David Moenning's Daily State of the Markets: 06/22

Sigh of Relief

Good morning. As expected, stocks opened lower yesterday as there continued to be concerns about the liquidation of the Bear Stearns hedge fund and the level of interest rates. The negativity wasn’t really surprising given that it sounded like there were going to be some pretty hefty liquidations (approximately $850 million) going on and as a result, it looked like traders preferred to stay on the safe side.

However, about mid-morning, a story hit that Merrill Lynch had sold enough of the Bear Stearns assets to cover its loan to the fund. The news created a fairly large sigh of relief and suddenly, the bulls were back in business.

Our heroes in horns also got some help on the economic front as the day’s two pieces of data suggested the economy is doing a bit better than had been expected. First, we got the Index of Leading Economic Indicators, which, if you will recall, is really a better indicator of current conditions than a precursor of things to come. The LEI rose by 0.3% in May, which was in line with expectations. However, April was revised higher. Taken as a whole, the report suggests that the economy will continue to grow, albeit at a slower pace.

We also a peek at the Philadelphia Fed report yesterday at noon. The report showed that the General Business Activity index rebounded strongly in June. The index popped up 13.8 points, which was higher than expected and the biggest monthly advance since November 2002. The final reading was 18.0, which was the highest level since April 2005. And as opposed to the LEI, this report supports the idea that the economy appears to be reaccelerating.

So, with the forced liquidation complete and the economic news suggestive of an improving economy, the bulls seemed to relocate their mojo and took prices higher. While the rebound wasn’t terribly significant, it was nice to see prices move back up after Wednesday’s plunge.

Turning to this morning, we don’t have any economic data scheduled for release today, but there is some geopolitical concerns surfacing out of Iran which is keeping traders on edge. Bloomberg reports that Iran has stored more than 100 kilograms of enriched uranium.

In addition, a good-sized drop in Shanghai coupled with interest rate jitters in Europe and higher rates in the U.S. is putting a definite damper on the pre-market trading.

Running through the rest of the pre-game indicators, the foreign markets are lower across the board. Gold futures are moving up this morning by $4.40 to $658.60. In the oil pits, crude futures are moving down by $0.21 with the latest quote at $68.44. Interest rates are moving up again this morning with the yield on the 10-year currently trading at a rather worrisome 5.20% level. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 47 points; the S&P’s are about 6 points underwater, while the NASDAQ looks to be about 7 points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:*

Deere & Co (NYSE: DE) – Mentioned positively in Business Week
Albemarle (NYSE: ALB) – Upgraded at BofA
Texas Instruments (NYSE: TXN) – Target increased at Bear Stearns
MGM Mirage (NYSE: MGM) – Upgraded at CIBC
AES Corp (NYSE: AES) – Upgraded at Citigroup
Starbucks (Nasdaq: SBUX) – Downgraded at Friedman Billings
Kraft (NYSE: KFT) – Upgraded at Goldman Sachs
Chipotle Mexican Grill (NYSE: CMG) – Downgraded at JP Morgan
Abercrombie & Fitch (NYSE: ANF) – Downgraded at Lehman
Analog Devices (NYSE: ADI) – Downgraded at Piper Jaffray
Navistar Intl (Nasdaq: NAVZ) – Upgraded at UBS

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

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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