David Moenning's Daily State of the Markets 10/16

October 16, 2007 10:02 AM EDT

Not Out of the Woods?

Several factors combined yesterday to remind investors that despite a return to new all-time highs in the blue-chip stock market indices, we may not yet be out of the woods in terms of credit problems and the housing market. The result was a broad-based selloff that appears to have emboldened our furry friends in the bear camp.

Although renewed concerns about problems stemming from the credit markets got much of the credit for yesterday’s selling, the bears had at least a couple other things going in their favor. Not the least of which was the relentless rise in crude oil as the futures popped up $2.44 to close at a new all-time high of $86.13. Most reports cite tensions between Turkey and Iraq for the rise in oil.

Comments from former Fed Chairman Alan Greenspan, who was getting warmed up for his evening speech, were also a problem for the bulls. Although there was a surprising lack of Fedspeak uttered, the former chairman told us that we have yet to see the worst in the housing downturn and that the situation will likely remain a significant drag on the economy until early 2008.

The bears have also gotten a hand from the earnings season as, so far at least, the big reports have been less than inspiring. And although the trend lately has been for stocks to sell off as the reporting season begins, this time, there may actually be some concern about the outcome.

Citigroup was the latest big name company to disappoint the street yesterday. Despite the fact that Citi actually beat the headline earnings estimates by $0.04 (although they needed some fancy tax accounting to do so) the announcement that company’s buybacks are now on hold left a sour taste in the mouths of investors.

But the real star of the Bear’s performance yesterday was the renewal of worries over the subprime mess and the credit crisis. Worries began to arise once the news hit that major U.S. banks will set up a fund to bail out the asset-backed commercial paper market. And the fact that the bailout was orchestrated by the Treasury Department in order to avoid a fire sale wasn’t exactly soothing as this is a reminder that there continues to be problems out there in the credit markets.

Turning to this morning, crude prices continue to be downright rude as the geopolitical concerns are pushing prices up more than $1 again this morning. And this, more than anything else has people jumping off the bull bandwagon in the early going.

Investors may also play a little wait-and-see today as we’ll get some big reports from the likes of Intel and Yahoo! after the close.

Running through the rest of the pre-game indicators; the overseas markets are lower across the board this morning. Crude futures are up $1.43 so far with the latest quote at $87.56, which is producing speculation as to when oil will hit triple-digits. Interest rates are down a bit this morning with the 10-yr trading at a yield of 4.66% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open to the downside. The Dow futures are currently off by about 50 points; the S&Ps are down by about 6 points, while the NASDAQ looks to be about 13 points below fair value at the moment.

Stocks "In Play" This Morning:

Today's Earnings Before the Bell:

Johnson & Johnson (NYSE: JNJ) – Reported $1.06 vs. $0.99, Guides higher
Supervalu (NYSE: SVU) – Reported $0.69 vs. $0.68
State Street (NYSE: STT) – Reported $1.15 vs. $0.94
US Bancorp (NYSE: USB) – Reported $0.67 vs. $0.66
Wells Fargo (NYSE: WFC) – Reported $0.68 vs. $0.70

News, Upgrades/Downgrades/Brokerage Research:

China Mobile (NYSE: CHL) – ABN Amro initiates coverage with a Buy rating
St. Jude Medical (NYSE: STJ) – Estimates increased at BofA
Salesforce.com (NYSE: CRM) – Target increased at BofA
General Motors (NYSE: GM) – Downgraded at Bear Stearns
Broadcom (Nasdaq: BRCM) – Upgraded at Citi
LM Ericsson (Nasdaq: ERIC) – Downgraded at Credit Suisse
Eaton (NYSE: ETN) – Upgraded at Friedman Billings
Microsoft (Nasdaq: MSFT) – Added to Conviction Buy list at Goldman
Tektronix (NYSE: TEK) – Downgraded at JP Morgan
Agilent Technologies (NYSE: A) – Upgraded at JP Morgan
Viacom (NYSE: VIA.B) – Upgraded at JP Morgan
Gilead Sciences (Nasdaq: GILD) – Target increased at Morgan Stanley
Biogen Idec (Nasdaq: BIIB) – Downgraded at Piper Jaffray

Mr. Moenning holds Long positions in stocks mentioned: CHL, BIIB

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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