David Moenning's Daily State of the Markets: 10/29

October 29, 2008 9:54 AM EDT

Now It Gets Difficult

While it is nice to see a plan come together, I’m sorry to say that from here, things get a little more difficult. I know that we’ve been yammering on a lot lately about the typical crash pattern. But the goal of repeating the historical tendencies early and often was to try and help everyone keep their heads about them when things were falling apart at the seams.

So let's review one more time for posterity. We got the panic low on 10/10 and the requisite reversal that signaled it was time for a dead-cat bounce. Then, after a 24% move off the bottom, the rally ended as quickly as it began and we got the downside retest that scared the bajeebers out of everyone over the past week. And as we’ve been saying lately, the next thing we were looking for was a jaw-dropping move higher once traders had become convinced the October 10th low had held.

But now that we’ve gotten that big bounce, we’ve got to be careful as to not become irrationally exuberant. You see, it would be very easy after yesterday’s move to pronounce, “It’s over!” as everybody still on the long side of the game breathed a collective sigh of relief. But unfortunately, I have to say that things really aren’t much different after yesterday’s big blast than they were after Monday’s big dive into the close.

How can I make such a blasphemous accusation after the Dow ignited hope with a gain of 889 points or +10.88%? It’s easy really, because neither move occurred on any news or any type of fundamental trigger. So, more than likely, both moves were just more volatility – only yesterday’s was the type of volatility nobody seems to mind.

But as I’ve been saying, now comes the hard part – the probing and testing as well as the backing and the filling, which is likely to drive both teams crazy before it ends. While the patterns tend to blur a great deal from here, we can probably look for some sort of trading range to develop in the near term. Remember, just because we’re going to get more rate cuts today doesn’t mean everything is suddenly hunky dory. And although I am sorry to say it, again, the bottoming process IS going to take some time.

We can say that it was a positive that yesterday’s upside explosion occurred after some really crummy, yet not altogether unexpected, economic news and some new rumors involving a couple of the last brokerage firms – oops, I mean banks – still standing. Both of which helped put our furry friends back in charge in the early going and created thoughts of “here we go again” as the Dow gave back all of an early 300+ point gain.

But after both Goldman (GS) and Morgan (MS) vehemently denied rumors and then talk of the Street’s asset allocation models shifting assets from bonds to stocks got legs, the bulls suddenly got their act together after lunch.

So, where to now? Since the traders are in charge here, it is probably best to think like a trader. And if, as a trader, you have just gotten a pop of 10% to 20% on your long side bet, you might soon start to think about going the other way after a little more upside fun.

Turning to this morning, the Fed is on tap today at 2:15 eastern. However, China got the ball rolling as they announced a reduction in interest rates, which investors hope will be the first of many cuts to come in the next 24 hours.

On the economic front, orders for durable goods in September came in with a gain of 0.8%, which was well above the estimates for a drop of -1.0%. When you strip out transportations, orders were more in line with estimates at a loss of -1.1% versus the consensus for -1.5%.

Running through the rest of the pre-game indicators, the major overseas markets followed the U.S. higher. Crude futures are rising again with the latest quote showing oil trading higher by $3.71 to $66.44. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 3.82% while the yield on the 3-month T-Bill is at 0.665% and overnight LIBOR is at 1.14% which is down from yesterday’s rate of 1.24%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pulling back from their morning highs. The Dow futures are currently ahead by about 20 points; the S&P’s are down by about 2 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:

Ace Limited (NYSE: ACE) – Reported $1.51 vs. $1.40
Advent Software (Nasdaq: ADVS) – Reported $0.23 vs. $0.15
Arthur J Gallagher (NYSE: AJG) – Reported $0.44 vs. $0.44
Align Technology (Nasdaq: ALGN) – Reported $0.11 vs. $0.05
Apollo Group (Nasdaq: APOL) – Reported $0.75 vs. $0.67
Chicago Bridge (NYSE: CBI) – Reported $0.09 vs. -$0.11
Compass Minerals (NYSE: CMP) – Reported $0.87 vs. $0.57
Centex (NYSE: CTX) – Reported -$1.62 vs. -$1.11
DreamWorks Animation (NYSE: DWA) – Reported $0.38 vs. $0.32
Fiserv (Nasdaq:FISV) – Reported $0.81 vs. $0.83
Flowserve (NYSE: FLS) – Reported $2.04 vs. $1.76
FMC Corp (NYSE: FMC) – Reported $1.13 vs. $1.02
Jones Lang LaSalle (NYSE: JLL) – Reported $0.43 vs. $0.81
Lincoln National (NYSE: LNC) – Reported $1.23 vs. $1.18
McKesson (NYSE: MCK) – Reported $1.17 vs. $1.05
Molex (Nasdaq:MOLX) – Reported $0.34 vs. $0.33
Nalco Holding (NLC) – Reported $0.30 vs. $0.31
Parametric (PMTC) – Reported $0.45 vs. $0.40
RF Micro Devices (RFMD) – Reported $0.07 vs. $0.05
Aaron Rents (NYSE: RNT) – Reported $0.36 vs. $0.35
STMicroelectronics (NYSE: STM) – Reported -$0.32 vs. $0.18

Today’s Earnings Before the Bell:

Aetna (NYSE: AET) – Reported $1.12 vs. $1.12
AGCO (NYSE: AG) – Reported $1.04 vs. $0.78
Comcast (Nasdaq:CMCSA) – Reported $0.24 vs. $0.22
Corning (NYSE: GLW) – Reported $0.46 vs. $0.43
Garmin (Nasdaq:GRMN) – Reported $0.82 vs. $0.83
Hess (NYSE: HES) – Reported $2.37 vs. $2.43
INVESCO (NYSE: IVZ) – Reported $0.33 vs. $0.33
Jones Apparel (NYSE: JNY) – Reported $0.34 vs. $0.33

Legg Mason (NYSE: LM) – Reported -$0.74 vs. -$0.48
Kellogg (NYSE: K) – Reported $0.89 vs. $0.80
Kraft (NYSE: KFT) – Reported $0.44 vs. $0.43
Moody’s (NYSE: MCO) – Reported $0.45 vs. $0.41
Noble Energy (NYSE: NBL) – Reported $2.08 vs. $1.87
Newmont Mining (NYSE: NEM) – Reported $0.39 vs. $0.43
Office Depot (NYSE: ODP) – Reported -$0.01 vs. $0.07
Procter & Gamble (NYSE: PG) – Reported $1.03 vs. $1.03
Qwest (NYSE: Q) – Reported $0.09 vs. $0.10
Sony (NYSE: SNE) – Reported $0.19 vs. $0.06

News, Upgrades/Downgrades/Brokerage Research:

Southern Copper (NYSE: PCU) – Upgraded at Citi
Health Mgmt Assoc (NYSE: HMA) – Upgraded at Citi
Universal Health Services (NYSE: UHS) – Upgraded at Citi
McKesson (NYSE: MCK) – Downgraded at Deutsche Bank
Coca Cola Femsa (NYSE: KOF) – Upgraded at Deutsche Bank
Invitrogen (Nasdaq:IVGN) – Upgraded at Deutsche Bank
PMC Sierra (Nasdaq:PMCS) – Upgraded at Goldman
Altera (Nasdaq:ALTR) – Downgraded at Goldman
Xilinx (Nasdaq:XLNX) – Downgraded at Goldman
Johnson & Johnson (NYSE: JNJ) – Downgraded at JP Morgan
Canadian Pacific (NYSE: CP) – Upgraded at Merrill
Aon Corp (NYSE: AOC) – Upgraded at Merrill
US Steel (NYSE: X) – Estimates reduced at Morgan Stanley
Meritage Homes (NYSE: MTH) – Upgraded at UBS
Biogen Idec (Nasdaq: BIIB) – Upgraded at UBS
Gold Fields (NYSE: GFI) – Upgraded at UBS

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

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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