David Moenning's Daily State of the Markets: 11/17

November 17, 2008 10:03 AM EST

Headwinds Howling

After Thursday’s chart-based bounce higher, the market returned to its losing ways on Friday as it appears that there were simply too many headwinds for the rally to fly into. The session was largely devoid of good news and despite a solid attempt to rally after lunch; things simply fell apart into the close as the Dow gave back more than 400 points in the last 45 minutes.

This type of activity usually smacks of forced selling. And the weakness seen in the usual names supported the concept, although there was no word of any specific fund related problems on Friday.

However, this is not to say that the session did not have its share of other problems. First, we got some really crummy data from the retail sector. The report on retail sales showed that sales in October fell by -2.8%, which was the fourth straight monthly decline and the biggest monthly drop on record. And although no one really expected this data to be positive, it was followed up by earnings from JC Penney (JCP) and Abercrombie & Fitch (ANF), which didn’t exactly inspire as both companies significantly reduced their outlooks going forward.

Next up, the tech sector took it on the chin on the back of a report out of Nokia (NOK) that spoke of reduced expectations for the sale of mobile phones. The company went on to lower its forecast for 2009 sales as well. This news didn’t help the sector much as Nokia dropped -11%, Qualcomm (QCOM) fell by -5.4%, Motorola (MOT) was down -10.9%, RIMM got hit for -8.7% and Apple (AAPL) tumbled -6.4%.

And while there were certainly some other negative tidbits here and there, the story that probably hurt sentiment the most came out of Freddie Mac (FRE). In light of the fact that the biggest problem the market has right now relates to the uncertainty over the future and the worry that there may be even more shoes to drop in the credit mess, the earnings report and subsequent comments out of FRE didn’t help matters much.

Freddie Mac reported a third quarter loss of $25.3 billion, which is certainly a staggering number. However, the loss pushed the company’s net worth below zero and prompted a request for a little more help from the Treasury department. And considering that Fannie May (FNM) has already asked for another $100 billion, this news makes one wonder when the urgent quest for cash in the financial sector will end.

Turning to this morning, the cheery news continues as Japan announced that their economy officially entered a recession. Then the chairman at Citigroup (C) projected that the financial crisis will carry into 2010.

On the economic front, the Empire Manufacturing Index for November came in at -25.4, which was a smidge better than the estimates for a drop to -26.

Running through the rest of the pre-game indicators, the major overseas markets are a mixed bag with Europe down hard again. Crude futures are down with the latest quote showing oil trading lower by $0.70 to $56.34. On the interest rate front, we’ve got the yield on the 10-yr currently trading at 3.73% while the yield on the 3-month T-Bill is at 0.09% and overnight LIBOR is at 0.40% which is down from Friday’s 0.41%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a rough open. The Dow futures are currently off by about 180 points; the S&P’s are down about 18 points, while the NASDAQ looks to be about 32 points below fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Covidien (NYSE: COV) – Reported $0.73 vs. $0.68
Lowe’s (NYSE: LOW) – Reported $0.33 vs. $0.28
Target (NYSE: TGT) – Reported $0.49 vs. $0.48

News, Upgrades/Downgrades/Brokerage Research:

Chubb (NYSE: CB) – Downgraded at Barclays
Altera (Nasdaq: ALTR) – Added to Conviction Sell list at Goldman
Freeport McMoRan (NYSE: FCX) – Downgraded at JP Morgan
Kansas City Southern (NYSE: KSU) – Downgraded at Merrill
Dell (Nasdaq: DELL) – Downgraded at Merrill
SAP (NYSE: SAP) – Downgraded at Merrill
Nokia NYSE: (NYSE: NOK) – Upgraded at Merrill
McDonalds (NYSE: MCD) – Upgraded at UBS, Target reduced
Yum Brands (NYSE: YUM) – Upgraded at UBS, Target reduced
Alcoa (NYSE: AA) – 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.

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