David Moenning's Daily State of the Markets:

August 7, 2008 10:09 AM EDT

Technically Speaking...

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

There are times when the stock market is driven by technical factors such as a move above or below an important resistance zone, a break in a trend line, or an extreme overbought/oversold condition. However, the vast majority of the time markets move in the short-term in response to news or the overall market environment.

Recently, the bulls have enjoyed a combination of these factors. For starters, the financials benefited from both one of the most extreme oversold conditions ever seen and then an artificial trigger that forced the shorts to run for cover in epic fashion. And before you could add up the number of banks one couldn’t trade sans clothes on the short side (the answer is 19, by the way), the banks and brokers had blasted to impressive gains.

Then on the fundamental side, the recent drop in oil prices has caused some optimism to return to the market. This, coupled with a handful of decent economic reports and some good earnings news has caused traders to rethink the doom and gloom scenario – at least temporarily – and helped to push the major indices to their highest point in six weeks.

Getting to the point, the blue chip indices now find themselves in a precarious position from a technical perspective. First, thanks to this week’s blast higher, both the Dow and the S&P 500 have moved back to the top end of the recent trading range. Next, some chart watchers might argue that there is either a double or triple-top formation occurring. In addition, these two indices are now about to do battle with the 50-day moving average. And finally, it is worth noting that the indexes are currently overbought from a short-term perspective.

What of it, you ask? The point to this morning’s ramblings is that the stock market is now encountering some overhead resistance. So, since this will be the first real test of the bulls’ mettle, we can learn a lot from how the situation plays out.

For example, if the bulls can resist the selling that will undoubtedly crop up over the next few days and avoid a quick trip back down to the bottom of the range, one could argue that the momentum now favors our heroes in horns. However, if the recent gains disappear as quickly as they came, then the bears will continue to retain possession for the time being.

So while it may be tempting to jump on the bull bandwagon at the moment, this is the time for analysis and not rash emotional reactions that might cause one to “chase� stocks here. In other words, we will be watching the action very closely to see if there is a change in the character of this market – which, up until just recently, has been pretty miserable.

Turning to this morning, with the state of the economy being a pretty big question mark, the Thursday report on Weekly Jobless Claims has taken on added importance. This week, we saw the total of those seeking initial unemployment claims jump up to 455,000, which is the first reading over the all important 450k level in some time. This, coupled with some weaker than expected same store sales comparisons from the nation’s retailers has brought out some selling.

Running through the rest of the pre-game indicators; the major foreign markets are mostly higher. Crude futures are moving up with the latest quote showing oil trading up by $2.67 to $121.25. Interest rates are lower this morning with the yield on the 10-yr currently trading at 4.01%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a weak open. The Dow futures are currently off by about 115 points; the S&P’s are down about 11 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:

American Intl Group (NYSE: AIG) – Reported -$0.51 vs. $0.46
Alon Energy (NYSE: ALJ) – Reported -$1.27 vs. -$0.32
Yamana Gold (NYSE: AUY) – Reported $0.15 vs. $0.16
Avis Budget Group (NYSE: CAR) – Reported $0.16 vs. $0.06
Parexel Intl (Nasdaq: PRXL) – Reported $0.28 vs. $0.26
Companhia Vale do Rio Doce (NYSE: RIO) – Reported $1.02 vs. $0.89
Sunoco (NYSE: SUN) – Reported $0.52 vs. $0.34
Verisign (Nasdaq: VRSN) – Reported $0.25 vs. $0.23

Today’s Earnings Before the Bell:

Barr Pharmaceuticals (NYSE: BRL) – Reported $0.64 vs. $0.53
Cardinal Health (NYSE: CAH) – Reported $0.97 vs. $0.95
Swift Energy (NYSE: SFY) – Reported $2.66 vs. $2.40
Telephone & Data (NYSE: TDS) – Reported $0.75 vs. $0.67
Warner Music Group (NYSE: WMG) – Reported -$0.06 vs. -$0.18

News, Upgrades/Downgrades/Brokerage Research:

Avon Products (NYSE: AVP) – Downgraded at Credit Suisse
Intuit (Nasdaq: INTU) – Removed from Conviction Sell list at Goldman
Citrix Systems (Nasdaq: CTXS) – Added to Conviction Buy list at Goldman
CA Inc (NYSE: CA) – Removed from Conviction Buy list at Goldman
FEMSA (NYSE: FMX) – Downgraded at Morgan Stanley
Wal-Mart (NYSE: WMT) – July Same Store Sales comps 3.0% vs. StreetAccount 3.4%
Costco (Nasdaq: COST) – July Same Store Sales comps 10.0% vs. StreetAccount 7.5%
Target (NYSE: TGT) – July Same Store Sales comps -1.2% vs. StreetAccount -0.4%
Kohls (NYSE: KSS) – July Same Store Sales comps -10.4% vs. StreetAccount -6.0%

Disclosure: Mr. Moenning and/or related firms hold long positions in: ALJ, WMT, TDS

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

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• Goldman Sachs Conviction Buy List
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