David Moenning's Daily State of the Markets: 06/30

June 30, 2008 9:45 AM EDT

No Mysteries Here

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Stocks got tagged for another triple-digit decline on Friday with little mystery as to the reason for the shellacking. By now, everybody who knows how to hit the sell button is aware of the issues plaguing this market including rising crude and commodity prices, the ongoing fallout from the credit crisis, a declining dollar, and the pickle the Fed finds itself in right now.

Oil continues to garner a great deal of attention as it appears the latest prediction of $150 by the fourth of July may have a decent shot at coming to fruition. Crude advanced again on Friday eclipsing the $140 mark to close at $140.61. However, prices did finish well off the new record intraday high of $142.99. In looking for a reason for the advance, there is nothing really new here; the dollar’s decline forces prices higher as does the geopolitical problem between Iran and Israel.

Another part of the bears' formula for success right now is the fact that the credit crisis will not end. For example, on Friday, Moody’s said that it is reviewing Morgan Stanley (MS) for a possible downgrade, Lehman (LEH) raised its forecast for writedowns at Mother Merrill (MER) by another $3 Billion to $5.4 Billion in the second quarter, and Bloomberg reported that American International Group (AIG) would absorb $5B in losses, which was just a shade higher than the original estimates of $500 Million.

On a chart basis, it is easy to see that the DJIA is in big trouble due to the significant break of the March lows. However, the lone bright spot the bulls can point to at the moment is the fact that S&P 500, NASDAQ, and Russell 2000 all remain well above their most recent lows. Thus, the question that begs to be answered here is whether or not the Dow is the leader to the leader of the pack to downside here or simply a lone wolf.

Looking ahead, the key to this week, which may go a long way in answering the question posed above, will come from across the pond. On Thursday, we will get word on whether Trichet and the ECB are serious about raising rates or not. Should the ECB decide to follow up all the rhetoric with actions, stock market investors are unlikely to be pleased with the result. An increase in European interest rates will bring more pressure on the dollar, which will result in even higher oil prices. In fact, OPEC has said that a rate hike by the ECB would trigger a move to $170 in crude.

Turning to this morning, we don’t have any economic data on tap today and the markets are relatively quiet in the early going. However, with oil continuing to march higher, it is unlikely to stay quiet for long.

Running through the rest of the pre-game indicators; foreign markets are a mixed bag this morning. Crude futures are moving up strongly again this morning with the latest quote showing oil trading higher by $2.32 to $142.32. Interest rates are flat this morning with the yield on the 10-yr currently trading at 3.99%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a slightly lower open. The Dow futures are currently lower by about 6 points; the S&P's are up by about a single point, while the NASDAQ looks to be about 6 points below fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Google (Nasdaq: GOOG) – Added to Top Picks Live list at Citi
France Telecom (NYSE: FTE) – Upgraded at Credit Suisse
Cleveland Cliffs (NYSE: CLF) – Target increased at Deutsche Bank
Powerwave Technologies (Nasdaq: PWAV) – Upgraded at Goldman
KB Home (NYSE: KBH) – Target increased at Lehman
General Electric (NYSE: GE) – Mentioned positively at Lehman
Posco (NYSE: PKX) – Upgraded at Lehman
Safeway (NYSE: SWY) – Downgraded at UBS
Sysco (NYSE: SYY) – Downgraded at UBS
Whole Foods (Nasdaq: WFMI) – 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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• Credit Suisse
• Deutsche Bank
• UBS
• Jean-Claude Trichet
• Citi
• Morgan Stanley
• Moody's

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