David Moenning's Daily State of the Markets: 5/8

May 8, 2008 10:52 AM EDT

All About Oil?

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

With yesterday's pre-market data adding credibility to the idea that the economy is not in the dire condition that had been projected a couple months back, traders probably felt that it was appropriate for stocks to be sitting near the highs of the year. After all, the report on worker productivity had come in better than expected and fears of inflation were put aside for a moment when it was reported that Unit Labor Costs actually went down in April.


But, just about the time you started thinking that this market was made of Teflon, traders seemed to notice that the price of oil was hitting yet another record high. And while the U.S. consumer has done a pretty darn good job of simply ignoring the massive increase in gasoline prices, everybody knows that at some point, the price of oil IS going to matter to the economy.

So, with crude for June delivery closing the day up another $1.69 to $123.53 and Goldman Sachs talking about prices in the $200 range someday soon, somebody somewhere ran a couple of sell programs yesterday afternoon. And with no real defense to the idea that the decline was all about oil, the bulls stood aside and watched stock prices drop into the close.

It probably didn't help much that Kansas City Fed President Thomas Hoenig, who is not a voting member of the FOMC this year, said that there is a significant risk of higher inflation "becoming embedded into the economy." Mr. Hoenig went on to suggest that it could take "pronounced policy
tightening" to get rid of the pesky inflation that keeps cropping up right now. And for those of you that are not fluent in fed speak, Mr. Hoeing was saying that once the Fed is done dealing with the credit crisis, we can expect rates to go up - a lot.

Although Wednesday's session was really all about oil, it was also a bit disconcerting that the always upbeat John Chambers told us that the cautious outlook on the part of customers in the U.S. and Europe may hinder Cisco's (CSCO) ability to meet its long-term growth forecast of 12% - 17% annual sales growth. And unfortunately, we all know how traders feel about companies talking about reducing expectations.

Turning to this morning, although oil remains a focal point, it's really more about the monthly retail sales comparisons today. So far, Wal-Mart (WMT), Aeropostale (ARO), Abercrombie (ANF), BJ's (BJ), Kohl's (KSS), Saks (SKS), and Costco (COST) have exceeded expectations, while Target (TGT) and the serial disappointers such as Gap (GPS) and Limited (LTD) have missed the marks.

On the economic front, there isn't much to report today in the U.S. other than that weekly jobless claims were reported in line with expectations. Looking across the pond, both the BOE and ECB left interest rates unchanged, which was expected.

Running through the rest of the pre-game indicators; the foreign markets all followed the U.S. lower. Crude futures are moving down a hair with the latest quote showing oil lower by $0.21 to $123.32. Interest rates are also moving up as the yield on the 10-yr is currently trading at 3.88%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to stronger open. The Dow futures are currently ahead by about 50 points; the S&P's are up about 5 points, while the NASDAQ looks to be about 9.5 points above fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Yamana Gold (NYSE: AUY) - Reported $0.20 vs. $0.15
Dun & Bradstreet (NYSE: DNB) - Reported $1.14 vs. $1.12
Expeditors Intl (Nasdaq: EXPD) - Reported $0.30 vs. $0.31
Hansen Natural (Nasdaq: HANS) - Reported $0.29 vs. $0.35
News Corp (NYSE: NWS) - Reported $0.30 vs. $0.31

Today's Earnings Before the Bell:

Carrizo Oil (Nasdaq: CRZO) - Reported $0.49 vs. $0.38
King Pharmaceuticals (NYSE: KG) - Reported $0.37 vs. $0.35
NASDAQ OMX Group (Nasdaq: NDAQ) - Reported $0.48 vs. $0.49
OM Group (NYSE: OMG) - Reported $1.82 vs. $2.04
Plains Exploration (NYSE: PXP) - Reported $1.43 vs. $0.97
Swift Energy (NYSE: SFY) - Reported $1.61 vs. $1.64

News, Upgrades/Downgrades/Brokerage Research:

Wal-Mart (NYSE: WMT) - Reports April same store sales +3.2% vs. Street Account
+2.1%
Tenaris (NYSE: TS) - Downgraded at Citi
National Financial Partners (NYSE: NFP) - Upgraded at Citi
Weingarten Realty (NYSE: WRI) - Downgraded at Citi
Wachovia (NYSE: WB) - Upgraded at Credit Suisse
Hansen Natural (Nasdaq: HANS) - Downgraded at Goldman
General Mills (NYSE: GIS) - Upgraded at Goldman
Hershey (NYSE: HSY) - Downgraded at Goldman
Kellogg (NYSE: K) - Downgraded at Goldman
Boston Beer (NYSE: SAM) - Downgraded at HSBC
Delta Airlines (NYSE: DAL) - Downgraded at Merrill Lynch
US Airways Group (NYSE: LCC) - Downgraded at Merrill Lynch
CONSOL Energy (NYSE: CNX) - Downgraded at Morgan Stanley
Google (Nasdaq: GOOG) - Target increased to $700 from $570 at UBS

Mr. Moenning holds Long positions in stocks mentioned: WMT

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
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• Federal Open Market Committee
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