David Moenning's Daily State of the Markets: 05/30

A Taxing Matter

Good morning. Stocks continued to trace out the now familiar pattern of rising in the morning and then succumbing to selling in the afternoon yesterday. But, for the second day in a row, the bears were rebuffed in their efforts as the bulls refused to yield.

You can’t really accuse the bears of not trying yesterday as stocks did give up early gains and were solidly negative after lunch. For a while, it looked like Friday’s rebound was just that and that the bears were back in control of the ball.

But, in short, the bull camp simply has too much going for it these days. And try as they might, the bears were unable to overcome another batch of M&A news and a surprisingly strong report on Consumer Confidence.

Since Tuesday was this week’s Monday, the bulls expected to hear all about the fruits of the weekend’s M&A efforts. And sure enough, they were not disappointed. The flurry of transactions, both announced and speculated, included a higher bid for ABN Amro, speculation over Avaya and CDW Computer going private as well as confirmation that Archstone Smith had agreed to be acquired.

The bulls also got a little help from the day’s only economic data. It was reported that the Consumer Confidence Index rose 1.7 points in May to a reading of 108.0, which was higher than the expectations for a reading of 105. In addition, the Present Situation component came in better than expected while Business Conditions were at the highest level since 9/11. So, given the recent uptick in gasoline prices, the fact that the consumer has not dug a hole in the sand has to be considered a positive.

Turning to this morning, things have taken a turn for the worse as China tripled the tax on stock transactions in an effort to cool the exploding market there. The move definitely got investors’ attention in China as the Shanghai Index fell by 6.5% and sent ripples of selling around the globe. However, the damage isn’t terribly dramatic as the decline seen on the Hang Seng was limited to less than 1% and Japan’s stock market fell just -0.5%.

Running through the rest of the pre-game indicators, as you can probably guess, the major foreign markets are lower across board. Gold futures are moving down by $3.00 to $660.40. In the oil pits, crude futures are lower by $0.02 with the latest quote at $63.13. Interest rates are moving a little lower 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 to move down at the open. The Dow futures are currently off by about 47 points; the S&P’s are 5 points under water, while the NASDAQ looks to be 8 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:

BMC Software (NYSE: BMC) – Reported $0.40 vs. $0.40
Coldwater Creek (Nasdaq: CWTR) – Reported $0.13 vs. $0.09

Today’s Earnings Before the Bell:
Joy Global (Nasdaq: JOYG) – Reported $0.70 vs. $0.72
Polo Ralph Lauren (NYSE: RL) – Reported $0.68 vs. $0.62

News, Upgrades/Downgrades/Brokerage Research:*

CDW Corp (Nasdaq: CDWC) – Downgraded at Bear Stearns
Marriott (NYSE: MAR) – Upgraded at CIBC
Coca Cola (NYSE: KO) – Upgraded at Citigroup
Fiserv Inc. (Nasdaq: FISV) – Upgraded at Cowen
Archstone Smith (NYSE: ASN) – Upgraded at Friedman Billings, Stifel, Wachovia
Prologis (NYSE: PLD) – Added to Conviction Buy list at Goldman Sachs
Foster Wheeler (Nasdaq: FWLT) – Added to Conviction Buy list at Goldman Sachs
Intl Bus Machines (NYSE: IBM) – Mentioned positively at Goldman Sachs
Apple (Nasdaq: AAPL) – Price Target increased at Morgan Stanley

Mr. Moenning holds Long positions in stocks mentioned: GS, AV, IBM, AAPL

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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