors of a bailout for the bond insurers began. Word was that the New York State insurance regulators were pressuring large banks to provide a bunch of capital to support the beleaguered insurers.

This is important because part of the recent selloff had been tied to the worry that there was another shoe yet to drop in the credit crisis. You see, if bond insurers go under, then the owners of the bad bonds would need to write down those losses. And with big banks already searching the globe for capital, there was worry that this might be the straw that broke the banks backs.

So, armed with the theory that we may have FINALLY seen the worst, the bulls made a stand and the shorts ran for cover. And well, that’s all it took for the Dow to finish up 299 points. Technicians will call this a "key reversal day," which means that the short-term trend has now changed – at least for a while.

What traders will be looking for now is some follow-through buying WITH volume. Yes, volume is the key here and not necessarily the price action itself. In short, volume represents demand. And if there is demand for stocks, it will signal the bears that they’ve had their day in the sun. However, if the demand is paltry, then this might turn out to be just another "dead cat" bounce that all corrections tend to contain.

Turning to this morning, we’ve got positive results from Nokia (NYSE: NOK) and a turnaround in Europe keeping stock prices on the firm side. On the economic front, we don’t have any big economic data before the bell, but we will get a report on existing home sales at 10:00 am.

Running through the rest of the pre-game indicators; as we mentioned, the European markets are a flying high at the moment while Asia was mixed. Crude futures are up so far this morning with the futures currently trading up $1.40 to $88.29. Interest rates are moving higher with the 10-yr trading at a yield of 3.57% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a relatively quiet open for a change. The Dow futures are currently ahead by about 20 points; the S&Ps are up by about 6 points, while the NASDAQ looks to be about 14 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday's Earnings After the Bell:

Capital One (NYSE: COF) – Reported $0.60 vs. $0.60
EBay (Nasdaq: EBAY) – Reported $0.45 vs. $0.41
Gilead Sciences (Nasdaq: GILD) – Reported $0.41 vs. $0.40
Knight Transportation (NYSE: KNX) – Reported $0.16 vs. $0.17
Qualcomm (Nasdaq: QCOM) – Reported $0.52 vs. $0.53
Qlogic (Nasdaq: QLGC) – Reported $0.30 vs. $0.23
Noble (NYSE: NE) – Reported $1.27 vs. $1.30
Pactiv (NYSE: PTV) – Reported $0.45 vs. $0.42
Sovereign Bancorp (NYSE: SOV) – Reported $0.18 vs. $0.16

Today’s Earnings Before the Bell:

AmerisourceBergen (NYSE: ABC) – Reported $0.62 vs. $0.63
Baxter Intl (NYSE: BAX) – Reported $0.76 vs. $0.74
Ford (NYSE: F) – Reported -$0.20 vs. -$0.19
Hershey (NYSE: HSY) – Reported $0.54 vs. $0.55
Kimberly Clark (NYSE: KMB) – Reported $1.11 vs. $1.11
Lennar (NYSE: LEN) – Reported -$7.92 vs. -$1.80
Lockheed Martin (NYSE: LMT) – Reported $1.89 vs. $1.70
Nokia (NYSE: NOK) – Reported E0.47 vs. E0.44
AT&T (NYSE: T) – Reported $0.71 vs. $0.71
Xerox (NYSE: XRX) – Reported $0.41 vs. $0.40
Potash (NYSE: POT) – Reported $1.16 vs. $0.97

News, Upgrades/Downgrades/Brokerage Research:

Genentech (NYSE: DNA) – Named one of top biotech picks at Bank of America
McAfee (NYSE: MFE) – Upgraded at Bear Stearns, Citi
Statoil (NYSE: STO) – Upgraded at Citi
EBay (Nasdaq: EBAY) – Downgraded at Citi, Target reduced at UBS
Thornburg Mortgage (NYSE: TMA) – Upgraded at Citi
Legg Mason (NYSE: LM) – Downgraded at Credit Suisse
Western Digital (NYSE: WDC) – Upgraded at Deutsche Bank
Repsol (NYSE: REP) – Upgraded at Deutsche Bank
Gilead Sciences (Nasdaq: GILD) – Upgraded at Friedman Billings
Lukoil (Nasdaq: LUKOY) – Upgraded at Goldman
Bristol Meyers Squibb (NYSE: BMY) – Upgraded at Goldman
Toll Brothers (NYSE: TOL) – Named one of top 5 stock picks at JP Morgan
Tenet Healthcare (NYSE: THC) – Upgraded at Lehman
Turkcell (NYSE: TKC) – Upgraded at Merrill
DuPont (NYSE: DD) – Downgraded at Oppenheimer
ConocoPhillips (NYSE: COP) – Target reduced at UBS
General Dynamics (NYSE: GD) – Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: POT

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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