David Moenning's Daily State of the Markets: 06/24

June 24, 2008 9:40 AM EDT

Recalculating...

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

One of the best descriptions I’ve heard of this market recently came from Quincy Krosby, who is the chief investment strategist at The Hartford. Quincy said that she likens this market to when your Garmin GPS system gets confused and announces it is recalculating the route to your destination.

In the middle of May, it appeared that the market’s route had been clearly defined. After four months of backing and filling, traders were feeling good that we had seen the worst of the credit crisis, that inflation wasn’t a huge problem, and that the economy was actually faring better than most had anticipated. However, with the recent uptick in commodity prices and inflation readings, the downward movement in the jobs market, and the fact that the Fed has decided to start talking tough, the bulls’ route to prosperity in 2008 has suddenly been detoured.

So, unless we see oil prices quickly fall $25 to $30 or crops suddenly sprouting out of the water-soaked fields along with a reversal in the dollar and the trend of weakness in the economy, it would appear that our road is going remain bumpy for a while.

Yesterday's action was no exception as oil prices rose on disappointment over the Saudi plan to increase production and the ongoing supply disruption issues occurring in Nigeria. In addition, the negative headlines in the financials continued unabated. First, Bank of America (BAC) was the latest to cut their earnings estimates for brokers and asset managers. Then people started doing the math on the downgrades of the monoline insurers such as Ambac (ABK) and MBIA (MBI). Next, the Wall Street Journal reported that banks are having trouble raising capital right now. And finally, Goldman Sachs (GS) conceded that they were “clearly wrong� in their early-May recommendation for investors to add to financials and consumer discretionary stocks.

So, given the consistently negative news flow yesterday, it is actually surprising that stocks hung in there to finish relatively unchanged.

But, after the bell, we got another bit of bad news from UPS (UPS). United Parcel not only missed earnings, they guided lower, and then didn’t have very good things to say about the economy. The quote that will likely garner the most attention was the company’s view that the “anemic� US economy is negatively impacting business.

Turning to this morning, things are looking relatively ugly in the early going. There is no economic data available before the bell, however; we will get reports from the Richmond Fed, Consumer Confidence, and US Home Prices at 10:00. In addition, it is important to note that the Fed begins their two-day meeting today. And while there are no real expectations for any changes tomorrow, the wording of the statement will be closely scrutinized.

Running through the rest of the pre-game indicators; the foreign markets are lower across the board although Europe is more so than Asia. Crude futures are moving up again on rumors of an attack on Iran’s nuclear facilities with the latest quote showing oil trading higher by $1.43 to $138.17. Interest rates are a little lower this morning with the yield on the 10-yr currently trading at 4.15%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a weak open. The Dow futures are currently off by about 65 points; the S&P’s are down by about 9 points, while the NASDAQ looks to be about 20 points below fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Telecom Italia (NYSE: TI) – Upgraded at Bernstein
BJ’s Wholesale (NYSE: BJ) – Downgraded at Citi
Medco Health Solutions (NYSE: MHS) – Target increased at Citi
Toll Brothers (NYSE: TOL) – Credit Suisse initiates coverage with Outperform rating
Centex (NYSE: CTX) – Credit Suisse initiates coverage with Outperform rating
DR Horton (NYSE: DHI) – Credit Suisse initiates coverage with Outperform rating
KB Home (NYSE: KBH) – Credit Suisse initiates coverage with Outperform rating
Lam Research (Nasdaq: LRCX) – Upgraded at Goldman
Invitrogen (Nasdaq: IVGN) – Upgraded at JP Morgan
Raytheon (NYSE: RTN) – Upgraded at JP Morgan
United Parcel Service (NYSE: UPS) – Downgraded at RW Baird
Potash (NYSE: POT) – Target increased at UBS
UST Inc (NYSE: UST) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: BJ, IVGN

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
• UBS
• JPMorgan
• Goldman Sachs
• Citi
• Robert W Baird
• Banc of America

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