David Moenning's Daily State of the Markets: 02/09

Will Housing Take it’s Toll?

Good Friday morning and, as they say, TGIF. For much of the week, the market has moved in a rather dull, sideways fashion. And although the bears are definitely due to make a game of it one of these days, they have been relegated to the sidelines lately by investors looking to put money to work into every dip in prices.

But yesterday, our dull, sideways market gave way to some rather spirited action – well, for a while anyway. For most of the morning, it looked as if the bears had found their mojo thanks to comments from Toll Brothers on the state of the housing market and a rather disturbing assessment of mortgage risk from HSBC, which is the world’s third largest bank. Suddenly, the bear camp could claim to have something for investors to worry about and the Dow found itself down more than -90 points.

The fretting got started when HSBC Holdings (HBC) said that loan loss provisions would be $1.7 Billion (or about 20%) higher than expected. HSBC suggested that the slowdown in the housing market has accelerated delinquency trends in the US subprime mortgage market. In English, this means that they’ve got a whole bunch more bad real estate loans than previously thought and the situation might get worse before it gets better.

The other problem causing traders to seek cover in the early going also had to do with the housing market. Toll Brothers (TOL), the nation’s largest builder of luxury homes, reported that first quarter sales and orders came in on the light side and that significant land write-downs continued. While this is hardly ground-breaking news at this stage of the game, the report seemed to contradict the idea that the housing market may have turned the corner.

So, with concerns over mortgage lending, the possibility that the housing market may not be improving after all, and oil prices rising $2.00 a barrel, it was little wonder that stocks were on the defensive. And just before lunchtime, the feeling was that this day might get ugly in a hurry.

But never fear, the dip buyers are here – as stocks rebounded nicely in the afternoon without any major catalyst. As a result, the major averages finished with only modest losses and the bears once again went home shaking their heads.

Turning to this morning, there is again no economic data scheduled for today. However, the conflicting headwinds are continuing to blow in the pre-market. On the negative side of the ledger, oil traded above $60 in the overnight session, while the bulls suggest that the upgrade of both Ford and GM is a positive for the market.

Running through the rest of pre-game indicators, with the exception of Hong Kong, the major overseas markets are enjoying green screens. Gold is trading up a fraction to $663.50 right now. In the oil pits, crude futures have reversed their higher levels this morning but the latest quote shows the March contract up $0.07 to $59.78. Interest rates are a little higher this morning with the yield on the 10-year currently trading at 4.76%. And finally, with an hour before the bell, stock futures in the U.S. are looking to open on the flat side. The Dow futures are currently down by about 4 points; the S&P’s are 2 points under water, while the NASDAQ looks to be about 2 points under fair value at the moment.

Stocks “In Play” This Morning:

Hartford Financial Group (NYSE: HIG) – Mentioned positively in Business Week
CDC Corp (Nasdaq: CHINA) – Mentioned positively in Business Week
Allegheny Energy (NYSE: AYE) – Reported $0.37 vs. $0.35
BMC Software (NYSE: BMC) – Reported $0.41 vs. $0.39
Broadcom (Nasdaq: BRCM) – Reported $0.31 vs. $0.16
Crown Castle (NYSE: CCI) – Reported <$0.06> vs. <$0.08>
Coventry Health (NYSE: CVH) – Reported $0.97 vs. $0.97
US Steel (NYSE: X) – Downgraded at BofA, CIBC
GlaxoSmithKline (NYSE: GSK) – Upgraded at Bear Stearns
Qualcomm (Nasdaq: QCOM) – Upgraded at Bear Stearns
Aetna (NYSE: AET) – Upgraded at Citigroup
Imperial Tobacco (NYSE: ITY) – Downgraded at Credit Suisse
General Motors (NYSE: GM) – Upgraded at Deutsche Bank
Ford Motor (NYSE: F) – Upgraded at Deutsche Bank
NYSE Group (NYSE: NYX) – Downgraded at Goldman Sachs
UAL Corp (Nasdaq: UAUA) – Added to Conviction Buy list at Goldman
Texas Instruments (NYSE: TXN) – Semis upgraded at JP Morgan, TXN favorite
United Parcel Service (NYSE: UPS) – Upgraded at RW Baird
Qwest Comm (NYSE: Q) – Upgraded at Stifel

Mr. Moenning holds Long positions in stocks mentioned: BSC, GS, AYE, CCI, ITY, Q

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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