David Moenning's Daily State of the Markets: 8/12

Technically Positive

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

There is no denying that the Bulls are on a bit of a roll and it is clear that the bad news that is out there is simply being brushed aside right now. For example, Fannie (FNM) and Freddie (FRE) continue to struggle these days. But with the government backstopping the GSE’s, the worry about financial stability here has obviously been allocated to the back burner.

Next, imagine what would have happened to the price of oil if the conflict with Russia had hit the news wires in June – back when everyone was falling all over themselves trying to predict a high water mark for oil prices. (My guess is that $200 might have been the operative number.)

However, despite the military action intended to keep people in their places, oil fell another $0.75 yesterday to close at $114.45, which is the lowest level in 14 weeks. For now at least, the global economic slowdown has led to the concept of “demand destruction” in terms of the use of oil (and just about all commodities, for that matter) which is helping stock traders on several fronts.

First, with crude back down to simply rude levels, the thinking is that the consumer may crawl out from under a rock and reignite their love affair with the shopping malls. And second, with oil and commodity prices pulling back, it looks like the worry about inflation can be put aside for now as we are bound to see the data move lower in the next month or two.

But one of the biggest things the bulls have going for them right now is the action on the charts. Since traders are in control of the market these days, it is very important to understand some of the basic technical drivers.

Coming into yesterday’s session, every technician worth their keyboards could see while that the Dow and the NASDAQ had broken above their 50-day moving averages, the S&P 500 had only snuggled up to its 50-day. Why do we care about something as simplistic as a 50-day moving average? In short, the 50-day is the common identifier of the health of the intermediate term trend among the chart-watching crowd.

So, with stocks opening higher, the S&P 500 was able to push through the all-important line on the charts and then managed to stay there into the close. And to market technicians, the bottom line is this represents confirmation that the trend is now up.

Turning to this morning, once again we don’t have any big economic data to review before the bell. Well, okay, the Trade Deficit numbers did come in a bit better than expected, but the data isn’t having much of an effect on equities.

Running through the rest of the pre-game indicators; Asian markets were lower while the bourses in Europe are flopping around the breakeven mark. Crude futures are moving lower again with the latest quote showing oil trading down by $0.67 to $113.78. Interest rates are down a hair this morning with the yield on the 10-yr currently trading at 3.97%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a slightly lower open. The Dow futures are currently off by about 25 points; the S&P’s are down by about 2 points, while the NASDAQ looks to be about a fraction above fair value at the moment.

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:

Fluor (NYSE: FLR) – Reported $0.87 vs. $0.80
Napster (Nasdaq: NAPS) – Reported -$0.10 vs. -$0.09

Today's Earnings Before the Bell:

Fossil (Nasdaq: FOSL) – Reported $0.36 vs. $0.25

News, Upgrades/Downgrades/Brokerage Research:

Avalon Bay Communities (NYSE: AVB) – Downgraded at Bank of America
Essex Property Trust (NYSE: ESS) – Downgraded at Bank of America
Cabot Oil & Gas (NYSE: COG) – Upgraded at Bank of America
Comstock Resources (NYSE: CRK) – Upgraded at Bank of America
Quicksilver Resources (NYSE: KWK) – Upgraded at Bank of America
Whiting Petroleum (NYSE: WLL) – Upgraded at Bank of America
Ann Taylor (NYSE: ANN) – Downgraded at Citi
Fluor (NYSE: FLR) – Downgraded at Citi, Target increased at Lehman
Longs Drug (NYSE: LDG) – Downgraded at Credit Suisse
Goldman Sachs (NYSE: GS) – Downgraded at Deutsche Bank, Estimates reduced at Oppenheimer
Aeropostale (NYSE: ARO) – Added to Conviction Buy list at Goldman
Colgate (NYSE: CL) – Added to Conviction Buy list at Goldman
Coca Cola (NYSE: KO) – Removed from Conviction Buy list at Goldman
Phillip Morris (NYSE: PM) – Removed from Conviction Buy list at Goldman
AMR Corp (NYSE: AMR) – Upgraded at JP Morgan
Continental Airlines (NYSE: CAL) – Upgraded at JP Morgan
Delta Airlines (NYSE: DAL) – Upgraded at JP Morgan
US Airways (NYSE: LUV) – Downgraded at JP Morgan
Wynn Resorts (WYNN) – Downgraded at JP Morgan
Morgan Stanley (NYSE: MS) – Long-term debt downgraded at Moody's
McDonalds (NYSE: MCD) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: GS, FLR

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]

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