David Moenning's Daily State of the Markets: 12/01

December 1, 2008 10:30 AM EST

Middle Ground

As we ease our way into the final chapter of 2008, we find that the best five-day move in the Dow since 1933 has bumped the venerable index out of the danger zone on the charts and smack dab in the middle of the current trading range. The reasons for the blast have been discussed ad nausea (Geithner being named, the introduction of the TALF, and the massive new economic stimulus package being developed by Obama’s team) and have left investors feeling a little better about the outlook for the future.

However, this does not mean that stocks are likely to simply bound higher from here as the middle ground on a chart basis often leads to a period of backing and filling as well as a retesting of the lows. But, on the other hand, we can’t dismiss the fact that there could be some performance anxiety-based buying from the mutual fund industry over the next 20 trading days.

Investors must also recognize that the 17% move in the Dow has undiscounted, if you will, some of the doom and gloom that had been being projected for the future. As is customary during major moves, the market appears to have overdone things to the downside from a fundamental standpoint and now must wrestle with the uncertainty of what the economy will look like going forward.

So, when you consider that (a) there is a good possibility that we’ve seen the worst in the credit crisis and (b) the upside may be limited due to the uncertainty of future economic growth, the long road ahead for the banking industry, and the overall outlook for earnings, and then contrast that with the potential for some end-of-year window dressing, an extended trading range appears to be the most likely outcome.

Turning to this morning, its Cyber Monday; a day in which retailers hope that employees everywhere will forego their boss’s wishes and put their computer to work on making a dent in the shopping list. And speaking of shopping, so far it least, it appears that Black Friday wasn’t the disaster that had been feared. The AP reports that ShopperTrak said Black Friday sales rose 3%. However, the eye-popping bargains that drew shoppers into stores probably mean profits will suffer. And it didn’t help that customer visits declined significantly Saturday and Sunday.

Looking at the morning news wire, Germany says it won’t bother with an economic stimulus package, European markets are down hard on the Eurozone economic data, and President-elect Obama will announce his National Security team today at 10:40 EST.

On the economic front, there’s nothing before the bell, but we will get a report on October’s Construction Spending in the U.S. and then the ISM Manufacturing Index at 10:00.

Running through the rest of the pre-game indicators, the major overseas markets are mostly lower as economic concerns have returned to the forefront. Crude futures are down with the latest quote showing oil trading lower by $2.98 to $51.45 On the interest rate front, we’ve got the yield on the 10-yr currently trading at 2.88%, the yield on the 3-month T-Bill is at 0.015%, and overnight LIBOR has jumped to 1.09%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 195 points; the S&P’s are down about 24 points, while the NASDAQ looks to be about 28 points below fair value at the moment.

Stocks “In Play� This Morning:

News, Upgrades/Downgrades/Brokerage Research:

MetLife (NYSE: MET) – Added to Top Picks Live at Citi
Limited Brands (NYSE: LTD) – Downgraded at Citi
Bankrate (Nasdaq: RATE) – Upgraded at Citi
Prudential (NYSE: PRU) – Upgraded at Citi
Toll Brothers (NYSE: TOL) – Upgraded at Credit Suisse
Apple (Nasdaq: AAPL) – Mentioned positively at Deutsche Bank
China Petroleum (NYSE: SNP) – Downgraded at Goldman
Citigroup (NYSE: C) – Mentioned positively at Ladenburg, Thalmann
XL Capital (NYSE: XL) – Downgraded at Merrill
Nabors Industries (NYSE: NBR) – Downgraded at Merrill
Helmerich & Payne (NYSE: HP) – Downgraded at Merrill
Precision Drilling (NYSE: PDS) – Downgraded at Merrill
WellPoint Health (NYSE: WLP) – Upgraded at Merrill
UnitedHealth (NYSE: UNH) – Upgraded at Merrill
Dell (Nasdaq: DELL) – Mentioned cautiously at Thomas Weisel
Alcon (NYSE: ACL) – Upgraded at Wachovia

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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• Credit Suisse
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