David Moenning's Daily State of the Markets: 01/29

M&A Saves the Day

Good morning. For much of the day on Friday, the bulls appeared to be on the ropes. Higher interest rates and rising oil prices had traders worried that the current �pretty good� earnings numbers might begin to dissipate as the year progresses. But, just when it looked like the bears had finally gained the upper hand, a big M&A deal in the banking sector (or at least talk thereof) showed up to save the day.

Prior to the excitement over Bank of America and Countrywide Financial�s urge to merge, the day had been a rather lackluster affair. The economic news was a bit better than expected and there were just enough positive earnings reports to keep traders� eyes off of rising rates and higher oil prices. But, it was tough to shake the feeling that things just might get ugly before the close.

On the economic front, the headline Durable Goods number was pretty much in line with expectations while the ex-aircraft version looked solid. In addition, the report on New Home Sales was a bit stronger than expected. This data, when combined with the rest of the recent economic releases, led the boys in the bond pits to all but give up on the idea of the Fed cutting rates any time soon. Thus, rates kept to their weeklong advance and the yield on the 10-year finished the day at its highest level since August 15th.

With rates rising and the stock market finding itself a bit extended, no one would have been terribly surprised to see the bears throw their weight around a little on a Friday afternoon. However, the excitement over the possible merger was enough to return traders to the buy side and once again rescue the bulls from harms way.

Looking ahead to this week, although earnings season continues to roll on, the big event will be the two-day FOMC meeting. While no one anticipates the Fed to take any action at this week�s meeting, we can expect to hear what Mr. Bernanke and Company has to say on Wednesday afternoon.

In addition, the economic calendar is chock full of data for us this week. For example,

- Tuesday: Consumer Confidence

- Wednesday: Advance Q4 GDP, Chicago Purchasing Managers, Construction Spending

- Thursday: Personal Income & Spending, Pending Home Sales, ISM Manufacturing

- Friday: January Employment Report, UofM Consumer Sentiment

Turning to this morning, we don�t have any economic data scheduled for release today, but there is still plenty of data to review on the earnings front.

Running through the rest of the pre-game indicators, the foreign markets were a mixed bag. Gold futures are lower this morning with the last trade off $2.10 to $642.60. In the oil pits, crude futures are a little lower so far with the latest quote showing the March contract down $0.51 to $54.91. Interest rates are little changed this morning with the yield on the 10-year currently trading at 4.87%. And finally, with about an hour before the bell, stock futures in the U.S. are looking flat. The Dow futures are currently just 2 points higher; the S&P�s are very close to breakeven, while the NASDAQ looks to be about 5 points under fair value at the moment.

Stocks �In Play� This Morning:

Altria (MO) � Mentioned positively in Barron�s
BMC Software (BMC) � Mentioned cautiously in Barron�s
Cummins (CMI) � Reported $3.75 vs. $3.83
Mattel (MAT) � Reported $0.75 vs. $0.66
Phelps Dodge (PD) � Reported $4.71 vs. $4.22
Schering Plough (SGP) � Reported $0.17 vs. $0.17
Tesoro (TSO) � Reported $2.28 vs. $1.88
Home Depot (HD) � Upgraded at AG Edwards
Lowes (LOW) � Upgraded at AG Edwards
Kroger (KR) � Upgraded at BofA
MGM Mirage (MGM) � Downgraded at Bear Stearns
Wynn Resorts (WYNN) � Target raised at Bear Stearns
Quest Diagnostics (DGX) � Upgraded at JP Morgan
Rockwell Collins (COL) � Upgraded at Morgan Stanley
Seagate Technology (STX) � Upgraded at Morgan Stanley
Hewlett Packard (HPQ) � Estimates increased at Prudential
Cooper Industries (CBE) � Downgraded at Prudential
Heartland Express (HTLD) � Upgraded at Raymond James
Applied Materials (AMAT) � Mentioned positively at UBS

Disclosure: Long positions is stocks mentioned: BSC, MS, MO, WYNN, AMAT

Note: All earnings reports compared to Reuters 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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