David Moenning's Daily State of the Markets: 07/02

Vacation Season

Good morning. With the second quarter coming to a close and the Independence Day holiday on the horizon, traders may have been more interested in the vacation season than on the economic fundamentals on Friday. And while there was both good and bad news from a fundamental perspective, it appears that traders were content to let the quarter come to a close without any of the traditional end-of-quarter window dressing.

Although one might have expected a sleepy session in front of the traditional vacation week, traders instead had to deal with conflicting data. The result was a volatile day which saw a trading range of more than 200 Dow points.

To be sure, the news and economic data did not provide any catalysts for the type of volatility seen on Friday, so we can probably blame a computer program or two for the big swings in prices.

Stocks initially opened higher as traders were reminded that Goldilocks remains alive and well. The report on Personal Income and Spending came in on the light side and the inflation component actually contracted. The report helped to quell fears that the Fed may need to raise interest rates and investors hit the buy button in a sigh-of-relief move.

But the good mood didn\'t last long as the move over $70 in crude oil started to attract some attention around mid-morning. As we\'ve mentioned, while consumers have been remarkably resilient toward rising energy prices, there is a line in the sand that, when crossed, will cause the public to sit up and take notice. So, with the price of crude closing at $70.68 on Friday and the summer driving season now underway, we\'re betting that we are rapidly approach that line.

Looking to the week ahead, although the Fourth of July Holiday will interrupt the week on Wednesday, we do have some economic data to look forward to. This morning at 10:00am, we\'ll get the ISM Manufacturing report, which includes the all-important Prices Paid component. On Tuesday, we\'ll get new information on the state of the housing market via the Pending Home Sales data. Markets are closed on Wednesday, but then on Thursday we\'ll get a report on the Services sector and on Friday, it\'s the big Kahuna - the June Employment report.

Turning to this morning, it looks like the bulls would like to get the third quarter started off on the right foot as the futures are higher so far in pre-market trading.

Running through the rest of the pre-game indicators, with the exception of Japan, the foreign markets are all modestly lower. Gold futures are moving up this morning by $3.90 to $654.80. In the oil pits, crude futures are moving down a smidge with the latest quote off $0.11 at $70.57. Interest rates are moving up a little this morning but remain well off the recent highs with the yield on the 10-year currently trading at 5.03% level. And with about an hour before the bell, stock futures in the U.S. are sporting nice gains at the moment. The Dow futures are currently ahead by about 33 points; the S&P\'s are about 5 points ahead, while the NASDAQ looks to be about 6 points above fair value at the moment.

Finally, speaking of vacations, I will be using the day before and after the Fourth of July to recharge the batteries a bit. Our regular State of the Markets reports will return on Friday.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:*

Google (NASDAQ: GOOG) - CNN.com to switch paid search from Yahoo to Google
Archer Daniels Midland (NYSE: ADM) - Upgraded at Banc of America
Starbucks (NASDAQ: SBUX) - Estimates and Target lowered at Bear Stearns
Sandisk (NASDAQ: SNDK) - Downgraded at CIBC
Costco (NASDAQ: COST) - Upgraded at Goldman Sachs
Target (NYSE: TGT) - Downgraded at Goldman Sachs
Moody\'s (NYSE: MCO) - Downgraded at JP Morgan
Powerwave (NASDAQ: PWAV) - Downgraded at Lehman Brothers
Vornado Realty Trust (NYSE: VNO) - Upgraded at Merrill Lynch
Nationwide Financial Services (NYSE: NFS) - Downgraded at Morgan Stanley
Principal Financial Group (NYSE: PFG) - Upgraded at Morgan Stanley
Taubman Centers (NYSE: TCO) - Upgraded at UBS
BRE Properties (NYSE: BRE) - Downgraded at UBS

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