David Moenning's Daily State of the Markets: 9/30

September 30, 2008 9:42 AM EDT

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

http://PlayAudioMessage.com/play.asp?m=531272&f=NBVWMM&ps=13&c=FFFFFF&pm=2&h=25

Adjective Overload

As I sit here this morning attempting to find the right words to describe the events of yesterday, I find myself experiencing an overload of adjectives. Embarrassing, dumb, disgusting, naïve, mind boggling, disappointing, moronic, and frustrating are some of the first words to come to mind when thinking about the House of Representatives ‘just saying no’ the Paulson Plan.

In short, the USofA looked foolish yesterday as political grandstanding and partisan politicking by lawmakers up for reelection took the place of service to country. It would be very easy for me to go on for pages about the stupidity of the decisions made by some of our elected officials, who are supposedly elected to act on their constituents’ behalf. I could spend a great deal of time yammering on about how some politicians simply embarrassed themselves yesterday. But since I traditionally don’t discuss politics in this forum, I should probably cut the rant short and get to the point.

Every once in a great while, a panic occurs in the stock market that simply takes your breath away. And make no mistake about it; yesterday was one of those times. The stock market simply plunged (which is really the only word that fits here) once the voting for the bailout bill began. The DJIA fell just about 500 points in the 20 minutes it took to defeat the bill and dove an extra 185 points after the closing bell rang as closing prices were established, bringing the total damage on the day to -777 Dow points.

In an attempt to explain the unexplainable, lawmakers said yesterday afternoon that they’d like to “gauge the economic reaction� before moving forward with a new measure to ease the capital crisis. So, just in case the failure of Bear Stearns, Lehman Brothers, AIG, Fannie Mae, Freddie Mac, Merrill Lynch, Washington Mutual and Wachovia weren’t enough, do you suppose a -7% decline in the Dow got anybody’s attention in Washington? How about an -8.81% drop on the S&P 500 or the -9.1% plunge in the NASDAQ? And do you suppose the stock market being down nearly -25% on the year is the “economic reaction� these politicos are looking for?

Putting all sarcasm aside for just a moment, one of the major points I’d like to make with this morning’ report is that THIS is why we believe it is important to manage risk in portfolios. THIS is why we’ve held a bunch of cash, have been ‘trading smaller’ and have been ‘doing less’ for much of the year. While watching a 7% decline in stocks is certainly no fun, knowing that the majority of our portfolio is on the sidelines definitely helps us get through a day like yesterday.

The next point to make today is that what we saw yesterday was pure, unadulterated panic. And if there is one thing we’ve learned about ‘bad news panics’ over the years is that they tend to flame out in a relatively short period of time. So, rest assured that Washington WILL patch something together and that it WILL get passed this week as pain on Wall Street is rapidly turning to pain on Main Street.

However, from a stock market perspective, the question now becomes one of trying to determine the damage this mess has inflicted on corporate earnings. So, while we should expect a bounce that may also take your breath away sometime soon, it is important to watch the fundamentals when the new earnings season begins in a couple of weeks.

Turning to this morning, some of the artificial decline seen at the close yesterday is being returned in the early going. It is important to note that with the exception of Japan, the major foreign markets did NOT follow the US into a freefall overnight as there is word of a globally coordinated rate cut making the rounds.

Running through the rest of the pre-game indicators, the foreign markets are mixed with Japan off 4.1%, Hong Kong up +0.76%, France off -0.2%, Germany down -1%, and the UK is up +0.2%. Crude futures are moving up with the latest quote showing oil trading higher by $2.01 to $98.38. Interest rates are lower with the yield on the 10-yr currently trading at 3.62%. And finally, with about 60 minutes before the bell, the futures are pointing to rebound at the open. The Dow futures are currently ahead by about 240 points; the S&P’s are up by about 33 points, while the NASDAQ looks to be about 27 points above fair value at the moment.

Stocks “In Play� This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Circuit City (NYSE: CC) – Target reduced at Bank of America, Downgraded at RBC Capital
Monster Worldwide (Nasdaq: MNST) – Target reduced at Deutsche Bank
Abercrombie & Fitch (NYSE: ANF) – Upgraded at Friedman Billings
Comcast (Nasdaq: CMCSA) – Added to Conviction Buy list at Goldman Sachs
Deutsche Telecom (NYSE: DT) – Upgraded at Goldman Sachs
Intel Nasdaq: (INTC) – Upgraded at Piper Jaffray
Fifth Third Bancorp (Nasdaq: FITB) – Downgraded at RW Baird
Walgreens (NYSE: WAG) – Downgraded at UBS
Landstar (Nasdaq: LSTR) – Upgraded at Wachovia

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.

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• Goldman Sachs Conviction Buy List
• Piper Jaffray
• Deutsche Bank
• UBS
• Goldman Sachs
• Bear Stearns
• Merrill Lynch
• Lehman Brothers
• Wachovia
• Robert W Baird
• Banc of America
• Friedman, Billings, Ramsey
• RBC Capital
• David Moenning
• Crude Oil

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