David Moenning's Daily State of the Markets: 9/5

Is That a Train?

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

All rallies over the past year have been based on the idea that we had seen the worst in whatever was ailing the market at the time – I.E. the credit crisis or the oil spike or the economic slowdown in the U.S. But unfortunately, after the requisite rallies, the light at the end of the tunnel has more often than not turned out to be an oncoming train.

Such is the case right now. Suddenly all anyone can talk about is the global slowdown and how the decoupling theme has been debunked. And in short, it was the idea that the global macro picture isn’t getting any better that was behind yesterday’s 345 point thrashing.

There really wasn’t any one data point that led to the foul mood among traders. Rather, it seemed to be a cumulative effect based on a growing number of ‘little things’ suggesting that there is no end in sight to the current credit and economic malaise.

For example, technology shares have beaten senseless over the last couple of sessions. Yesterday it was guidance from Ciena (CIEN) and Lam Research (LRCX) as well as some cautious words from Cisco’s (CSCO) John Chambers that added fuel to the short’s fire. Now toss in some rule changes at the ECB relating to collateral, the realization that Wall Street’s capital problems may actually be getting worse, some weak economic reports, the difficulty in housing, the worry over the more than $1 trillion in debt that needs to be rolled over in the coming quarter, and some additional hedge fund follies (remember that its redemption season in hedgieland), and well, you’ve got a stage set for selling.

From a chart standpoint, the upbeat view is now gone as support levels and uptrend lines on all three major indices were smashed yesterday on increasing volume – which is never a good thing from a technical point of view. Thus, the techies tell us to now expect a full-fledged retest of the July lows. Super.

However, if you are experiencing a case of déjà vu here, you are not alone as we have seen this movie before. And while this remake does include the added plot twist where the economic slowdown goes global, unless there is a major rewrite in the works, we can take comfort in the fact that the hero does not die in the end.

So, despite the sea of red on the screens the goal right now is to stay calm, preserve capital, and be on the lookout for opportunities. And for those of you feeling some chest pains over the Dow’s revisit of the lows, understand that this decline has been going on for more than a year and that now may not be the best time to sell everything and stick your head in the sand.

Turning to this morning, things are not looking much better as Nokia (NOK) became the latest company to talk about things being a bit slow right now, which has created a -10% haircut for the stock.

Next, we’ve got the Big Kahuna of economic data – the Jobs Report – on tap, so let’s get right to it. The Labor Department reported that the economy lost 84,000 jobs in August, which was above expectations for a decline of 75,000. But the big surprise is that the Unemployment Rate spiked up to 6.1%, which was much higher the consensus view for a reading of 5.7% and the highest rate since September 2003. In addition, the revisions to both June and July’s jobs numbers created a loss of an additional 58,000 jobs. And to sum things up, this was the 8th straight monthly decline in the jobs market.

Running through the rest of the pre-game indicators, the foreign markets are down hard across the board. Crude futures are moving down again with the latest quote showing oil trading lower by $1.39 to $106.50. Interest rates are continuing their move down with the yield on the 10-yr currently trading at 3.58%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to another tough open. The Dow futures are currently off by about 118 points; the S&P’s are down by about15 points, while the NASDAQ looks to be about 24 points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

PetSmart – Downgraded at Bank of America
Estee Lauder (NYSE: EL) – Target increased at Citi
Abercrombie & Fitch (NYSE: ANF) – Downgraded at Citi
Monsanto (NYSE: MON) – Upgraded at Credit Suisse
Devon Energy (NYSE: DVN) – Added to Conviction Buy list at Goldman
Transocean (NYSE: RIG) – Added to Conviction Buy list at Goldman
Quest Software (Nasdaq: QSFT) – Added to Conviction Buy list at Goldman
ConocoPhillips (NYSE: COP) – Removed from Conviction Buy list at Goldman
Halliburton (NYSE: HAL) – Removed from Conviction Buy list at Goldman
EOG Resources (NYSE: EOG) – Removed from Conviction Buy list at Goldman, Upgraded at UBS
Nabors Industries (NYSE: NBR) – Downgraded at Goldman
Merrill Lynch (NYSE: MER) – Downgraded at Goldman
Navistar (NYSE: NAV) – Upgraded at JP Morgan
TJX Cos (NYSE: TJX) – Downgraded at Lehman
Ciena (nASDAQ: CIEN) – Downgraded at Merrill Lynch
Safeway (NYSE: SWY) – Downgraded at Morgan Stanley
American Intl Group (NYSE: AIG) – Downgraded at Morgan Stanley

Disclosure: Mr. Moenning and/or related firms hold long positions in: MON

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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