David Moenning's Daily State of the Markets: 09/05

The Sky May Not Be Falling, But...

Stocks continued to rally on Tuesday on the idea that Mr. Bernanke & Co. will cut rates at the September 18th Fed meeting. Although the Fed appears to abhor the idea of bailing out the markets or speculators, it is obvious that the Fed Funds rate is out of whack with market rates and as such, a cut is probably necessary. And although the FOMC seems to favor working the Discount Window in order to help ease the log jam in the commercial paper market, it appears that an actual rate cut is likely.

But since the Fed’s credibility is at stake this month, it is important that the economic data appear to justify the move. Mr. Bernanke has said many, many times that the FOMC is going to be data dependent going forward and although the upcoming rate cut has little or nothing to do with the economy, it is a positive that the recent data has been supportive.

Yesterday’s economic reports were just that as the data appeared to offer just the right mix for the market. The reports from the ISM Manufacturing and Construction Spending were weak enough to bolster the idea of the Fed easing rates, but gave no hints that the economy is heading for recession.

Stocks also got a boost from comments from GM and encouraging news regarding the sale of debt intended to finance the First Data deal, which is being watched closely as a barometer for the private equity environment. On that note, we also heard some reassuring comments from European banks such as Deutsche Bank and Barclays.

So, given the fact that the sky does not appear to be falling, stocks continued to recover yesterday. And while the Dow’s gain approached triple digits once again, it was actually the NASDAQ continues to steal the spotlight as technology has clearly emerged as the market’s new leader.

Turning to the charts, the technicians have suddenly flip-flopped on their view of the near-term and suggest that yesterday’s move may have broken the neckline of the venerable head-and-shoulders bottom formation. But, before we get too excited, let’s remember that the charts were supposedly projecting a whole lot more downside just two weeks ago.

The fly in the ointment right now is the fact that there is an awful lot of uncertainty remaining out there. For example, it remains to be seen whether or not the big deals in the pipeline will get done without significant concessions. Next, we haven’t seen much in the way of economic data from the credit crisis period. And finally, we’ve heard very little with regard to the impact on upcoming earnings season.

So, again, stocks may have rallied because the sky does not appear to be falling, but the key question here is how much farther can they go without some clarity on the situation?

Running through the rest of the pre-game indicators, the overseas markets were mostly lower overnight as concerns about credit have reemerged. Crude futures are continuing to rise and are up by $0.24 this morning with the latest quote at $75.32. Interest rates are a little lower with the 10-yr is trading at a yield of 4.515% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open to the downside. The Dow futures are currently off by about 90 points; the S&Ps are down by almost 13 points, and the NASDAQ looks to be about 12 points below fair value at the moment.

Stocks "In Play" This Morning: <

News, Upgrades/Downgrades/Brokerage Research:

CME Group (NYSE: CME) – Estimates increased at Bernstein
Anadarko Pete (NYSE: APC) – Upgraded at Bernstein
BP PLC (NYSE: BP) – Upgraded at Bernstein
ConocoPhillips (NYSE: COP) – Downgraded at Bernstein
Goldman Sachs (NYSE: GS) – Estimates increased at Citi
Lehman Bros (NYSE: LEH) – Estimates decreased at Citi
Morgan Stanley (NYSE: MS) – Estimates decreased at Citi
Valueclick (NASDAQ: VCLK) – Upgraded at Citi
Medco Health Solutions (NYSE: MHS) – Upgraded at Cowen
Express Scripts (NASDAQ: ESRX) – Estimates increased at Cowen
Check Point Software (NASDAQ: CHKP) – Upgraded at Friedman Billings
Altria (NYSE: MO) – Downgraded at Goldman
Alcoa (NYSE: AA) – Upgraded at Merrill
Southern Copper (NYSE: PCU) – Upgraded at Merrill
Steel Dynamics (NASDAQ: STLD) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: MER, MHS, ESRX

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.

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