David Moenning's Daily State of the Markets: 4/3

Can the Bulls Make a Break?

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

Although the trend of Tuesday's being terrific for stock investors is nice, the inability for the market to follow through on the moves is a bit troubling. The problem, as anyone with a computer can plainly see, is the major indices have been unable to break out of the trading range that has been intact since the middle of January. So, even though Tuesday’s fireworks kicked off the new quarter in style, yesterday, stocks once again bumped into overhead resistance and stalled.

The fact that stocks failed to follow through on Tuesday's nearly 400 point rally isn’t really surprising. And while the news flow didn't exactly help the bulls, it is really the state of the trading range that is the overriding issue right now. They say on Wall Street that "once is a trend, twice is a tradition, and three times is a commandment." So, given that this is now the third trip through the trading range, every trader on the planet is thinking about putting on some short bets about now.

If – and this is a pretty big if – stocks can manage to hang around at the top end of the range for a while and then somehow get some decent news to work with, the bulls just might have a shot at breaking out. But unfortunately, yesterday's news flow was no help as most of the stories caused uncertainty to return.

While just about everybody in the game recognizes that there is a decent chance that we're in a recession right now, up until yesterday, Ben Bernanke had avoided use of the R word. So the fact that the Fed Chairman publicly acknowledged the possibility of a contraction in the first half of 2008 put some cold water on the bulls' hope for a break out yesterday.

It also didn't help that oil spiked higher or that gasoline closed at a record high. The recent decline in commodities in general and oil in particular had led to the argument that inflation was starting to moderate and that the secular bull in energy was over. But despite one of the largest crude inventory builds in years, oil futures surged $3.80 to close at $104.78. And with the summer driving season right around the corner, the fact that gasoline is sitting at all-time highs is causing some consternation on the consumer front.

Finally, although the feeling that we've seen the worst of the credit crisis is growing, earnings season is right around the corner. So, naturally, questions are about what might come out of the bank earnings reports are starting to crop up.

Turning to this morning, the weekly report on Jobless Claims isn’t likely to help the bulls in their mission to break out of the range. Jobless claims came in at 407k versus expectations for 366k and as you might expect, stocks are moving lower on this weak economic news.

Running through the rest of the pre-game indicators; the foreign markets were split by region with Asian markets moving higher and European bourses lower. Crude futures are moving down with the latest quote showing oil lower by $0.55 to $104.28. Interest rates are moving down with the 10-yr trading at a yield of 3.55% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a weaker open. The Dow futures are currently off by about 40 points; the S&P's are down by about 7 points, while the NASDAQ looks to be about 13 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Micron Technology (NYSE: MU) – Reported -$0.41 vs. -$0.36
Research In Motion (Nasdaq: RIMM) – Reported $0.72 vs. $0.70

News, Upgrades/Downgrades/Brokerage Research:

Sotheby's (NYSE: BID) – Estimates reduced at Bank of America
AFLAC (NYSE: AFL) – Downgraded at Bank of America
Research In Motion (Nasdaq: RIMM) – Target increased at Bear Stearns, Lehman
National City (NYSE: NCC) – Upgraded at Bear Stearns, Morgan Stanley
Micron Technology (NYSE: MU) – Upgraded at Goldman
Chesapeake Energy (NYSE: CHK) – Downgraded at JP Morgan
Merrill Lynch (NYSE: MER) – Estimates reduced at Lehman
Goldman Sachs (NYSE: GS) – Target reduced at Lehman
eBay (Nasdaq: EBAY) – Upgraded at Merrill
Kohls (NYSE: KSS) – Estimates reduced at Morgan Stanley
Marathon Oil (NYSE: MRO) – Upgraded at Oppenheimer
Cisco Systems (Nasdaq: CSCO) – Downgraded at UBS

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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

You May Also Be Interested In

• FirstEnergy Corp. (FE) PT Raised to $35 at BofA Securities
• JPMorgan raises Roblox (RBLX) to Overweight
• Inflation relief has likely been delayed not destroyed - GS