David Moenning's Daily State of the Markets: 08/07

August 7, 2007 9:49 AM EDT

A Financial Mortuus Cattus Reus

Stocks staged an impressive bounce yesterday as the Dow wound up with its biggest one-day point gain in almost five years. However, the bears are quick to remind anyone that will listen that the bounce was of the dead-cat variety and led by the much-beleaguered financials.

After falling more than -15% since the beginning of June, the financial sector staged an vigorous rebound yesterday of more than 5%. To the uninitiated, this will be viewed as good news and there might even be some talk about the move signaling an end to credit crisis. However, those that have been around awhile see yesterday's sudden and violent pop higher in the financials for what it was - a dead-cat bounce driven by short-covering.

There were several catalysts that caused the shorts to take some profits yesterday in the financial sector. But the overriding theme was the sudden realization that something good could actually happen to the sector. For example, equity analysts at Standard & Poors said yesterday that the selloff in Bear Stearns (NYSE: BSC) was overdone.

Next, Wells Fargo (NYSE: WFC) announced that they will buy back 50 million shares of their stock. This was an indication that there must still be some money sloshing around the bank's coffers.

And finally, there was a lot of talk yesterday about the Fed coming to the market's rescue with some sort of S&L-style bailout of subprime lenders. While we're not sure about the validity of this argument at the present time, the point is that this is a possibility down the road and there is historical precedent for such action.

And speaking of the Fed, all eyes and ears will be on Ben Bernanke and company today. No one in their right mind expects the FOMC to cut rates. However, the question at hand is what Bernanke's Boys will have to say about the subprime problem and the availability of credit.

The 286 point blast higher yesterday would seem to argue that stocks are expecting some soothing words from Gentle Ben. However, the smart money is betting on nothing more than a single sentence acknowledging the issue. But, there also the possibility that there will be little or no mention of the issue. And if this is the case, the volatility just might continue this afternoon at 2:15 eastern.

Turning to this morning, the government has provided us with some data to chew on while were waiting on the Fed in the form of reports for the second quarter on Non-Farm Productivity and Unit Labor Costs. Remember, the Fed watches these numbers very closely from an inflation standpoint and this morning's report isn't exactly encouraging as productivity came in light at 1.8% when expectations had been for 2%. And unfortunately, labor costs were hotter than expected at 2.1% vs. 1.8%.

Running through the rest of the pre-game indicators, foreign markets are mixed as European bourses followed Wall Street higher while Asia was on the flat side. In the oil pits, crude futures are moving up a smidge with the latest quote up $0.14 to $72.20. Interest rates are higher this morning on the hotter inflation numbers and the yield on the 10-year is currently trading at 4.75%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open at the present time. The Dow futures are currently about 80 points underwater; the S&P's are lower by about 8 points, while the NASDAQ looks to be about 8.40 below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

BMC Software (NYSE: BMC) - Reported $0.37 vs. $0.34 Wynn Resorts (NASDAQ: WYNN) - Reported $0.92 vs. $0.53

Today's Earnings Before the Bell:

Duke Energy (NYSE: DUK) - Reported $0.24 vs. $0.20
Emerson (NYSE: EMR) - Reported $0.72 vs. $0.69
Harrah's Entertainment (NYSE: HET) - Reported $0.96 vs. $0.98
Hewitt Associates (NYSE: HEW) - Reported $0.43 vs. $0.29
King Pharmaceuticals (NYSE: KG) - Reported $0.48 vs. $0.46
Molson Coors (NYSE: TAP) - Reported $1.94 vs. $1.72
Tyco (NYSE: TYC) - Reported $0.55 vs. $0.47
Valero (NYSE: VLO) - Reported $3.17 vs. $3.07

News, Upgrades/Downgrades/Brokerage Research:*

Pepsi Bottling (NYSE: PBG) - Upgraded at Banc of America
Martha Stewart Living (NYSE: MSO) - Upgraded at Bear Stearns
BMC Software (NYSE: BMC) - Upgraded at Bear Stearns
Burger King Holdings (NYSE: BKC) - Upgraded at Citi
Luminent Mortgage (NYSE: LUM) - Downgraded at Deutsche Bank, Friedman Billings, JMP Securities, UBS Thornburg Mortgage (NYSE: TMA) - Downgraded at Deutsche Bank
MetLife (NYSE: MET) - Added to Conviction Buy list at Goldman Sachs
J2 Global (NASDAQ: JCOM) - Downgraded at Jefferies
Assurant (NYSE: AIZ) - Upgraded at Merrill Lynch

Mr. Moenning holds Long positions in stocks mentioned: 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.

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