David Moenning's Daily State of the Markets: 03/04

March 4, 2008 9:37 AM EST

Retest Mode: On

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

With the major indices flirting with their January lows, one could argue that it might not take much in the way of bad news in order for the bears to get their much anticipated breakdown on the charts. The thinking here has been that since we never got the emotional panic often seen at important bottoms, stocks would be vulnerable during any retest of the lows. And with the host of bad news hitting the markets recently, a retest is exactly what we’ve got going right now.

The session got started off on the wrong foot as legendary value investor Warren Buffett told CNBC that the economy is already in a recession "by any common sense measure." Next up, Philly Fed President Charles Plosser felt the need to remind everyone that the rate cuts currently being applied to help the economy skirt recession should be removed "promptly" when possible. Now toss in another surge in commodity prices, thanks in part, to another day of carnage for the US dollar; widening credit spreads; the announcement that Thornburg Mortgage (TMA) had decided not to meet margin calls; the unwinding of hedge fund positions in the muni market; oil hitting a record intraday high for the fifth straight session; and estimate reductions for the brokers from Bank of America (BAC), Bernstein, Credit Suisse (CS), and Oppenheimer - and well, folks; let’s just say things could have been a lot worse yesterday by the time the closing bell rang.

About the only positive news that came out during the session was the data in the ISM report. With so many of the regional reports having already come in weaker than expected, it was actually a bit surprising that the ISM Manufacturing results weren’t as bad as had been estimated. However, before you grab the champagne, we should recognize that the reading does project that the manufacturing sector is now in a contraction mode.

So, with the news flow tipped toward the bear camp and the major indices threatening to break down, it was little wonder that the Dow was down more than 100 points with an hour to go yesterday afternoon. And with every technician watching the line in the sand closely for a sign that it was time to double up on those shorts, it was actually encouraging that the bulls somehow found a way to make a stand and rally back toward breakeven on the day.

Turning to this morning, we don’t have any economic data to review before the bell. However, the news flow is already favoring the bears as after the close yesterday, Intel (INTC) announced that it expected its margins to contract in the coming quarter. This sent shivers through the tech community and caused foreign markets to retreat.

Looking ahead, traders will have access to a great deal of Fedspeak today as Ben Bernanke is scheduled to speak in Florida at 9:00 am on the subject of mortgage foreclosures, Fed Vice Chairman Donald Kohn will testify before the Senate Banking Committee, Dallas Fed President Richard Fisher will speak in London at 1:00, and Fed Governor Mishkin is also scheduled to talk at 1:00 pm eastern.

Running through the rest of the pre-game indicators; with the exception of Japan, the major overseas markets are lower across the board. Crude futures are moving up so far with the latest quote higher by $0.47 to $102.92. Interest rates are moving up a bit with the 10-yr trading at a yield of 3.56% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to lower open. The Dow futures are currently about 70 points below fair value; the S&Ps are lower by about 8 points while the NASDAQ looks to be about 11 points below fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Intel (Nasdaq: INTC) – Reduces guidance for gross margins for Q2
Best Buy (NYSE: BBY) – Downgraded at Bank of America
Saks (NYSE: SKS) – Upgraded at Bear Stearns
Vonage Holdings (NYSE: VG) – Upgraded at Bear Stearns
Dillard’s (NYSE: DDS) – Upgraded at Credit Suisse
Borg Warner (NYSE: BWA) – Downgraded at Goldman
Intl Paper (NYSE: IP) – Upgraded at Goldman
Eaton Corp (NYSE: ETN) – Upgraded at Goldman
Terex (NYSE: TEX) – Downgraded at Goldman
Novell (Nasdaq: NOVL) – Downgraded at Jefferies
Barnes & Noble (NYSE: BKS) – Downgraded at JMP Securities
ConocoPhillips (NYSE: COP) – Downgraded at Lehman
Citigroup (NYSE: C) – Downgraded at Merrill

Mr. Moenning holds Long positions in stocks mentioned: NOVL

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

Related Categories

Special Reports

Stocks Mentioned

Related Entities

• Warren Buffett
• Credit Suisse
• ISM Manufacturing
• Charles Plosser
• Ben S. Bernanke
• Citi
• Bear Stearns
• Jefferies & Co
• Banc of America

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