David Moenning's Daily State of the Markets: 3/25

March 25, 2008 10:13 AM EDT

The Debate Begins Anew

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

With the Dow now a stone's throw away from important resistance, the debate as to whether the market is really any different now than it was two weeks ago is in full swing. Getting straight to it, the bears say that the recent romp higher appears to be just a classic "reflex bounce" and is nothing more than a little short-covering in an oversold market.

Across the aisle, the bulls firmly believe that the Fed's recent moves when coupled with the very public and emotional blow-up of Bear Stearns (BSC) means that we’ve seen the worst in the liquidity crisis. And without hesitation, our heroes in horns go on to point out that this likely means we’ve seen the low in the stock market as well.

Whenever a debate such as this is raging, we like to look at the action of both stocks and bonds for clues as to which side has the edge. So, in looking at Monday, it was obvious that the bulls came to play right out of the gate on the heels of an improved offer for Bear Stearns and word that the Federal Home Loan Banks had been authorized to purchase up to $100 Billion in new mortgage securities. Then things really got rolling after the government announced the first increase in existing home sales in seven months. So, before you could do the math on what the five-fold increase for Bear amounted to, the Dow was up 200 points.

However, with resistance lurking overhead, it quickly became apparent that this market isn't likely to be romp straight up from here. In fact, just about everyone can agree that the economy isn’t out of the woods and that there may be other shoes to drop in the credit crisis. So, with volume looking rather lackluster, the bulls appeared to run out of steam after lunch.

We should also take note of the action in the bond pits, which, if you are a bond bull was more than a little disconcerting as the yield on the 10-year soared to 3.5%. Without any additional economic news to account for the move, it is obvious that traders were taking some of the flight-to-quality premium out of the bonds. In short, this is a positive for stocks since less worry about the economy means there are fewer reasons to be short.

So, while the bulls clearly won Monday's round, the distinct lack of volume created a "yea, but" situation. Yes, stocks were up – but –the lack of volume meant there was little in the way of demand and everybody with a computer screen sees the resistance overhead. Thus, a little backing and filling might be expected over the next few days.

Speaking of the next few days, starting Wednesday, I will be traveling with the family for the annual spring break trek to a warmer climate. So, unless something major occurs, my plan is to take a couple mornings off to recharge the batteries.

Turning to this morning, there is no economic data scheduled for release before the bell but we will get data on Consumer Confidence and the Richmond Fed at 10:00 am.

Running through the rest of the pre-game indicators; the foreign markets soared overnight with Hong Kong up +6.4%, Japan +2.1% and the major European Bourses all up more than 3.2%. Crude futures are moving higher with the latest quote up $0.52 to $101.38. Interest rates are moving down a smidge with the 10-yr trading at a yield of 3.51% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a relatively flat open. The Dow futures are currently ahead by about 2 points; the S&Ps are up by about 1 point while the NASDAQ looks to be about 4 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Public Storage (NYSE: PSA) – Downgraded at Bank of America, Merrill, Wachovia
Nucor (NYSE: NUE) – Target increased at Citi
US Steel (NYSE: X) – Target increased at Citi
Yahoo! (Nasdaq: YHOO) – Target increased at Citi
Gap Inc (NYSE: GPS) – Downgraded at Citi
Cigna (NYSE: CI) – Upgraded at Credit Suisse
UnitedHealth (NYSE: UNH) – Downgraded at Credit Suisse
Sirius Satellite Radio (Nasdaq: SIRI) – Added to Conviction Sell list at Goldman
Hertz Global (NYSE: HTZ) – Added to Conviction Buy list at Goldman
Electronic Arts (Nasdaq: ERTS) – Added to Conviction Buy list at Goldman
DR Horton (NYSE: DHI) – Upgraded at JMP Securities
KB Home (NYSE: KBH) – Target increases at JMP Securities
Pulte Home (NYSE: PHM) – Upgraded at JMP Securities
Merrill Lynch (NYSE: MER) – Estimates reduced at JP Morgan
Qualcomm (Nasdaq: QCOM) – Upgraded at Merrill
Cameco Corp (NYSE: CCJ) – Upgraded at Merrill
Tiffany's (NYSE: TIF) – Downgraded at Oppenheimer
Google (Nasdaq: GOOG) – Estimates reduced at Oppenheimer
Credit Suisse (NYSE: CS) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: 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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: DMoenning@HeritageCapitalManagement.com

Related Categories

Contributors
Special Reports

Stocks Mentioned

Related Entities

• Goldman Sachs Conviction Buy List
• Goldman Sachs Conviction Sell List
• Credit Suisse
• UBS
• Existing-Home Sales
• JPMorgan
• Citi
• Bear Stearns
• Merrill Lynch
• Wachovia
• Banc of America

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?