Contributors

Is That a Train?

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

All rallies over the past year have been based on the idea that we had seen the worst in whatever was ailing the market at the time – I.E. the credit crisis or the oil spike or the economic slowdown in the U.S. But unfortunately, after the requisite rallies, the light at the end of the tunnel has more often than not turned out to be an oncoming train.

Such is the case right now. Suddenly all anyone can talk about is the global slowdown and how the decoupling theme has been debunked. And in short, it was the idea that the global macro picture isn’t getting any better that was behind yesterday’s 345 point thrashing.

There really wasn’t any one data point that led to the foul mood among traders. Rather, it seemed to be a cumulative effect based on a growing number of ‘little things’ suggesting that there is no end in sight to the current credit and economic malaise.

For example, technology shares have beaten senseless over the last couple of sessions. Yesterday it was guidance from Ciena (CIEN) and Lam Research (LRCX) as well as some cautious words from Cisco’s (CSCO) John Chambers that added fuel to the short’s fire. Now toss in some rule changes at the ECB relating to collateral, the realization that Wall Street’s capital problems may actually be getting worse, some weak economic reports, the difficulty in housing, the worry over the more than $1 trillion in debt that needs to be rolled over in the coming quarter, and some additional hedge fund follies (remember that its redemption season in hedgieland), and well, you’ve got a stage set for selling.

From a chart standpoint, the upbeat view is now gone as support levels and uptrend lines on all three major indices were smashed yesterday on increasing volume – which is never a good thing from a technical point of view. Thus, the techies tell us to now expect a full-fledged retest of the July lows. Super.

However, if you are experiencing a case of déjà vu here, you are not alone as we have seen this movie before. And while this remake does include the added plot twist where the economic slowdown goes global, unless there is a major rewrite in the works, we can take comfort in the fact that the hero does not die in the end.

So, despite the sea of red on the screens the goal right now is to stay calm, preserve capital, and be on the lookout for opportunities. And for those of you feeling some chest pains over the Dow’s revisit of the lows, understand that this decline has been going on for more than a year and that now may not be the best time to sell everything and stick your head in the sand.

Turning to this morning, things are not looking much better as Nokia (NOK) became the latest company to talk about things being a bit slow right now, which has created a -10% haircut for the stock.

Next, we’ve got the Big Kahuna of economic data – the Jobs Report – on tap, so let’s get right to it. The Labor Department reported that the economy lost 84,000 jobs in August, which was above expectations for a decline of 75,000. But the big surprise is that the Unemployment Rate spiked up to 6.1%, which was much higher the consensus view for a reading of 5.7% and the highest rate since September 2003. In addition, the revisions to both June and July’s jobs numbers created a loss of an additional 58,000 jobs. And to sum things up, this was the 8th straight monthly decline in the jobs market.

Running through the rest of the pre-game indicators, the foreign markets are down hard across the board. Crude futures are moving down again with the latest quote showing oil trading lower by $1.39 to $106.50. Interest rates are continuing their move down with the yield on the 10-yr currently trading at 3.58%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to another tough open. The Dow futures are currently off by about 118 points; the S&P’s are down by about15 points, while the NASDAQ looks to be about 24 points below fair value at the moment.

Stocks “In Play� This Morning:

News, Upgrades/Downgrades/Brokerage Research:

PetSmart – Downgraded at Bank of America
Estee Lauder (NYSE: EL) – Target increased at Citi
Abercrombie & Fitch (NYSE: ANF) – Downgraded at Citi
Monsanto (NYSE: MON) – Upgraded at Credit Suisse
Devon Energy (NYSE: DVN) – Added to Conviction Buy list at Goldman
Transocean (NYSE: RIG) – Added to Conviction Buy list at Goldman
Quest Software (Nasdaq: QSFT) – Added to Conviction Buy list at Goldman
ConocoPhillips (NYSE: COP) – Removed from Conviction Buy list at Goldman
Halliburton (NYSE: HAL) – Removed from Conviction Buy list at Goldman
EOG Resources (NYSE: EOG) – Removed from Conviction Buy list at Goldman, Upgraded at UBS
Nabors Industries (NYSE: NBR) – Downgraded at Goldman
Merrill Lynch (NYSE: MER) – Downgraded at Goldman
Navistar (NYSE: NAV) – Upgraded at JP Morgan
TJX Cos (NYSE: TJX) – Downgraded at Lehman
Ciena (nASDAQ: CIEN) – Downgraded at Merrill Lynch
Safeway (NYSE: SWY) – Downgraded at Morgan Stanley
American Intl Group (NYSE: AIG) – Downgraded at Morgan Stanley

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

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.

David Moenning's Daily State of the Markets:

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

All Done?

Although the global slowdown theme is probably to blame for much of the decline seen in stocks and commodities lately, the abject carnage in oil, natural gas, coal, etc. over the last few days is more likely due to something we like to call “hedge fund follies.�

There is a saying in the investment community that applies here, “Sell when you can, not when you have to.� You see, when you run billions of dollars using big leverage to enhance your returns as well as your performance fees, the going can get tough when the market goes against you. And if things go badly enough, you may be forced to toss in the towel since most hedge funds have a preset self-liquidation clause once a certain level of losses are incurred.

So when a fund the size of Ospraie (of which Lehman Brothers (LEH) owns 25%) decides to close its doors after admitting to losses of -27% in the month of August alone, you can rest assured that there is some forced selling going on. And unfortunately, if it is known that a big fund is selling energy positions, friendly buyers are unlikely to be found until the selling is over.

Therefore, the question of the day isn’t whether China’s economic growth is going to slow further, but rather if the forced selling of energy positions is done yet? If Ospraie has finished dumping its positions, then it is probably okay to wade back into the pool. But if not, it is probably best to simply watch the action from the sidelines.

So, while there were plenty of other stories in the market yesterday such as Corning’s (GLW) cut in guidance, Qualcomm’s (QCOM) comments about cell phone users hanging on to their phones longer now, a better than expected report on July Factory Orders, the ongoing outperformance of the Russell 2000, and an ugly Beige Book, the real focus of the day was this question of forced selling in energy. So as the last hour rolled around and there were no order imbalances seen in stocks, the shorts covered and the major indices improved.

The glass-is-half-full crowd suggests that it remains a positive that the Dow, S&P, and NASDAQ have not broken down so far and all have held above important support levels.

Turning to this morning, as expected, both the ECB and the Bank of England left interest rates unchanged. On the economic front, ADP reported that private payrolls fell in August by 33,000, which was a smidge below the expectations for a drop of 30K. In addition, the government reported that Q2 Nonfarm Productivity grew by 4.3%, which was above the consensus for an increase of 3.5%. Next, Unit Labor costs (an important measure of inflation) were lower by -0.5% which was also better than expectations for a flat reading. And finally, weekly Jobless Claims came in at 444K which was a bit higher than the 420K analysts had been estimating.

Running through the rest of the pre-game indicators, with the exception of the UK, the foreign markets are lower. Crude futures are moving up again with the latest quote showing oil trading higher by $0.65 to $110.00. Interest rates are continuing their move down with the yield on the 10-yr currently trading at 3.69%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 70 points; the S&P’s are down by about 5 points, while the NASDAQ looks to be about 7 points below fair value at the moment.

Stocks “In Play� This Morning:

Today's Earnings Before the Bell:

Ciena (Nasdaq: CIEN) – Reported $0.37 vs. $0.37
Toll Brothers (NYSE: TOL) – Reported -$0.18 vs. -$0.36

News, Upgrades/Downgrades/Brokerage Research:

Aeropostale (NYSE: ARO) – August same store sales +13% vs. StreetAccount +6.4%
Abercrombie & Fitch (NYSE: ANF) – August same store sales -11% vs. StreetAccount -8.2%
BJ Wholesale Club (NYSE: BJ) – August same store sales 15.4% vs. StreetAccount 13.9%
Dillard’s (NYSE: DDS) – August same store sales -7% vs. StreetAccount -4%
Gap (NYSE: GPS) – August same store sales -8.0% vs. StreetAccount -9.7%
Nordstrom (NYSE: JWN) – August same store sales -7.9% vs. StreetAccount -6.6%
Target (NYSE: TGT) – August same store sales -2.1% vs. StreetAccount -2.4%
Wal-Mart (NYSE: WMT) – August same store sales +3.0% vs. StreetAccount +1.5%
Family Dollar (NYSE: FDO) – August same store sales +3.6% vs. StreetAccount +2.8%
Cummins (NYSE: CMI) – Mentioned positively at Bank of America
Robert Half (NYSE: RHI) – Downgraded at Citi
Legg Mason (NYSE: LM) – Downgraded at Credit Suisse
Marvell Technology (MRVL) – Downgraded at Deutsche Bank
US Steel (NYSE: X) – Removed fromBuy list at Goldman
State Street (NYSE: STT) – Removed from Buy list at Goldman
Qualcomm (Nasdaq: QCOM) – Removed from Buy list at Goldman
Steel Dynamics (Nasdaq: STLD) – Upgraded at Goldman
Commercial Metals (NYSE: CMC) – Downgraded at Goldman
AK Steel (NYSE: AKS) – Estimate and target reduced at Goldman
American Express (NYSE: AXP) – Target reduced at Lehman
Discover Financial (NYSE: DFS) – Target reduced at Lehman
Capital One (NYSE: COF) – Target reduced at Lehman
Lam Research (Nasdaq: LRCX) – Downgraded at Morgan Stanley
KLA Tencor (Nasdaq: KLAC) – Downgraded at Morgan Stanley

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

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.

From Notable Calls:

Goldman Sachs is downgrading their view on US Steel Sector to Neutral from Attractive this morning:

They are transferring coverage of the steel sector to Sal Tharani from Aldo Mazzaferro. Firm is also downgrading their coverage view for the sector to Neutral from Attractive due to the re-emergence of various risks-both perceived and real, such as rising dollar, "China fear", weak economic data out of the developed and emerging markets, and softness in steel and scrap prices. They believe that negative news flow in the near term would keep multiples compressed, and wait for a better opportunity to get more constructive on the sector.

Nucor (NYSE: NUE) and US Steel (NYSE: X) remain Buy rated stocks. However, they are removing US Steel from Conviction Buy List and also upgrading STLD (Nasdaq: STLD) to Buy, replacing CMC (NYSE: CMC), which is now rated Neutral. In the near term, the firm see smore upside in mini-mills due to a sharper drop in scrap prices than steel, which should expand their metal margins. Worthington and Gibraltar remain Sell rated stocks.

A sharp correction in steel equities, primarily driven by the macro concerns and decline in oil prices, has created selective investment opportunities. Valuations of some of these stocks reflect a doomsday scenario, which the firm believes is not what longer-term fundamentals suggest.

Goldman has lowered their steel price estimates by an average of 6% for 2H-2008 and 2009. Earnings estimates are now 1% and 7% lower than earlier estimates for 2008 and 2009, respectively. The biggest change they have made is in multiples which they are lowering to reflect near-term risk aversion by investors. Firm's target prices have been cut by an average of 18% across coverage universe.

Notablecalls: This looks like bottoming action to me. The bids wanted situation we saw yesterday will reverse itself as I feel the shorts have gotten somewhat ahead of themselves.

For more calls go to http://notablecalls.blogspot.com/

Slowdown Going Global

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

Yesterday's session may have left many investors frustrated and scratching their heads as a quick 246 point gain turned into a big disappointment by the time the closing bell rang. One might have thought with Gustav causing little in the way of damage to the Gulf Coast and oil plunging to its lowest levels in almost five months that stocks would have rallied furiously. And in fact, this was the case just after the opening bell rang. Before you could do the math on what a $7 drop in oil prices meant in percentage terms, the Dow was up more than 200 points and it looked like the bulls had found some rhythm.

However, the tide soon turned and oil was once again at the center of the discussion. While most media outlets were talking about oil falling because the energy installations in the Gulf of Mexico had been spared by the storm, in reality, oil was falling in response to a much bigger concern – an economic slowdown that appears to have gone global.

Since we live on the other side of the world, most investors in the U.S. may not be aware of all the gory details, but it turns out that China’s economy is indeed slowing down. Just today, we saw a report from China’s Purchasing Mangers which showed quite clearly that China’s manufacturing sector is contracting and is now at its lowest level in almost four years. Thus, it is fairly easy to make the case that like the U.S. and Europe, China may soon slip into recession.

So, with one of the main drivers of the oil story now faltering, it is little wonder that oil fell hard yesterday. But unfortunately, the decline in crude didn’t help the stock bulls much at all. You see, while falling oil prices are definitely a plus from the consumer’s point of view, the reason prices are falling is another story altogether.

Between the report from China, the first rate cut in Australia in seven years, word that the UK economy might be facing its toughest conditions in 60 years, a reduction in steel prices, and Morgan Stanley’s Steven Roach saying that the credit crunch is far from over, the issue of a global slowdown suddenly became very real. And while we can argue that the stock market may have fully discounted the U.S. credit crisis as well as the spike in oil prices, we cannot say the same about the idea of a global slowdown.

So, with a new and very large-scale problem to fret about, traders quickly cashed in the early gains from the Gustav bounce and continued to sell throughout the day. In short, the dramatic reversal turned a happy morning into a relatively miserable afternoon as volume picked up on the decline.

Will the selling continue? Only time will tell for sure. But the technicians tell us to take solace in the facts that (1) the selling smelled a little like a hedge fund blow-up and (2) there were no important support zones violated – and as such, the bulls may live to fight on another day.

Turning to this morning, worries about the outcome of the Lehman (LEH) saga are escalating on word that a major hedge fund, of which Lehman is an owner, is being forced to close its doors after dropping 27% in August. In short, this puts fresh concerns about Lehman’s ability to raise new capital, which appears to be necessary if the firm is to continue.

Running through the rest of the pre-game indicators, with the exception of Japan, the foreign markets followed Wall Street lower. Crude futures are moving down again with the latest quote showing oil trading lower by $1.44 to $108.27. Interest rates are moving down with the yield on the 10-yr currently trading at 3.73%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing lower. The Dow futures are currently off by about 50 points; the S&P’s are down by about 5 points, while the NASDAQ looks to be about 9 points below fair value at the moment.

Stocks “In Play� This Morning:

Today’s Earnings Before the Bell:

Joy Global (Nasdaq: JOYG) – Reported $0.81 vs. $0.88
Staples (Nasdaq: SPLS) – Reported $0.21 vs. $0.21

News, Upgrades/Downgrades/Brokerage Research:

Time Warner (NYSE: TWX) – Downgraded at Bernstein
Goldman Sachs (NYSE: GS) – Estimates reduced at Credit Suisse
VF Corp (NYSE: VFC) – Upgraded at Credit Suisse
Tenet Healthcare (NYSE: THC) – Upgraded at Deutsche Bank
McAfee (NYSE: MFE) – Downgraded at Freidman Billings
Monsanto (NYSE: MON) – Removed from Conviction Buy list at Goldman
BP (NYSE: BP) – Upgraded at Goldman
Linear Technology (Nasdaq: LLTC) – Downgraded at Goldman
Conagra (NYSE: CAG) – Downgraded at JP Morgan, Merrill Lynch
United Technologies (NYSE: UTX) – Upgraded at UBS
JC Penney (NYSE: JCP) – August same store sales -4.9% vs. -5.9%
Kohls (NYSE: KSS) – August same store sales -5.8% vs. -7.3%
Walgreen (NYSE: WAG) – August same store sales 0.9% vs. 2.2%

Disclosure: Mr. Moenning and/or related firms hold long positions in: GS, MON

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.

China Takes The Prize

Although Friday's session was not well attended ahead of the long holiday weekend, there were four pretty big stories that shaped the day's trading. There was Dell's disappointment, some economic data that included both good and bad news on the state of the consumer, the worry over Hurricane Gustav, and the report that China has been bailing out of Fannie Mae (FNM) and Freddie Mac (FRE).

While it would be easy to argue that worries over the potential damage from Gustav to oil installations as well New Orleans might have been the story of the day, the fact that crude oil actually dropped -$0.13 on the session to close at $115.26, made this concept a tough sell into the close.

Next up, Dell's miserable earnings report certainly did attract an awful lot of attention from those that were actually at their desks on Friday. After missing estimates badly, the company admitted to screwing up by lowering prices too much during the quarter and then went on to talk about the conservative IT spending environment in the US extending into Western Europe and Asia. This prompted a bunch of downgrades from the likes of UBS, Friedman Billings, Bank of America (BAC), Citibank (C), and Deutsche Bank (DB) and a plunge of -13.8% for symbol DELL.

Then there was the economic data. While the University of Michigan's Consumer Confidence index did come in a full point better than expectations at 63.0 and was the highest reading in the last six months, the details on personal income was a bit of a downer. Apparently the fact that the government has finished handing out $91.6 billion in stimulus checks took its toll on incomes as Personal Incomes fell by -0.7% in July, which was the biggest drop in three years, and significantly less than expectations for a drop of -0.4%.

However, the big winner in the news derby on Friday was the report that the Bank of China has been bailing on its exposure to GSE agency debt. According to the story, the BOC pared back its holdings by nearly 30% over the past month on concerns surrounding a government bailout for Fannie, Freddie, and friends.

The end result was a down day for the market as it didn't appear that anyone wanted to step in and buy with Gustav barreling towards the Gulf.

Turning to this morning, while we don't have any economic data to review before the bell, most everyone is breathing a sigh of relief that Gustav weakened as it approached the U.S. and caused far less damage than had been feared. While a Category 2 hurricane is nothing to sneeze at, the levees held, oil installations are still standing, and the storm was not the monster that Katrina turned out to be. As a result, oil is falling and stocks are rising this morning in the early going.

Running through the rest of the pre-game indicators, with the exception of Japan, the foreign markets are higher across the board. Crude futures are moving down hard with the latest quote showing oil trading lower by $7.91 to $107.55. Interest rates are moving up with the yield on the 10-yr currently trading at 3.84%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a strong open. The Dow futures are currently ahead by about 115 points; the S&P's are up by about 12 points, while the NASDAQ looks to be about 27 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Gilead Sciences (Nasdaq: GILD) - Downgraded at Bank of America
Priceline.com (Nasdaq: PCLN) - Upgraded at Credit Suisse
Bank of America (NYSE: BAC) - Added to America's Buy list at Goldman
Lowes (NYSE: LOW) - Upgraded at Goldman
Ensco (NYSE: ESC) - Downgraded at JP Morgan
Visa (NYSE: V) - Estimates increased at Morgan Stanley
MasterCard (NYSE: MA) - Estimates increased at Morgan Stanley
Pepsi Bottling Group (NYSE: PBG) - Upgraded at Morgan Stanley
Dean Foods (NYSE: DF) - Downgraded at Morgan Stanley
Research In Motion (Nasdaq: RIMM) - Estimates increased at Piper Jaffray
Monsanto (NYSE: MON) - Estimates increased at UBS

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

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.