David Moenning's Daily State of the Markets: 07/20

July 20, 2007 9:37 AM EDT

On the Nose

Good morning. For the first time ever, the Dow closed above the much ballyhooed 14,000 level yesterday. Although the margin by which the index cleared the latest nice round number was on the paltry side at 0.41 points or 0.003%. But, as the bulls like to say, a gain is a gain, and a new record high is always a good thing.

What was impressive about yesterday’s move was the fact that stocks advanced in the face of several negatives. For example, during his second day of testimony on Capitol Hill, Fed Chairman Bernanke admitted that the subprime mess may be a bigger problem than originally thought. This comment crushed many of the financials, which, by the way, carry the biggest sector weighting in the S&P 500.

It was also positive that traders were able to once again ignore the price of oil all together. Crude futures extended Wednesday’s inventory-fueled rally with some help from problems in Angola as the August futures closed higher by $0.87 to $75.92.

And although the subprime problem has been on the tip of traders’ tongues lately, yesterday the topic took a back seat to earnings and economic data. And even with a rather hawkish tone from Mr. Bernanke’s testimony and the latest Fed minutes, it was the surprisingly strong earnings results from the likes of IBM, Juniper Networks, and SAP that helped lift stocks to the magical 14,000 level.

However, those of us that have been around awhile know that breaching a nice round number and staying above a nice round number are two completely different things. So it will be very interesting to see how the bulls react to the historically weak days surrounding today’s options expiration day.

Turning to this morning, we have several negative catalysts controlling the early action. First, Google’s numbers were very un-Google-like after the close yesterday and there is worry that the law of large numbers may have finally caught up to the internet’s poster child for growth. Next, China raised interest rates last night in response to their GDP growing at a rate of almost 12%. And finally, punk numbers from Caterpillar this morning have all helped to push the futures lower.

Running through the rest of the pre-game indicators, the foreign markets are mixed by region as Asia was higher while Europe is lower. In the oil pits, crude futures are moving up again with the latest quote up $0.06 at $75.98. Interest rates are moving down this morning with the yield on the 10-year currently trading just below 5% at 4.997%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open at the present time. The Dow futures are currently off by about 68 points; the S&P’s are lower by almost 5 points, while the NASDAQ looks to be almost 8 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:

Advanced Micro Devices (NYSE: AMD) – Reported $0.91 vs. $0.82
Broadcom (Nasdaq: BRCM) – Reported $0.06 vs. $0.08
Capital One (NYSE: COF) – Reported $2.04 vs. $1.64
Gilead Sciences (Nasdaq: GILD) – Reported $0.42 vs. $0.39
Google (Nasdaq: GOOG) – Reported $3.56 vs. $3.59
Microsoft (Nasdaq: MSFT) – Reported $0.31 vs. $0.31
Sandisk (Nasdaq: SNDK) – Reported $0.30 vs. $0.16
Xilinx (Nasdaq: XLNX) – Reported $0.28 vs. $0.29

Today’s Earnings Before the Bell:

Citigroup (NYSE: C) – Reported $0. vs. $1.13
Caterpillar (NYSE: CAT) – Reported $1.24 vs. $1.48
Schlumberger (NYSE: SLB) – Reported $1.02 vs. $0.96
Wachovia (NYSE: WB) – Reported $1.23 vs. $1.22
Whirlpool (NYSE: WHR) – Reported $2.00 vs. $1.83

News, Upgrades/Downgrades/Brokerage Research:*

Google (Nasdaq: GOOG) – Target reduced at Bear Stearns
Seagate Technology (NYSE: STX) – Upgraded at Bear Stearns
Hershey (NYSE: HSY) – Downgraded at Bear Stearns
Exelon Corp (NYSE: EXC) – Downgraded at Citi
Autodesk (Nasdaq:ADSK) – Downgraded at Citi
US Steel (NYSE: X) – Downgraded at Credit Suisse
Nucor (NYSE: NUE) – Upgraded at Credit Suisse
Oracle (Nasdaq:ORCL) – Added to Conviction Buy list at Goldman Sachs
ITT Corp NYSE: (NYSE: ITT) – Downgraded at JP Morgan
Playtex Products (NYSE: PYX) – Upgraded at Oppenheimer
Apple (Nasdaq: AAPL) – Target increased at Piper Jaffray


Mr. Moenning holds Long positions in stocks mentioned: GS, JNPR, IBM, SLB, ORCL

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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