David Moenning's Daily State of the Markets: 6/30

June 30, 2009 10:20 AM EDT

No Sudden Changes

Besides the usual assortment of brokerage upgrades, some additional window dressing, the EU saying the worst is over, and the judge throwing the book at Mr. Madoff, another key to yesterday’s 1% rise in stock prices was the word out of China that there would be “no sudden changes” to the country’s currency reserves.

But in reality, there didn’t appear to be any one single driver to yesterday’s out-of-the-blue rally in the stock market. Stocks started higher in response to the positive action overseas, which was helped along by the European Commission saying that that the worst appears to be over in terms of the Eurozone economic contraction. While everybody knows by now that the U.S. recession is ending, the idea that the global downturn might be subsiding was definitely a confidence booster both home and abroad.

It also didn’t hurt that interest rates continued to ease a bit yesterday. The lack of any new supply from the Treasury and the fact that the Fed will be in there buying bonds today and tomorrow lifted some of the pressure on Treasury yields. This, of course, helps with mortgage rates, which helps the housing market, etc., etc.

There was also a fair amount chatter yesterday about the Madoff verdict. The fact that the man who purported the biggest investment scam in history had the book thrown at him seemed to send a message that white collar crime wasn’t acceptable and that maybe some investor confidence might eventually return to corner of Broad and Wall.

However, one of the biggest reasons for yesterday’s rally probably had to do with the calendar. With one of the best quarters in history coming to an end, managers want to make sure that their performance is as robust as possible. And while the practice is illegal, the fact that the SEC a little busy these days means there might just be a little window dressing going on.

Finally, with all of the talk lately about the BRIC countries moving to a new reserve currency, it was refreshing to hear the Chinese officially pronounce that they aren’t going to make any sudden changes to their holdings. While they actually have little choice in the matter due to the size of their trade imbalance with the U.S., the announcement provided a small sigh of relief to those who are worried about the ultimate fall of the U.S. as a world superpower.

Turning to the charts, yesterday’s gain gave the short-term trend a shot in the arm but the move didn’t do much of anything to change the fact that stocks continue to be stuck in a trading range. And with traders likely turning their attention very soon to the long holiday weekend, we probably shouldn’t expect this situation to change any time soon.

Turning to this morning, we don’t have any economic data to review before the bell, but we will get the Chicago Purchasing Manger’s Index at 9:45 am and the June Consumer Confidence number at 10:00 am eastern.

Running through the rest of the pre-game indicators, the major overseas markets are mostly lower. Crude futures are moving up again with the latest quote showing oil trading higher by $0.33 to $71.82. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.49%, while the yield on the 3-month T-Bill is trading at 0.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a flat-to-lower open. The Dow futures are currently off by about 6 points; the S&P’s are down about a point, while the NASDAQ looks to be about 1 point below fair value at the moment.

Stocks “In Play” This Morning:

Upgrades/Downgrades/Brokerage Research:

Electronic Arts (NASDAQ: ERTS) – Upgraded at BofA/Merrill
FedEx (NYSE: FDX) – Upgraded at Barclays
Qualcomm (NASDAQ: QCOM) – Initiated outperform at BMO Capital
Research in Motion (NASDAQ: RIMM) – Initiated outperform at BMO Capital
Freeport McMoRan (NYSE: FCX) – Upgraded at Canaccord Adams
Southern Company (NYSE: SO) – Downgraded at Citi
Amazon.com (NASDAQ: AMZN) – Upgraded at Cowen & Co.
Marathon Oil (NYSE: MRO) – Upgraded at Goldman
Sunoco (NYSE: SUN) – Downgraded at Goldman
Tesoro (NYSE: TSO) – Downgraded at Goldman
Frontier Oil (NYSE: FRO) – Target reduced at Goldman
Holly Corp (NYSE: HOC) – Target reduced at Goldman
Coach (NYSE: COH) – Initiated outperform at RW Baird
Nordstrom (NYSE: JWN) – Initiated outperform at RW Baird
Urban Outfitters (NASDAQ: URBN) – Initiated outperform at RW Baird
Choice Hotels (NYSE: CHH) – Upgraded at Wachovia
Starwood Hotels (NYSE: HOT) – Downgraded at Wachovia

Long positions in stocks mentioned: QCOM, RIMM, AMZN

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.TopStockPortfolios.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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• Citi
• Wachovia
• Canaccord Adams
• Robert W Baird
• Banc of America
• BMO Capital
• Barclays
• David Moenning
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• BRIC
• Crude Oil
• Bernard Madoff

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