David Moenning's Daily State of the Markets: 2/11

February 11, 2008 9:53 AM EST

Same Story, Different Day

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

Although there were pockets of strength seen on Friday, the stock market can best be summarized as falling victim to a case of same story, different day. The major indices closed out a crummy week on a down note in response to ongoing concerns about the economy, the potential for more writedowns, and worry that the bailout of bond insurers might fall through.

However, the plus side of the column actually had a couple of entries for a change and not everything was down on Friday. For example, spiking oil prices aided the energy names while a $1 Billion buyback at Amazon.com (AMZN) and a rumor that Google (GOOG) was ready to bid for CNET Networks (CNET) helped technology advance on the day. In addition, the metals rebounded nicely, which, when coupled with the increase in oil prices, seems to run counter to the global slowdown theme being bandied about.

But at the end of the day, buyers didn’t appear to be interested in stepping up to the plate in any meaningful way and the Dow closed out a miserable week with a drop of 65 points. The problems on Friday weren't really new and there wasn’t a terribly large amount of selling pressure. But with the concerns about the bond insurers mounting and San Francisco Fed President Janet Yellen saying that she was "not confident" a recession can be avoided, there simply didn’t seem to be any real reason to do much buying.

One part of the problem that isn’t getting much play is the fact that the prices for these debt troubled securities are not improving. Thus, the liquidity crunch in the subprime area continues to be pronounced. And with literally billions of dollars of loans still on the books of banks and brokerage firms that can’t be sold right now, the concern is that earnings will continue to be affected.

An example of this problem can be seen in the pricing and liquidity of loans used to finance last year’s deals. During the takeover binge, banks would back deals such as the buyout of Harrah’s with the plan to slice up the loan and sell it off when the deal closed. The problem now is that the prices of these types of bonds are continuing to fall and there are no buyers to be found. So, the banks are left holding the bag right now which puts additional stress on their balance sheets.

Turning to this morning, we don’t have any economic data to review before the bell and in fact, it is a pretty light week all the way until Friday in terms of economic input.

In looking at the pre-market trading, equity futures were below fair value after the G7 indicated over the weekend that global economic growth will be impacted by the trouble in the financial markets, and suggested that more interest rate cuts and tax reductions may be necessary to get things moving. However, things have improved a bit in the last hour.

Running through the rest of the pre-game indicators; lots of Asian markets were closed overnight and European markets are lower across the board this morning. Crude futures are higher with the latest quote up $0.20 to $91.97. Interest rates are moving up a smidge with the 10-yr trading at a yield of 3.67% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently up about 20 points; the S&Ps are higher by about 2 points, while the NASDAQ looks to be about 11 points above fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Hasbro (HAS) – Reported $0.84 vs. $0.81

News, Upgrades/Downgrades/Brokerage Research:

First Solar (Nasdaq: FSLR) – Mentioned positively at Bank of America
Napster (Nasdaq: NAPS) – Upgraded at Bear Stearns
Apple (Nasdaq: AAPL) – Added to Top Picks Live list at Citi
Merrill Lynch (NYSE:MER) – Mentioned positively at Citi
Telecom Italia (NYSE:TI) – Downgraded at Citi
BT Group (NYSE:BT) – Downgraded at Credit Suisse
Level 3 Communications (Nasdaq: LVLT) – Downgraded at Credit Suisse
Raytheon (NYSE:RTN) – Upgraded at Goldman
Reliance Steel (NYSE:RS) – Downgraded at Goldman
Allegheny Technologies (NYSE:ATI) – Upgraded at Goldman
Cheesecake Factory (Nasdaq: CAKE) – Added to Conviction Buy list at Goldman
Tele Norte Leste (NYSE: TNE) – Downgraded at JP Morgan
Frontline Ltd (NYSE: FRO) – Upgraded at JP Morgan
Kinross Gold (NYSE: KGC) – Upgraded at Merrill
Agnico Eagle Mines (NYSE: AEM) – Upgraded at Merrill
Microsoft (Nasdaq: MSFT) – Downgraded at RBC Capital
Unilever (NYSE: UL) – Downgraded at UBS
GlaxoSmithKline (NYSE: GSK) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: RTN, MSFT, AAPL

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
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