David Moenning's Daily State of the Markets: 04/10

April 10, 2007 9:32 AM EDT

Will No News Be Good News?

Good morning. Despite a selloff in oil and positive news on the economic and M&A fronts, Monday’s session wound up mixed as the Dow tacked on nine points while the NASDAQ dropped two. It was the seventh straight daily advance for the Dow while the NASDAQ and S&P 500 have now risen in six of the last seven sessions.

The bulls got some support from none other than Warren Buffet, who disclosed that Berkshire Hathaway had picked up a big slug of stock in Burlington Northern and might be interested in two other railroads. In addition, a few more M&A deals and a $2.77 drop in crude should have provided the bulls something to work with.

But, the upbeat news was countered by a fairly large preannouncement by AMD and some trepidation in front of earnings season. So, all in all, despite the potential positives, it was a fairly quiet day.

And speaking of quiet, it’s been strangely quiet so far during this quarter’s “warning period.” The way the game works these days is companies are required to let us know if there are going to be any big surprises coming (one way or the other) in their upcoming earnings report. But this time around, we’ve heard very little in the way of preannouncements. Thus, the question that begs to be asked is: Is no news good news?

Thomson Financial is looking for earnings growth of between 6% - 8% for the first quarter, which is a drop-off from the recent string of double-digit gains. However, Thomson is also projecting a rebound in earnings later in the year with the growth rate soaring back into the 10% to 13% range.

So, it will be very interesting to see if the recent slowdown in the economy will translate into lower earnings AND forecasts for slower growth going forward. However, we need to keep in mind that boardrooms have embraced the concept of sandbagging in a large way. The idea is to lower expectations during times when the economy may be a little weak so that they can beat the estimates by a large margin when things turn around. Therefore, it should be helpful to pay close attention to the big-picture message from the current earnings season – which kicks off today after the close with a report from serial disappointer Alcoa (AA).

Turning to this morning, there is no economic data to review before the bell. On the news front, DR Horton says that the spring new home selling season isn’t off to a great start, which shouldn’t be much of a surprise to anyone given all the talk about the mortgage market.

Running through the rest of the pre-game indicators, with the exception of Japan, the major foreign markets are a little higher this morning. Gold futures are trading higher by $6.00 this morning to $682.90. In the oil pits, crude futures are up a dime with the latest quote at $61.61. Interest rates are off a smidge after yesterday’s big move and the yield on the 10-year is currently trading at 4.73%. And finally, with about an hour before the bell, stock futures in the U.S. are looking sluggish. The Dow futures are currently ahead by about 10 points the S&P’s are down a fraction, while the NASDAQ looks to be about a point ahead of fair value at the moment

Stocks "In Play" This Morning:

Applied Materials (NASDAQ: AMAT) – Upgraded at BofA
Microsoft (NASDAQ: MSFT) – Mentioned positively at BofA
Vodafone (NYSE: VOD) – Upgraded at Bear Stearns
Autodesk (NASDAQ: ADSK) – Upgraded at Goldman Sachs
Oracle (NASDAQ: ORCL) – Upgraded at Goldman Sachs
Microsoft (NASDAQ: MSFT) – Removed from Conviction Buy list at Goldman Sachs
Seagate Technology (STX) – Price Target lowered at Goldman Sachs
CSX Corp (NYSE: CSX) – Downgraded at JP Morgan
Freeport McMoRan (NYSE: FCX) – Target raised at Lehman
Research In Motion (NASDAQ: RIMM) – Estimates increased at Piper Jaffray
Groupe Danone (NYSE: DA) – Downgraded at Prudential
BHP Billiton (NYSE: BHP) – Upgraded at Prudential
Temple Inland (NYSE: TIN) – Downgraded at Prudential
Advanced Micro Devices (NYSE: AMD) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: GS, AMAT

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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