David Moenning's Daily State of the Markets: 06/27

Putting Money on the Line

Good morning. Several firms showed traders the money yesterday as a series of multi-billion dollar acquisitions allowed the market to think about something besides the Fed for a change. Traders love to see companies put money on the line to make acquisitions because it is seen as a sign of economic health. In short, the thinking is that a firm wouldn�t spend a boatload of cash if business wasn�t good.

So, after the shellacking that the metals companies have taken recently, it was quite positive to see Phelps Dodge willing to plunk down a cool $40 billion to effectively pick up rivals Inco Ltd. and Falconbridge in an interesting three-way deal. And then there was also deal in the steel business as Belgium�s Arcelor wrapped up a not-so friendly deal for Mittal Steel.

But the fun wasn�t limited to copper and steel as Johnson and Johnson agreed to buy Pfizer�s consumer products division, which includes Listerine, Nicorette, and Sudafed, for $16.6 billion. Thus, traders were impressed with cash being flashed and decided that perhaps they had gotten too negative.

And speaking of putting money on the line, Warren Buffet�s gift of $31 billion worth of stock to the Gates Foundation certainly attracted some attention. The contribution, which was valued at something like 85% of the Oracle of Omaha�s net worth, didn�t really affect the markets in any way, but it did make you stop and think.

The bulls also got some help yesterday from an old friend, the housing market. New home sales rose by 4.6% in May. This was a much better-than expected result as analysts were actually looking for a decline of 4%. The report also showed that demand for housing remains solid if the price is right. For example, price appreciation continued to slow, especially at the high end, and it was the low-end of the price range that fueled the sales gains.

At the end of the day, the bulls were pleased to be able to generate some green numbers for all the major indices. However, while we never want to sneeze at gains of 0.5%, volume was very light and the move didn�t really change anything from a chart standpoint. In reality, the majority of players appear content to simply wait on Mr. Bernanke.

Turning to this morning, there is no economic news before the bell. However we will get reports on Consumer Confidence, Existing Home Sales, and the Richmond Fed Index at 10:00 a.m. eastern. As for the markets this morning, there appears to be a good bit of caution ahead of Thursday�s Fed meeting and most markets are showing little movement.

Running through the pre-game indicators, overseas markets once again show just fractional changes this morning. Gold is moving up by $1.60 and is trading at $589.30 at the moment. Oil is moving higher this morning on supply concerns and an interruption of tanker flow in Louisiana. August crude futures are currently moving up by $0.54 to $72.34. Interest rates are backing off yesterday�s new cycle highs. The 2-year is currently trading at 5.24% while the 10-yr is quoted at 5.22% right now. And finally, with about an hour before the bell, stock futures in the U.S. are heading a bit lower. The Dow futures are currently off by 34 points; the S&Ps are down by 2.50, but the NASDAQ is sporting a decline of just a point.

Stocks �In Play� This Morning:

Research in Motion (RIMM) � Rumored to merge with PALM
Lam Research (LRCX) � Upgraded at UBS
Weyerhaeuser (WY) � Upgraded at UBS
Kerr McGee (KMG) � Downgraded at UBS
Boston Scientific (BSX) � Recalls pacemakers due to malfunction
Google (GOOG) � WJS says company ready to test GBuy next week
Barr Pharmaceuticals (BRL) � To purchase PLIVA for $2.2B
General Mills (GIS) � Raises dividend to $0.35 from $0.34
Costco (COST) � Mentioned positively at BMO Capital
Biomet (BMET) � Downgraded at Bernstein
General Motors (GM) � Estimates raised at UBS
Frontier Oil (FTO) � Upgraded at Friedman Billings
Yahoo (YHOO) � Estimates raised at JP Morgan
Palm (PALM) � Upgraded at RBC Capital
Urban Outfitters (URBN) � Price target reduced at Deutsche
Kraft (KFT) � Mentioned negatively at Citigroup

Positions in stocks mentioned: None

** 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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