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David Moenning�s Daily State of the Markets: 05/09

May 9, 2006 9:33 AM EDT
Holding Pattern

Anyone who travels even occasionally knows all-too well that discouraging feeling when the plane enters a holding pattern. The unmistakable quick bank, which is soon followed by another, and then another clearly tells you that the aircraft is now traveling in a circle awaiting clearance for landing. The unproductive movement frustrates passengers who are anxious to move on, but who are instead now held hostage just shy of their destination. And in short, stocks spent the day yesterday in a similar type of holding pattern. There was definitely some movement, but little progress was made toward either team�s destination.

Yes, the major news outlets are quick to jump up and tell us that the Dow finished at another six-year high. But come on folks, does a rise of 7 points really justify all the excitement? (Well, to be fair, it is a sweeps month.) In reality, yesterday represented a pause in the action as traders waffled on whether to press their bets in front of Wednesday�s FOMC meeting.

The hesitancy to press on is certainly understandable. After all, Mr. Bernanke has definitely given the markets reason for at least a little trepidation after his recent statements. While it might be too soon to call it a flip-flop, the new Fed Chairman first hinted to Congress that a pause was in the offing and then told Maria Bartiromo that the markets misunderstood his remarks.

The key to the game right now is to understand that a pause is currently baked into the market, so traders realize that any disappointment would almost certainly be treated unkindly. Thus, while most investors believe a pause is in the cards on Wednesday, few are interested in pushing the issue with the announcement so close at hand.

So with no new economic data to offer any additional clues, investors traded cautiously. There was an interesting development in the oil market that we reported on before the bell yesterday. A letter from Iran�s President, which represented the first direct communication with a U.S. President in 21 years, said that Iran will soon propose �new ways of getting out of the current delicate situation.� While the oil markets reacted positively, the champagne remained in the cellar as Secretary of State Rice suggested that the communication doesn�t change a thing. Crude finished the day lower by $0.42.

So call it a holding pattern, a pause that refreshes, or even a stall, but yesterday�s session had little movement and little impact on the overall outlook. And frankly, it isn�t much of a stretch to expect more of the same until Wednesday afternoon.

Turning to this morning, once again there is no economic news to report before the bell although we will get data on Wholesale Inventories this morning at 10:00 am.

Running through the rest of the pre-game indicators, overseas markets are mixed as Asian markets fell while European markets are fractionally higher on balance this morning. Oil futures are moving up a little at the moment and are currently trading higher by $0.14 to $69.91. Natural Gas is trading lower by $0.06 to $6.63. Gold is quoted higher again this morning at $686, which is up $6.10. Interest rates are inching higher with the 2-year currently trading at 4.97% and the 10-yr is at 5.13%. And finally, with an hour to go before the bell, stock futures in the U.S. are doing very little. The Dow futures about 6 points below fair value, the S&Ps are flat, and the NASDAQ futures are almost 3 points below their fair value reading.

Stocks �In Play� This Morning:
Cisco (CSCO) � Upgraded at Credit Suisse
Dell (DELL) � Lowers revenue guidance, Downgraded at RW Baird
Chipotle Mexican (CMG) � Reports $0.26 vs. $0.12, Raises guidance
Federal Home Loan (FRE) � Upgraded at BofA
Federal Nat�l Mort Assoc (FNM) � Upgraded at BofA
Astrazeneca PLC (AZN) � Upgraded at Lehman
Four Seasons (FS) � Downgraded at UBS
Genzyme (GENZ) � Downgraded at JP Morgan
General Motors (GM) � Upgraded at Deutsche
Sandisk (SNDK) � Upgraded at Hambrect
Starbucks (SBUX) � Mentioned cautiously in WSJ, valuation cited
Fluor Corp (FLR) � Reports $1.00 vs. $0.66, Revenues $3.62B vs. $3.35B, Guides higher
Integrated Device Tech (IDTI) � Reports $0.15 vs. $0.15, Guides higher
McDonalds (MCD) � Reports April same store sales +6.2% vs. StreetAccount est. of +4.0%
Hansen Natural (HANS) � Reports $0.84 vs. $0.71, Revenues $137.8M vs. $106.3, Deal with BUD for distribution deal

Disclosure: Long positions in stocks mentioned: CSCO, LEH

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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