David Moenning's Daily State of the Markets: 4/8

April 8, 2008 9:39 AM EDT

A No-Brainer Short?

Link To Audio

Stocks started off yesterday's session with solid gains in response to word that Washington Mutual (WM) had struck a deal with a consortium of private equity firms to raise $5 Billion and then not one, but two M&A deals had popped up. These were important news stories because it showed that some semblance of normalcy might be starting to return to the financing market.

Within minutes of the open, the Dow was up 125 points and the bulls appeared to be on the verge of breaking out of the trading range that has been in effect for the past three months. But, unfortunately for those leaning long, the gains didn’t last and for the second day in a row, the market finished relatively flat.

While the popular press talked about oil’s rise of $2.86 to close at $109.09 as the reason for the disappointing giveback of the earlier gains, it was more likely a case of the bears smelling a no-brainer short opportunity.

Perhaps the biggest problem for the bulls at the moment is that the sentiment has suddenly become a little too positive. Everywhere you turn, you hear some commentator telling us that we’ve seen the lows and it’s time to buy. And yet, the major indices remain stuck at the top end of the range. Thus, it would appear that there just might be some opportunity for a quick trade to the downside when the next bit of bad news comes out. Heck, even yours truly put on a little hedge in one of our portfolios yesterday.

But please don’t misunderstand. We are of the mind that we have indeed seen the bottom in the credit crisis correction. Or, at the very least, we are very close to it. However, this does not mean that the bulls will be able to break prices out of the trading range right now. In fact, the longer stocks hang around up here without making a move to the upside, the more likely it is that the shorts will be successful in their efforts to take another trip through the range.

So, is this a no-brainer short opportunity? For quick-on-the-draw traders, the answer is maybe so. But for investors out there, it is simply a time to start buying the dips. Unless, of course, some new debacle suddenly presents itself ;-)

Turning to this morning, Alcoa (AA) kicked off earnings season with a thud after the close yesterday with a miss of $0.06 and then Advanced Micro Devices (AMD) lowered guidance on revenues.

On the economic front, we’ll get a report on Pending Home Sales at 10:00 am and then the minutes from the recent FOMC meeting at 2:00 pm.

Running through the rest of the pre-game indicators; the foreign markets were lower across the board. Crude futures are moving down with the latest quote showing oil lower by $0.90 to $108.19. Interest rates are moving down 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 softer open. The Dow futures are currently off by about 60 points; the S&P’s are down by about 8 points, while the NASDAQ looks to be about 15 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:
Alcoa (NYSE: AA) – Reported $0.44 vs. $0.50

News, Upgrades/Downgrades/Brokerage Research:

Wal-Mart – Target increased at Bank of America
Boeing (NYSE: BA) – Target increased at Goldman
Precision Castparts (NYSE: PCP) – Target increased at Goldman
Textron (NYSE: TXT) – Target increased at Goldman
Lockheed Martin (NYSE: LMT) – Added to Conviction Buy list at Goldman
American Express (NYSE: AXP) – Upgraded at Goldman
Bank of New York Mellon (NYSE: BK) – Upgraded at Goldman
MetLife (NYSE: MET) – Upgraded at Goldman
Franklin Resources (NYSE: BEN) – Upgraded at Goldman
NYSE Euronext (NYSE: NYX) – Upgraded at Goldman
Janus Capital Group (NYSE: JNS) – Upgraded at Goldman
AstraZeneca (NYSE: AZN) – Downgraded at Goldman
Federal Natl Mortgage (NYSE: FNM) – Upgraded at Lehman
Federal Home Loan Mortgage (NYSE: FRE) – Upgraded at Lehman
Apple Inc (Nasdaq: AAPL) – Downgraded at Morgan Keegan
UBS (NYSE: UBS) – Upgraded at Morgan Stanley
Pacific Sunwear (Nasdaq: PSUN) – Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: WMT, 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.


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
• UBS
• Pending Home Sales
• Morgan Stanley
• Wachovia
• Banc of America
• Janus Capital
• Federal Open Market Committee

Add Your Comment

Name

Subject

Body

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