David Moenning's Daily State of the Markets: 8/8

August 8, 2008 10:04 AM EDT

Resistance: 1 Bulls: 0

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

In yesterday’s missive, we opined that stocks were bumping into resistance and due for some sort of a pullback, and that it would be important to gauge how the market acts during the inevitable upcoming decline. As evidence for our opinion, we pointed to the fact that both the Dow and S&P 500 were possibly forming a double or triple top, quickly running into the 50-day moving average, and that the indices had become overbought.

But, on the topic of making market calls, I have often borrowed one of Marty Zweig’s most famous lines, and feel that it is appropriate again this morning. Sometime in the 1980’s, Marty said, “Those who use a crystal ball (or, in this case, fancy computerized technical indicators) to make predictions in the stock market are likely to wind up with an awful lot of crushed glass in their portfolios.� We have also stated a time or two that we believe it is foolish to try and game the market’s movements in the short-term. Some people may be able to do this, but I do not count short-term market timing as a skill I possess.

So, I’d like to employ another well known cliché in describing the luck involved with calling for a market drop and then actually getting one that day. As the saying goes, “even a blind squirrel will come across an acorn once in a while.�

And while I’m likely to get an intense argument on the subject from the pure market technicians out there, in reality, yesterday’s drop of 225 points had more to do with the news flow than the wiggles and giggles on the charts.

In short, stocks were hit with a host of negative stories yesterday. Included in the list was the fact that AIG’s (AIG) earnings were an abject disaster. Next, retail stocks suffered after the International Council of Shopping Centers reported that same-store sales rose by the smallest amount since March. This led analysts to speculate that the stimulus check bonanza for the retailers was quickly coming to an end. Fannie (FNM) and Freddie (FRE) also had another rough outing as a WSJ report showed mortgage delinquencies accelerated in 2007. And finally, Citi (C) agreed to buy back about $7.5 Billion in auction-rate securities from customers. This move was later followed by Merrill (MER) and is an indication that the legal backlash from the sale of toxic debt securities is gaining momentum.

But, let’s get back to the charts. Since stocks were overbought and bumping into resistance, a pullback was natural and the prediction of such wasn’t exactly rocket science. And since the veracity of such a pullback is often an indicator of which direction we head next, we mentioned that we would be watching the action closely. And so far at least, the current score is Bears: 1 Bulls: 0.

Turning to this morning, the government just reported that Q2’s Nonfarm Productivity came in a little light at 2.2%. And on the inflation front, Unit Labor costs rose by 1.3%, which was less than the expectations for an increase of 1.4% and just about one-half last quarter’s reading. But the big news of the morning so far is the dollar is hitting its best levels in five months as worries about European economies are prompting talk of lower rates across the pond.

Running through the rest of the pre-game indicators; with the exception of Japan, the major foreign markets are all a little lower. Crude futures are moving down with the latest quote showing oil trading lower by $1.91 to $118.11. Interest rates are up a bit this morning with the yield on the 10-yr currently trading at 3.96%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a flat open. The Dow futures are currently ahead by about 12 points; the S&P’s are up by about a point, while the NASDAQ looks to be about 1 point above fair value at the moment.

Stocks “In Play� This Morning:

Yesterday’s Earnings After the Bell:

AES Corp (NYSE: AES) – Reported $0.17 vs. $0.30
CDC Corp (Nasdaq: CHINA) – Reported $0.04 vs. $0.01
Crocs (Nasdaq: CROX) – Reported $0.06 vs. $0.05
Hertz Global (NYSE: HTZ) – Reported $0.30 vs. $0.29
Immunogen (Nasdaq: IMGN) – Reported -$0.27 vs. -$0.24
Public Storage (NYSE: PSA) – Reported $1.10 vs. $1.09

Today’s Earnings Before the Bell:

Beazer Homes (NYSE: BZH) – Reported -$2.85 vs. -$2.66
Federal Nat’l Mortgage (NYSE: FNM) – Reported -$2.54 vs. -$0.97, Reduces dividend
MBIA Inc (NYSE: MBI) – Reported $0.96 vs. -$1.46
Mirant (NYSE: MIR) – Reported $0.29 vs. $0.56

News, Upgrades/Downgrades/Brokerage Research:

Fannie Mae (NYSE: FNM) – Doubles forecast for credit losses in quarter
McDonalds (NYSE: MCD) – Same-store sales +8.0% vs. StreetAccount +5.8%
Ross Stores (Nasdaq: ROST) – Downgraded at Citi
Warner Music Group (NYSE: WMG) – Downgraded at Citi
Penn Nat’l Gaming (Nasdaq: PENN) – Upgraded at Deutsche Bank
Murphy Oil (NYSE: MUR) – Downgraded at Deutsche Bank
Advance Auto Parts (NYSE: AAP) – Downgraded at Goldman
Gold Fields (NYSE: GFI) – Downgraded at Goldman
Ciena (Nasdaq: CIEN) – Estimates reduced at JP Morgan
Ambac Financial (NYSE: ABK) – Downgraded at JP Morgan
Hansen Natural (Nasdaq: HANS) – Downgraded at JP Morgan
Dynegy (NYSE: DYN) – Target reduced at Lehman
Keycorp (NYSE: KEY) – Upgraded at Merrill
Qwest (NYSE: Q) – Upgraded at Morgan Stanley
Bank of America (NYSE: BAC) – Downgraded at UBS

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.


David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: DMoenning@HeritageCapitalManagement.com

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