David Moenning's Daily State of the Markets: 7/22

July 22, 2008 9:47 AM EDT

Headwinds Still Blowing

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

While analysts may be falling all over themselves right now telling us that the worst is over in the financials, the economic data continues to show that things aren’t all that great out there. And since every technician worth their keyboard sees the overhead resistance looming on the charts, the bulls decided to take a break yesterday. Not even another good report from the likes of Bank of America (BAC) could convince investors to continue to pile onto the blast in the financials.

The bottom line here is that this rally probably isn’t going to get very far if the economy doesn’t start to perk up sometime soon. And on the topic of the economy, it certainly wasn’t inspiring to hear Treasury Secretary Hank Paulson say that we are probably in for some rough times ahead and that we can certainly expect more bank failures in the future.

The only economic data of the day also fell into the disappointing category as the LEI fell -0.1% in June to its lowest level since March 2005. And looking back a year, we see that the LEI has now fallen 2.1%, which is the most since the year after 9/11. And this, simply put, is an indication that the economy is likely to weaken further going forward.

Adding to the cheery outlook, American Express (AXP) says that it expects the economy to continue to worsen throughout the year and that the company will scale back the number of new cardholders it brings on. Not surprisingly, the company cited credit deterioration and falling home prices as reasons for its troubles.

Next up, the fact that oil failed to continue its recent plunge may have also added to yesterday’s uninspired session. But, with Dolly making its way toward Texas and the Iranian leadership giggling at the fact that we westerners are still buying their act, oil found its way back above $130 a barrel.

Finally, the bears also got a hand after the close as names such Apple (AAPL), SanDisk (SNDK), AMEX (AXP), and Texas Instruments (TXN) all managed to miss their numbers and say bad things about the future. For example, Apple shareholders are starting to figure out that the cell phone business has lower margins than computers. In response to earnings, AAPL traded lower by $18 or about 11%. Sure glad we sold that one out of our stock portfolio yesterday afternoon!

Turning to this morning, we don’t have any economic data to review before the bell. However, we will get the Richmond Fed report and the U.S. Home Price Index at 10:00. In looking at the pre-market trading, it appears that the host of weak earnings released after the bell are driving the action lower in the early going.

Running through the rest of the pre-game indicators; with the exception of Japan, which rose in a catch up move, the major foreign markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading off $0.77 t0 $130.27. Interest rates are lower this morning with the yield on the 10-yr currently trading at 4.06%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 80 points; the S&P’s are down about 10 points, while the NASDAQ looks to be about 30 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Apple (Nasdaq: AAPL) – Reported $1.19 vs. $1.08
Amylin Pharmaceuticals (Nasdaq: AMLN) – Reported -$0.47 vs. -$0.49
American Express (NYSE: AXP) – Reported $0.56 vs. $0.82
Boston Scientific NYSE: (BSX) – Reported $0.20 vs. $0.18
Hercules (NYSE: HPC) – Reported $0.39 vs. $0.43
Merck (NYSE: MRK) – Reported $0.86 vs. $0.83
QLogic (Nasdaq: QLGC) – Reported $0.31 vs. $0.31
Everest RE (NYSE: RE) – Reported $2.90 vs. $3.28
Schering Plough (NYSE: SGP) – Reported $0.45 vs. $0.42
SanDisk (Nasdaq: SNDK) – Reported -$0.10 vs. $0.13
Steel Dynamics (Nasdaq: STLD) – Reported $1.05 vs. $0.94
Stanley Works (NYSE: SWK) – Reported $1.05 vs. $1.03
Texas Instruments (NYSE: TXN) – Reported $0.44 vs. $0.45

Today’s Earnings Before the Bell:

Baker Hughes (NYSE: BHI) – Reported $1.36 vs. $1.24
Biogen Idec (Nasdaq: BIIB) – Reported $0.91 vs. $0.84
BJ Services (NYSE: BJ) – Reported $0.48 vs. $0.40
Caterpillar (NYSE: CAT) – Reported $1.74 vs. $1.55
CME Group (NYSE: CME) – Reported $3.93 vs. $3.85
DuPont (NYSE: DD) – Reported $1.11 vs. $1.07
Quest Diagnostics (NYSE: DGX) – Reported $0.83 vs. $0.78
Freeport McMoRan (NYSE: FCX) – Reported $2.25 vs. $2.46
Fifth Third Bancorp (Nasdaq: FITB) – Reported $0.05 vs. $0.00
Halliburton (NYSE: HAL) – Reported $0.68 vs. $0.68
Jacobs Engineering (NYSE: JEC) – Reported $0.87 vs. $0.82
Lockheed Martin (NYSE: LMT) – Reported $2.01 vs. $1.88
United Parcel Service (NYSE: UPS) – Reported $0.85 vs. $0.85
Wachovia (NYSE: WB) – Reported -$1.27 vs. -$1.30

News, Upgrades/Downgrades/Brokerage Research:

Foundry Networks (Nasdaq: FDRY) – Brocade to acquire company for $18.50
Brocade (Nasdaq: BRCD) – Target reduced at Citi
QLogic Corp (Nasdaq: QLGC) – Upgraded at Citi
Micron Technology (NYSE: MU) – Downgraded at Citi
Salesforce.com (NYSE: CRM) – Downgraded at Citi
Amylin Pharmaceuticals (Nasdaq: AMLN) – Added to Conviction Buy list at Goldman
Gilead Sciences (Nasdaq:GILD) – Removed from Conviction Buy list at Goldman
Telefonica (NYSE: TEF) – Downgraded at JP Morgan
Apple (Nasdaq: AAPL) – Target reduced at Lehman
Merck (NYSE: MRK) – Downgraded at Merrill
Texas Instruments (NYSE: TXN) – Downgraded at Merrill
American Express (NYSE: AXP) – Downgraded at Oppenheimer
Genentech (NYSE: DNA) – Downgraded at Piper Jaffray

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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• Goldman Sachs Conviction Buy List
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