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David Moenning's Daily State of the Markets: 12/31

December 31, 2007 10:30 AM EST
Out With the Old

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

Stocks started off strong on Friday after the situation in Pakistan didn't escalate overnight and it looked like traders might return their attention to the traditional window-dressing that tends to occur at this time of year. The mood was helped along by the fact that both Citigroup (C) and HSBC Holding (HBC) were selling assets to shore up their balance sheets. These moves were viewed as being proactive and a sign that we have indeed seen the worst of the writedowns coming from the subprime mess.

It was also considered positive that Warren Buffett's Berkshire Hathaway (BRK.A) had decided to get into the bond insurance business. While this wasn’t exactly good news for the likes of MBIA (MBI) or AMBAC (ABK), this move was viewed as more anecdotal evidence that there probably aren’t any more shoes to drop in this arena.

However, the upbeat mood and the accompanying 80 point gain didn't last long. At 10:00 am we got the daily reminder that the housing market still isn't in great shape. The fact that the Commerce Department reported that New Home sales fell by -9% in November to their lowest rate since April 1995 seemed to turn the mood around and within 30 minutes the gains were gone.

While it was a Friday during a holiday-shortened week and the trading desks weren’t exactly fully staffed, what was strange about Friday's action is that stocks didn't continue to tank once the early gains had been erased. After all, the Dow had plunged 192 points the day before on the assassination in Pakistan and this situation hadn’t really improved. Thus, one might have expected to see the bears drive this thing lower.

The bulls tell us that this alone is a huge positive. However, we might also suggest that the regional economic reports released at about the same time as the home data actually hurt the bear case. The Chicago Business Barometer actually rose by 3.7 points in December to its highest level since June. And although the New York report wasn’t quite as strong, these two reports indicate an actual increase in economic activity, which doesn’t exactly jive with the theory that the sky is falling.

Turning to this morning, as you are no doubt aware, we've got one more session to get through before we hit the reset button for 2008. Most everyone who makes their living based on performance is hoping for a quiet session without any big surprises. And so far at least, this looks like what we’ve got going.

We don't have any economic data to review before the bell, but we will get a reports on Existing Home Sales at 10:00 am. And although the week is expected to remain on the quiet side, Friday’s monthly jobs report is sure to attract some attention.

Running through the rest of the pre-game indicators; the overseas markets are quiet with many closed in observance of New Year's. Crude futures are a little higher with the latest quote showing the February contract up by $0.13 to $96.13. Interest rates are lower so far with the 10-yr trading at a yield of 4.04% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a flat open. The Dow futures are currently up by about 10 points; the S&Ps are about even, while the NASDAQ looks to be about 2 points below fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Legg Mason (NYSE: LM) – Estimates reduced at Bank of America
Under Armour (NYSE: UA) – Mentioned positively at Credit Suisse
Office Depot (NYSE: ODP) – Mentioned positively at JP Morgan
Sovereign Bancorp (NYSE: SOV) – Target reduced at Lehman

Mr. Moenning holds Long positions in stocks mentioned: None

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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