David Moenning's Daily State of the Markets: 05/16

May 16, 2007 9:27 AM EDT

An Ugly Shade of Green

Good morning. Yesterday wound up being yet another up day on the Dow and for those of you keeping score at home, that’s 29 green days out of the last 33. However, the bright green screens seen in the early going in response to the positive CPI report soon dissipated. And by the end of the day, there were red numbers blinking on almost every index, which seemed to turn the Dow’s lone plus sign into a rather ugly shade of green.

For the second day in a row, the Dow pretty much stood alone in the plus column. And while the media continues to go on about the wonders of the rise in DJIA, it is important to note that the S&P 500, NASDAQ, Russell 2000, and S&P Small Cap and Mid Cap indices have now declined for two straight sessions. This action prompted one reader to write me yesterday and ask, "What's wrong with the market?"

The answer, in short, is unless some new catalyst comes along pretty darned quick, one can argue that that the bulls are losing steam and may be showing signs of weariness after the recent impressive sprint higher. And as is often the case, it looks like the bears are beginning to get a foothold in the NASDAQ.

Part of the reason for yesterday's big fade was the report from the National Association of Homebuilders. The NAHB Housing Market Index fell 3 points while the Current Sales totals fell to their lowest level since 1991. In addition, homebuilders blamed subprime-related problems and tighter credit for a drop in builder confidence.

So, despite a very nice report on inflation, the bulls just couldn’t shake the negativity from the housing market or the earnings from the likes of Wal-Mart and Home Depot. So with earnings season coming to a close and the bulls unable to get anything done with the good inflation number, one has to wonder if we aren’t seeing the beginning of the end of the current rally.

Turning to this morning, the mood seems to be a bit brighter in the early going, but before we get too excited, we’ve got more housing data to review. April’s Housing Starts came in better than expected at 1.53 million units versus the consensus for a number in the 1.48 million range. However, the number for Building Permits, which is an indication of future activity, was a bit lighter than expected.

Stocks have weakened a bit in response, but remain in the green before the open. Over in the bond pits, prices are rising as yields fall on the weaker housing data.

Running through the rest of the pre-game indicators, the major foreign markets are mixed by region with Europe down and Asia up. Gold futures are moving down again this morning by $3.80 and are trading at $670.70. In the oil pits, crude futures are lower by $0.30 with the latest quote at $62.87. As we mentioned, interest rates are a little lower this morning with the yield on the 10-year currently trading at 4.69%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open a bit higher. The Dow futures are currently ahead by about 30 points; the S&P’s are about 4 points ahead, while the NASDAQ looks to be 5.20 above fair value at the moment

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:
Applied Materials (Nasdaq: AMAT) – Reported $0.34 vs. $0.28

Today’s Earnings Before the Bell:
Deere & Co. (NYSE: DE) – Reported $2.72 vs. $2.41
Federated Dept Stores (NYSE: FD) – Reported $0.16 vs. $0.19

News, Upgrades/Downgrades/Brokerage Research:
Limited Brands (NYSE: LTD) – Downgraded at BofA, Citigroup, Wachovia
Paychex (Nasdaq: PAYX) – Upgraded at Bear Stearns
OfficeMax (NYSE: OMX) – Upgraded at Bear Stearns
TiVo Inc (Nasdaq: TIVO) – Upgraded at Bear Stearns
Texas Instruments (NYSE: TXN) – Downgraded at CIBC
Applied Materials (Nasdaq: AMAT) – Downgraded at Cowen
Echostar Comm (Nasdaq: DISH) – Price target increased at Citigroup
Forest Oil (NYSE: FST) – Upgraded at Goldman Sachs
Brocade Comm (Nasdaq: BRCD) – Upgraded at JP Morgan
Nordstrom’s (NYSE: JWN) – Downgraded at Thomas Weisel
Bear Stearns (NYSE: BSC) – Downgraded at Wachovia

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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