David Moenning's Daily State of the Markets: 2/12

February 12, 2008 9:57 AM EST

Bulls Hanging In

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

With the Dow down -112 points and more talk about writedowns dominating the news flow in the early going yesterday, it looked like the bears were about to prevail in what many believe is the official "retest" of the January lows. But instead of buckling, the bulls found a way to hang in there and somehow managed to stave off a technical disaster for another day.

Although there is no denying that there continues to be big problems in the credit markets, yesterday’s action suggests that maybe, just maybe, the impact of bad news in the credit arena might be losing its punch. For example, news that AIG (AIG) had losses in their credit derivatives portfolio to the tune of nearly $5 billion, which was more than four times the amount AIG’s management had announced in December, would have been normally been good for at least a couple hundred points in the red.

In addition, the report that Germany’s Finance Minister says the G7 now puts the estimates of the total writedowns relating to subprime at $400 billion, which is a smidge higher than the $100 - $150 billion the Fed talked about last year, might have been a good reason for the bears to do a little short selling recently.

Therefore, perhaps what was most interesting about yesterday’s action wasn’t the measly 57 point gain, but rather that the bears had the ball on the goal line and although they have clearly been controlling the line of scrimmage lately, were unable to push in for the game-winning score. Or, in other words, the bad news from the credit crisis doesn’t appear to be packing the same punch it did in the last few weeks.

So, while there very well may be other surprises in the bond insurer dilemma, other shoes to drop from the credit market, and more weakness ahead in the economic data, the fact that the bulls hung tough yesterday can be considered an early sign that the market may be getting somewhere in the journey toward pricing in all the bad news.

However, before you get too comfy with this assessment, it is important to understand that if the lows of last month are taken out by any meaningful degree, it will be "game back on" for the bears and the short-sellers. But for now at least, it is nice to see the bulls hanging in there.

Turning to this morning, we don’t have any economic data to review before the bell but news that Warren Buffett’s Berkshire Hathaway (BRK.A) is making an offer to reinsure the bond insurers for the next 30 days is giving the market a boost. While this is a very complex situation and Mr. Buffett has been turned down by at least one of the big three insurers, it is an indication that the sky may not be falling right now.

Running through the rest of the pre-game indicators; the overseas markets are higher across the board this morning with European bourses up by more than 1.2% on average. Crude futures are lower so far this morning with the latest quote down $1.33 to $92.26. Interest rates are moving up with the 10-yr trading at a yield of 3.68% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently up about 65 points; the S&Ps are higher by about 7 points, while the NASDAQ looks to be about 14 points above fair value at the moment.

Stocks “In Play� This Morning:

Yesterday’s Earnings After the Bell:

Charles River Labs (NYSE: CRL) – Reported $0.65 vs. $0.63
Curtiss Wright (NYSE: CW) – Reported $0.85 vs. $0.77

Today’s Earnings Before the Bell:

Expeditors Intl (Nasdaq: EXPD) – Reported $0.32 vs. $0.34
General Motors (NYSE: GM) – Reported -$1.28 vs. -$0.61
Masco (NYSE: MAS) – Reported $0.19 vs. $0.28
Nordic Amer Tankers (NYSE: NAT) – Reported $0.22 vs. $0.31
Qwest (NYSE: Q) – Reported $0.14 vs. $0.14
Schering Plough (NYSE: SGP) – Reported $0.27 vs. $0.24
Taubmann Centers (NYSE: TCO) – Reported $0.87 vs. $0.86
Teva Pharmaceuticals (Nasdaq: TEVA) – Reported $0.69 vs. $0.66

News, Upgrades/Downgrades/Brokerage Research:

Schlumberger (NYSE: SLB) – Upgraded at Bear Stearns
Unilever (NYSE: UL) – Downgraded at Citi
Eldorado Gold (NYSE: EGO) – Upgraded at Credit Suisse
Dycom (NYSE: DY) – Downgraded at Friedman Billings
Precision Castparts (NYSE: PCP) – Added to Conviction Buy list at Goldman
L-3 Communications (NYSE: LLL) – Removed from Conviction Buy list at Goldman
American Intl Group (NYSE: AIG) – Downgraded at Lehman
Monsanto (NYSE: MON) – Recommended short sale at UBS
Hewlett Packard (NYSE: HPQ) – Target reduced at UBS
Time Warner (NYSE: TWX) – 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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• Warren Buffett
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