David Moenning's Daily State of the Markets: 04/05

Mixed Signals But Green Screens

Good morning. Investors reacted to mixed signals yesterday as the positives from the release of the 15 British sailors and lower oil prices were met head on with more disappointing economic data and a couple of crummy earnings reports. But at the end of the day, green screens prevailed as it appeared that the bears have suddenly run out of influence.

As we've discussed recently, some of the risk premium that had been tacked on to the price of oil in response to Iran’s capture of the British sailors, came off yesterday as the detainees were released. However, crude recovered a good bit of the early decline on a surprisingly large drawdown in gasoline inventories and finished at $64.38.

While the British sailors are now back home this morning, the issue of Iran’s nuclear ambitions remains unresolved. And because of this, the price of oil is likely to remain elevated for the time being.

With a peaceful resolution of the hostage situation in hand, investors turned their attention back to the question of the U.S. Economy. Investors initially celebrated the news that Iran had freed the sailors, but the enthusiasm quickly waned when the report on the Services sector of the economy was released.

The ISM Non-Manufacturing Business Activity Index fell by -1.9 points in March to 52.4. And while the reading remains above the all-important 50 mark (readings above 50 means expansion while below 50 indicates contraction), the number was below expectations and the lowest level since April 2003. In addition, the Prices Index jumped up 9.5 points to its highest level since last August.

We also got word that Factory Orders rose just 1% in February, which was below the expectations for an increase of 1.8%. So, in short, yesterday’s data showing slower growth and higher inflation wasn’t exactly what the bulls were looking for.

The not-so hot economic data got lumped together with some punk earnings from Best Buy (BBY) and Circuit City (CC) to give the day a “mixed” label. But with the economic data more or less being anticipated at this stage of the game, the bulls were able to push on.

We should remember that the "soft landing" scenario remains intact. Despite each passing report showing weakness, we need to keep in mind that the softness is expected. And unless things suddenly take a turn for the worse, so far at least, the economy is proceeding according to plan.

Turning to this morning, with the long holiday weekend upon us (stock markets are closed tomorrow) the pace of trading might get a little thin once mid-morning rolls around. So far this morning, things are fairly quiet as some foreign markets were closed overnight and there is not much in the way of economic data scheduled before the bell.

Running through the rest of the pre-game indicators, the major overseas markets did little overnight. Gold futures are trading higher by $0.20 this morning to $677.60. In the oil pits, crude futures are lower by $0.30 with the latest quote at $64.08. Interest rates are barely moving this morning, with the yield on the 10-year currently trading at 4.66%. And finally, with about an hour before the bell, stock futures in the U.S. are hovering around unchanged. The Dow futures are currently unchanged; the S&P’s are about -0.70 under water, while the NASDAQ looks to be about dead even with fair value at the moment

Stocks "In Play" This Morning:

American Electric Power (NYSE: AEP) – Downgraded at BofA
Waddell & Reed (NYSE: WDR) – Upgraded at Bear Stearns
CSX Corp (NYSE: CSX) – Downgraded at Calyon
Janus Capital (NYSE: JNS) – Upgraded at Goldman Sachs
BHP Billiton (NYSE: BHP) – Mentioned positively at Goldman Sachs
Micron Technology (NYSE: MU) – Downgraded at Goldman Sachs
Yahoo! (Nasdaq: YHOO) – Estimates and price target increased at Goldman Sachs
Cal Dive Intl (NYSE: DVR) – Upgraded at JP Morgan
Honda Motor (NYSE: HMC) – Downgraded at Merrill Lynch
eBay (Nasdaq: EBAY) – Price target increased at Piper Jaffray
Activision Inc (Nasdaq: ATVI) – Mentioned positively at Prudential
Potash (NYSE: POT) – Upgraded at UBS

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

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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