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David Moenning’s Daily State of the Markets: 01/15

January 15, 2008 10:17 AM EST
Will This Time Be Different?

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

Since the middle of December, the pattern in the market has been the same. Stocks have moved lower on what seems like a never-ending stream of bad news relating to the credit markets, housing, and the potential for a recession, and then, out of the blue, they would blast higher. Unfortunately however, the advances haven’t lasted long and even a two-day rally has been tough to come by. So, after yesterday’s feel-good session, the question becomes: Will this time be different?

Monday's move higher was fueled largely by short-covering which began after a little technology company with the ticker IBM reported earnings that were $0.20 better-than expected and then had good things to say about the rest of its fiscal year. The report provided a respite from the tech bashing that has occurred so far this year and spurred some hope that the earnings season might not be as dismal as feared.

The day wasn't all peaches and cream however, as worries over the health of the U.S. consumer remained on traders’ minds after Sears Holdings (Nasdaq: SHLD) warned that their fourth quarter profits would be significantly below expectations. Even the high end retailers, which thus far have been considered immune from the idea of a slowdown in the economy, are coming under pressure with Coach (NYSE: COH), Ralph Lauren (NYSE: RL), and Tiffany's (NYSE: TIF) all being downgraded Monday morning.

Although stocks were extremely oversold and IBM got most of the credit for the 171 point gain, the bulls point to positive comments on the U.S. market from Credit Suisse (NYSE: CS) as reason to believe the move has some credibility. Not only did CS raise its recommendation on U.S. stocks due to its belief that the Fed will be able to bolster economic growth, but the firm also boosted its ratings on the beleaguered home-improvement names such as Home Depot (NYSE: HD), Lowes (NYSE: LOW), and Bed Bath & Beyond (Nasdaq: BBBY).

Turning to this morning, we've got a host of economic data to sift through, but also a pretty big earnings report from Citigroup (NYSE: C). The big bank reported a stunning loss of $9.8 billion or -$1.99 per share for the quarter, which was roughly double analyst expectations. Citi wrote down $18.1 billion in subprime security losses, cut its dividend by 41%, and announced it is raising $12.5 billion from investors.

On the economic front, Retail Sales for December came in well below expectations with a drop of -0.4% versus a consensus of unchanged. This, when coupled with the Empire Manufacturing Index, which also came in under expectations at 9.0 vs. 10.0, argues that the economy is fading fast here. On the inflation front, the headline PPI report was a bit better than expected at -0.1% versus expectations of an increase of +0.2%. And when you strip out food and energy, the Core Rate came in at +0.2%, which was in line with analyst expectations.

The reaction to the data in the pre-market hasn’t been good, but then again, the tone had already been set by Citigroup (C) after their earnings report.

Running through the rest of the pre-game indicators; the overseas markets are lower across the board. Crude futures are lower so far with the latest quote showing the February contract down by $0.38 to $93.82. Interest rates are falling with the 10-yr trading at a yield of 3.73% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to give back much of yesterday’s riches. The Dow futures are currently off by about 130 points; the S&Ps are down by about 18, while the NASDAQ looks to be about 25 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Genentech (NYSE: DNA) – Reported $0.69 vs. $0.67

Today's Earnings Before the Bell:

Citigroup (NYSE: C) – Reported ($1.99). vs. ($1.01)
State Street (NYSE: STT) – Reported $1.38 vs. $1.39


News, Upgrades/Downgrades/Brokerage Research:

Harman Intl (NYSE: HAR) – Downgraded at Bear Stearns
StatOil (NYSE: STO) – Upgraded at Credit Suisse
Total (NYSE: TOT) – Downgraded at Credit Suisse
Xilinx (Nasdaq: XLNX) – Downgraded at Deutsche Bank
Nvidia (Nasdaq: NVDA) – Downgraded at Deutsche Bank
LSI Corp (NYSE: LSI) – Downgraded at Deutsche Bank
Wells Fargo (NYSE: WFC) – Downgraded at Friedman Billings
Foot Locker (NYSE: FL) – Downgraded at Goldman Sachs
Adobe Systems (Nasdaq: ADBE) – Estimates reduced at Lehman
BP (NYSE: BP) – Downgraded at Lehman
Northrop Grumman (NYSE: NOC) – Upgraded at Merrill Lynch
Exelon (NYSE: EXC) – Target increased at Morgan Stanley
Norfolk Southern (NYSE: NSC) – Downgraded at Morgan Stanley
Schlumberger (NYSE: SLB) – Downgraded at Morgan Stanley

Mr. Moenning holds Long positions in stocks mentioned: STT

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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