David Moenning’s Daily State of the Markets: 7/28

July 28, 2008 9:36 AM EDT

Back to Data Dependent?

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


With the latest round of credit crisis problems and the anticipated dead-cat bounce now in the rearview mirror, it appears that traders have returned their attention to the more mundane issues such as the price of oil, corporate earnings, and the economic data. So, with Friday’s data coming in a bit better than expected, some green returned to the screens as last week came to a close.

The biggest question at this point in time is when the economy will begin to improve. During the first half of the year, the bulls argued that the economy would rebound in the second half of the year. Stock prices usually anticipate such an event, which explains why the market is usually firmly entrenched in rally mode by the time the government gets around to telling us that the economy is in a recession.

However, the data delivered during the second quarter of the year put the hoped-for second half recovery in jeopardy as the credit crisis just kept getting worse and oil prices continued to rise. However, with crude now in pullback mode and the economic data actually coming in stronger than expectations, the bulls suddenly have reason to be optimistic.

For example, Friday’s report on Durable Goods was a pleasant surprise. Order for items intended to last more than three years rose by +0.8% in June, which was diametrically opposed to expectations for a drop of -0.3%.

Next up, the report on the sales of New Homes was also better than expected as sales fell by -0.6% when analysts had expected a decline of -1.4%. What was also interesting was that the number of properties for sale fell by -5.3%, which was the biggest drop since November 1963. And with the number of months of available supply now dropping, the optimistically inclined might argue that we are seeing the new home market begin to stabilize.

Finally, it’s a bit surprising to see consumer sentiment on the rise right now. For reasons that confound analysts, the Reuters/University of Michigan Consumer Sentiment Index jumped up 4.8 points in July to a reading of 61.2. This was far better than expectations for a drop of -0.3%. In addition, the Expectations Index improved nicely with a pop of 5.2 points from the mid-month reading.

So, with some positive data and another drop in oil prices, the session went according to plan for those seeing the glass as half full. However, with the financials clearly overbought and oil now oversold, the bulls shouldn’t take anything for granted right now.

Turning to this morning, we don’t have any economic data to review before the bell. However, geopolitical concerns with Iran are back in the headlines. The Iranian President is once again suggesting that Iran will comply at some point soon and that oil prices are too high.

Running through the rest of the pre-game indicators; the major foreign markets are mostly lower with Japan bucking the downward trend. Crude futures are moving up with the latest quote showing oil trading higher by $1.14 to $124.40. Interest rates are lower this morning with the yield on the 10-yr currently trading at 4.06%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 40 points; the S&P’s are down about 5 points, while the NASDAQ looks to be about 6 points below fair value at the moment.

Stocks “In Play� This Morning:

Today’s Earnings Before the Bell:

Kraft (NYSE: KFT) – Reported $0.58 vs. $0.50
Simon Property Group (NYSE: SPG) – Reported $1.56 vs. $1.49
Tyson Foods (NYSE: TSN) – Reported $0.03 vs. $0.12
Verizon (NYSE: VZ) – Reported $0.67 vs. $0.64

News, Upgrades/Downgrades/Brokerage Research:

Best Buy (NYSE: BBY) – Upgraded at Bank of America
Goodrich (NYSE: GR) – Downgraded at Deutsche Bank, Upgraded at Jefferies
Clorox (NYSE: CLX) – Downgraded at Goldman
Kimberly Clark (NYSE: KMB) – Upgraded at Goldman
Dicks Sporting Goods NYSE: (DKS) – Upgraded at Goldman
Amgen (Nasdaq: AMGN) – Upgraded at Jefferies, Morgan Stanley
Rowan Companies (NYSE: RDC) – Upgraded at JP Morgan
Visa (NYSE: V) – Estimates reduced at Lehman
Bucyrus (Nasdaq: BUCY) – Target increased at Lehman
AFLAC (NYSE: AFL) – Upgraded at Merrill
Lehman Bros (NYSE:  LEH) – Target reduced at Merrill
Coventry Health Care (NYSE: CVH) – Upgraded at UBS
Health Net (NYSE: HNT) – Upgraded 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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