David Moenning's Daily State of the Markets: 4/8

Now It’s a Ballgame

Although everybody on the planet could see that stocks were extended, bumping into resistance and due for a rest, up until yesterday morning we really didn’t have much of a ballgame going between our two teams. With apologies to the Michigan State fans, despite almost everything lining up their way, the bears had performed much like the Spartans did in the first quarter Monday night. The shot selection was bad, the aim was off the mark, and the bottom line is their opponent just appeared to be too strong.

Until the opening bell rang yesterday morning, that is. Unlike the NCAA finals, it really doesn’t matter that the bear camp gave away the first two days of this particular contest, during which our furry friends basically stunk up the joint. But yesterday the shots started to fall, the team hit the boards with enthusiasm, and the ball started bouncing the bears way from the get go.

With many investors thinking that the bears had blown their opportunity, they called in the big guns. You see, talk about the potential for more problems in the banks and all the yammering about earnings jitters just wasn’t cutting it anymore. So, this time the bears brought in some big names to talk down just about everything they could think of.

Even if you aren’t in the business, you have probably heard of George Soros, who is nothing short of a legend in the hedge fund industry. And if you are in the investing business, then you’ve most certainly heard of Mohamed El-Erian of PIMCO. In short, both gentlemen know a thing or two about investing and both are less than enthusiastic about the stock market.

PIMCO’s El-Erian said he didn’t think stocks are a good place to be but that government bonds aren’t much more attractive. And when interviewed by Reuters, Soros said that rescuing U.S. banks could turn them into “zombies” that suck the lifeblood of the economy. Soros also said he doesn’t expect the economy to recover this year but that 2010 might offer “something” in terms of U.S. growth potential.

Add this to some trepidation in front of this quarter’s earnings parade, the IMF talking about writedowns going up at banks again and possibly hitting $4 trillion, and then S&P talking about downgrading $100 Billion of CMBS’s (commercial mortgage-backed securities) and well, it’s little wonder that stocks headed lower on Tuesday.

So, the bottom line is we’ve now got a ballgame on our hands. There is plenty of talk about a total retracement of the rally on one side of the aisle and this being a “pause that refreshes” on the other. From where we sit, we’d expect to see the bulls perhaps give up a little more ground and let the bears push things back to at least one of Mr. Fibonacci’s retracement levels or even the 50 day moving averages. And after that, well, we’ll have to wait and see which team can retain possession.

Turning to this morning, we don’t have any economic news to review before the bell, but we do have a deal in the homebuilders between Pulte (PHM) and Centex (CTX) that seems to be lifting the market’s spirits a bit.

Running through the rest of the pre-game indicators, the overseas markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading off $1.06 to $48.09. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.89%, while 3-month LIBOR is at 1.14% and the yield on the 3-month T-Bill is trading at 0.19%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a slightly higher open. The Dow futures are currently ahead by about 19 points; the S&P’s are up by about 3 points, while the NASDAQ looks to be about 10 points above fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Alcoa (AA) – Reported -$0.59 vs. -$0.54 Rev: $4.15B vs. $4.11B
Bed Bath & Beyond (BBBY) – Reported $0.55 vs. $0.44 Rev: $1.92B vs. $1.92B

Mosaic (NYSE: MOS) – Reported $0.13 vs. $0.23 Rev: $1.38B vs. $1.67B
Ruby Tuesday (NYSE: RT) – Reported $0.26 vs. $0.11 Rev: $317.5M vs. $311.1M

Today’s Earnings Before the Bell:

Family Dollar (NYSE: FDO) – Reported $0.60 vs. $0.60 Rev: $1.99B vs. $1.94B
Constellation Brands (NYSE: STZ) – Reported $0.21 vs. $0.22 Rev: $735M vs. $787M


Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

Cisco Systems (Nasdaq: CSCO) – Mentioned positively in Barron’s
State Street (NYSE: STT) – Downgraded at BAC/MER
Expedia (Nasdaq: EXPE) – Downgraded at BAC/MER
CarMax (NYSE: KMX) – Downgraded at Credit Suisse
Waddell & Reed (NYSE: WDR) – Downgraded at Credit Suisse
Telefonica (NYSE: TEF) – Downgraded at Deutsche Bank
Bankrate (Nasdaq: RATE) – Estimates reduced at Friedman Billings Ramsey
Websense (Nasdaq: WBSN) – Upgraded at FBR
Qualcomm (Nasdaq: QCOM) – Initiated outperform at FBR
Raymond James (NYSE: RJF) – Downgraded at FBR
King Pharmaceutical (NYSE: KG) – Added to Buy list at Goldman
Community Health Systems (NYSE: CYH) – Removed from�Buy list at Goldman
Questar (NYSE: STR) – Removed from�Buy list at Goldman

Daimler AG (NYSE: DAI) – Upgraded at Goldman
American Barrick (ANYSE: BX) – Downgraded at JP Morgan
Seagate Technology (NYSE: STX) – Downgraded at JP Morgan
Western Digital (NYSE: WDC) – Upgraded at JP Morgan
Bed Bath & Beyond (Nasdaq: BBBY) – Upgraded at JP Morgan
Morgan Stanley (NYSE: MS) – Estimates reduced at Oppenheimer
JP Morgan (NYSE: JPM) – Estimates reduced at Oppenheimer
Bank of America (NYSE: BAC) – Estimates reduced at Oppenheimer
Goldman Sachs (NYSE: GS) – Estimates increased at Oppenheimer
CNOOC (NYSE: CEO) – Downgraded at UBS
Sinopec (NYSE: SNP) – Downgraded at UBS
ConocoPhillips (NYSE: COP)�– Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: CSCO, COP

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.TopStockPortfolios.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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