David Moenning's Daily State of the Markets: 07/18

Overnight Construction

Good morning. For the second day in a row the market headlines focused on the Dow's flirtation with the 14,000 level. For the second day in a row, the venerable index failed to close above the latest nice round number. For the second day in a row the S&P actually wound up in the red by the time the closing bell rang. For the second day in a row, the number of stocks declining was higher than those actually advancing. And as such, for the second day in a row, the bears have something to talk about.

While the Dow's intraday move above 14,000 seemed to be the center of attention yesterday, there was clearly some hesitancy evident on the part of the bulls. With big earnings reports due to be released after the bell and another big batch of economic reports due this morning, it wasn't exactly surprising that nice round number once again present some resistance to the bull camp.

After the bulls appeared to break down the 'wall of worry' last week via an unexpected blast to new highs, it now appears that the bears have been doing some overnight construction as the worries are beginning to mount. For example, the NAHB's Housing Market Index fell to its worst reading since January of 1991 yesterday, the Core PPI came in a bit hotter than expected, the Industrial Production report was a bit on the punk side, and the worries over subprime mortgages simply won't go away as the index tracking these securities hit a new low yesterday.

So, with more data, more earnings, and more worry over subprime on the horizon, the bulls were forced to put the champagne back on ice as stocks pulled back into the close yesterday. And in looking at the pre-market activity, it appears that the bears have something to crow about this morning.

Speaking of this morning, the earnings parade is now rolling along but, unfortunately, not all of the results are positive. Notably, results from Intel (NASDAQ: INTC) and Yahoo (NASDAQ: YHOO) were on the disappointing side yesterday and are definitely having an impact this morning. In addition, the bears'
favorite topic - subprime mortgages - is back this morning after Bear Stearns announced that its two troubled hedge funds are now all but worthless.

We've also got some another batch of economic numbers to review this morning. The government reported that the Consumer Price Index rose by +0.2% in June, which was a tenth above the expectations for an increase of +0.1%. When you strip out food and energy the Core rate was in line with the consensus expectation of +0.2%. And on a year-over-year basis, the Core rate increased by +2.2%, which remains a bit above the Fed's comfort zone.

But, speaking of the Fed, Mr. Bernanke will be speaking before a House committee today, so perhaps the markets will receive some calming words from the Fed Chairman.

Running through the rest of the pre-game indicators, the foreign markets are down hard across the board this morning on the back of the reports from Intel and Yahoo, a rate increase by the Bank of England, and renewed fretting over subprime mortgages. Gold futures are moving up by $2.70 to $664.10. In the oil pits, crude futures are moving up again with the latest quote up $0.22 at $74.24. Interest rates are moving down this morning with the yield on the 10-year currently trading at 5.04%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing down at the present time. The Dow futures are currently off by about 40 points; the S&P's are lower by 8, while the NASDAQ looks to be almost 13 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

CSX Corp (NYSE: CSX) - Reported $0.71 vs. $0.64
Intel (NASDAQ: INTC) - Reported $0.19 vs. $0.19, Downgraded at JMP Securities
Yahoo! (NASDAQ: YHOO) - Reported $0.11 vs. $0.11, Target reduced at Citi

Today's Earnings Before the Bell:

Abbott Labs (NYSE: ABT) - Reported $0.69 vs. $0.68
Delta Airlines (NYSE: DA) - Reported $0.70 vs. $0.57
Johnson Controls (NYSE: JCI) - Reported $1.98 vs. $1.98
JP Morgan (NYSE: JPM) - Reported $1.20 vs. $1.08
Southwest Airlines (NYSE: LUV) - Reported $0.25 vs. $0.22
Altria (NYSE: MO) - Reported $1.15 vs. $1.13
Pfizer (NYSE: PFE) - Reported $0.42 vs. $0.50
St. Jude Medical (NYSE: STJ) - Reported $0.45 vs. $0.43
United Technologies (NYSE: UTX) - Reported $1.18 vs. $1.15

News, Upgrades/Downgrades/Brokerage Research:*

Campbell Soup (NYSE: CPB) - Upgraded at Bernstein
Novartis (NYSE: NVS) - Downgraded at Credit Suisse, Merrill Lynch
Davita (NYSE: DVA) - Downgraded at Deutsche Bank
Tyco (NYSE: TYC) - Downgraded at Goldman Sachs
Total (NYSE: TOT) - Downgraded at JP Morgan
Sandisk (NASDAQ: SNDK) - Upgraded at JP Morgan
Dell (NASDAQ: DELL) - Upgraded at ThinkEquity
Kindred Healthcare (NYSE: KND) - Downgraded at Wachovia
State Street (NYSE: STT) - Target increased at UBS

Mr. Moenning holds Long positions in stocks mentioned: MER, GS, LEA

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.

You May Also Be Interested In

• Midday movers: Goldman Sachs and Meta Platforms rise; Apple and Tesla fall
• Nike, Alpine Immune Sciences rise premarket; CarMax, Robinhood and Regeneron fall
• Midday movers: Delta, Taiwan Semiconductor rise; Hexcel falls