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David Moenning's Daily State of the Markets: 11/05

November 5, 2007 9:44 AM EST
Still Worried

At first blush, it looked like the bulls got exactly what they wanted from Friday’s jobs report. The monthly update on Employment showed that the number of new jobs created in October was more than double what analysts had expected, which was an indication that the economy is holding up nicely.

With the Fed moving to a neutral position on Wednesday, the worry among the bull camp was that the economy would falter and that Mr. Bernanke would be slow to react. Therefore, the jobs report was thought to be a short-term proxy for the state of the economy. And since last week’s GDP and Employment reports both showed that the economy was actually stronger than expected, it appeared that Goldilocks was back and stocks would rally.

However, this was BEFORE the report that the Fed had been forced to inject $41 Billion into the banking system and before the rumors that Goldman Sachs would be the next big institution to jump onboard the write-down train and before the report that Merrill had been in cahoots with hedge funds to delay losses. And although stocks did open higher, worries about credit and the health of the financials suddenly took center stage.

So, instead of a rip-roaring Friday rally where everybody goes home happy, stocks immediately headed south and before you could even find your coffee cup, stocks were down more than 100 points. With the losses returning the Dow and S&P to their recent lows, the technicians started yapping about a breakdown and a retest of the summer lows. And in short, things felt ugly.

However, denials by both Goldman and Merrill as well as comments from Legg Mason Value Trust’s Bill Miller, who suggested that the financials were likely to be the next big investment opportunity, seemed to halt the slide and induce some buying into the close.

Turning to this morning, in short, credit worries are back as there is talk of the problems in mortgages spreading to credit cards, auto loans etc. Next, although investors got what they wanted with the resignation of Citibank’s (C) Charles Prince over the weekend, this morning Citi has said that it will take $8B - $11B in additional write-downs. Therefore, despite the fact that Citigroup clarified that it would maintain its current dividend, traders are concerned that there are more write-down announcements to come. In addition, the issues in Pakistan aren’t helping matters much and the pre-market is a sea of red ink.

Running through the rest of the pre-game indicators; the overseas markets are lower across the board this morning. Crude futures are heading down with the latest quote showing the December contract off $1.58 to $94.35. Interest rates are a little higher this morning with the 10-yr trading at a yield of 4.31% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking ugly. The Dow futures are currently off by about 135 points; the S&Ps are down by about 15 points, while the NASDAQ looks to be about 23 points below fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Cardinal Health (NYSE: CAH) – Reported $0.86 vs. $0.86
Entergy Corp (NYSE: ETR) – Reported $2.30 vs. $2.17

News, Upgrades/Downgrades/Brokerage Research:

Camden Property (NYSE: CPT) – Downgraded at BofA
PetroChina (NYSE: PTR) – Downgraded at Bear Stearns
American Eagle Outfitters (NYSE: AEO) – Estimates reduced at Citi
Abercrombie & Fitch (NYSE: ANF) – Estimates reduced at Citi
TJX Cos (NYSE: TJX) – Estimates reduced at Citi
Assurant (NYSE: AIZ) – Target increased at Citi
Home Depot (NYSE: HD) – Downgraded at Deutsche Bank
Lowes (NYSE: LOW) – Downgraded at Deutsche Bank
Wellcare Health Plans (NYSE: WCG) – Upgraded at Jefferies
Bear Stearns (NYSE: BSC) – Downgraded at Lehman
Merrill Lynch (NYSE: MER) – Downgraded at Lehman
Google (Nasdaq: GOOG) – Target increased at Oppenheimer
Petrobras (NYSE: PBR) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: MER, PBR

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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