David Moenning's Daily State of the Markets: 7/1

July 1, 2008 10:05 AM EDT

The Half-Time Report

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

With the half-time buzzer sending both teams back to the locker room for a brief strategy session, there is little argument that the bears appear to once again be in control of this ballgame. In looking back, the bears started strong in the first quarter; coming out in what can only be described as a dominating fashion. The team seemed to have everything working for them as they put the home team back on their heels early.

But as the second quarter began, the Bears, who were resting their starters on the bench, appeared to let up and somehow allowed their opponents back in the game. And for a while there, it looked like the bulls had weathered the Bears’ initial surge and were fighting back. Our heroes in horns managed to string a few scores together and by the beginning of May, it looked like they might be able to come all the way and regain the lead.

But then it happened. The Bears called time out and put their big guns back in the game. And before you could remember how much money the banks had written off, the bulls suddenly found themselves defenseless. In short, the three-pronged attack of higher oil prices, a stagnating economy, and talk of higher interest rates created a triple-threat that the bulls simply could not match.

So, as we look back on the half that was, we see that the venerable DJIA has posted a loss of -14.44% so far this year, which is the worst first half since 1970. Part of the problem was June wound up being the biggest monthly loser since 1930, which led to a third straight quarterly decline - the longest stretch of quarterly losses since 1978.

On Monday, stocks pulled back in the early going for the usual reasons: higher oil and more problems in the financial sector. However, the market seemed to gain some steam after crude lost its momentum and a little buying came in near the end of the session.

Crude's rude rise was furthered in the early going yesterday by concerns that Israel was indeed planning an attack on Iran’s nuclear facilities. According to an ABC report, a senior Pentagon official said there is an "increasing likelihood" that Israel will undertake such an attack. Recall that these concerns have been in the market for some time, dating back to reports of an Israeli military exercise in the eastern Mediterranean during the first week of June and comments by a high-ranking Israeli official, who said that an attack on Iran's nuclear facilities is "unavoidable."

However, with the quarter drawing to a close, portfolio managers decided to ignore the problems for a couple hours and dress up their portfolios as the leaders suddenly caught a bid and moved higher into the close.

Turning to this morning, we don’t have any economic data on tap before the bell, but we will get a report on the state of manufacturing from the ISM at 10:00. Stocks are down hard in the early going as oil continues to move higher and a report in London detailing the trouble in their housing market is putting pressure on banks.

Running through the rest of the pre-game indicators; foreign markets are pointing to weakness in the U.S. as European markets are down more than 2% so far. Crude futures are moving up again this morning with the latest quote showing oil trading higher by $2.40 to $142.40. Interest rates are lower this morning with the yield on the 10-yr currently trading at 3.93%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a rough open. The Dow futures are currently off by about more than 90 points; the S&P’s are lower by about 12 points, while the NASDAQ looks to be about 22 points below fair value at the moment.

Stocks “"In Play" This Morning:

Today’s Earnings Before the Bell:

Schnitzer Steel (Nasdaq: SCHN) – Reported $2.14 vs. $1.87
Constellation Brands (STZ) – Reported $0.34 vs. $0.31

News, Upgrades/Downgrades/Brokerage Research:

Apple (Nasdaq: AAPL) – Estimate and target increased at Bernstein
McDonalds (NYSE: MCD) – Estimate increased at Cowen
Lam Research (Nasdaq: LRCX) – Upgraded at Credit Suisse
New York Times (NYSE: NYT) – Upgraded at Deutsche Bank
Interpublic Group (NYSE: IPG) – Downgraded at Deutsche Bank
NYSE Euronext (NYSE: NYX) â€“ Removed from Buy list at Goldman
Altera (Nasdaq: ALTR) – Downgraded at Jefferies
Xlinix (Nasdaq: XLNX) – Downgraded at Jefferies
Deutsche Telekom (NYSE: DT) – Upgraded at JP Morgan
France Telecom (NYSE: FTE) – Upgraded at Merrill Lynch
Sirius Satellite Radio (Nasdaq: SIRI) – Upgraded at Merrill Lynch
Honda Motor (NYSE: HMC) – Upgraded at Nomura Securities
Toyota Motor (NYSE: TM) – Downgraded at Nomura Securities
American Express (NYSE: AXP) – Upgraded at UBS
Capital One (NYSE: COF) – Upgraded at UBS
Discover Financial (NYSE: DFS) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: AAPL, MCD

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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