David Moenning's Daily State of the Markets: 07/23

Trouble Across the Pond?

Good morning. Stocks took a sizable hit on Friday as the indices followed the familiar pattern of rising the day before and then declining the day of an options expiration event. But the reason for the severity of the decline was not well publicized.

The popular press attributed the nearly 150 point drop to weak earnings from big names such as Caterpillar (NYSE: CAT) and Google (NASDAQ: GOOG). Other reasons cited included a normal pullback from an overbought market at a nice round number and the usual blather about worries over subprime mortgages.

While these explanations are indeed valid and do explain a drop in the indices, the extent of the drop and the pop higher in bonds (the yield on the 10-year fell to 4.96% and below important support) suggest that there might have been something else happening. Thus, a little investigation was called for.

What we found was that equities turned lower just before 10:00 am eastern on rumors that a European bank was experiencing difficulties. While the details surrounding this speculation were sketchy, the idea of more problems in the banking arena rattled the market and created more rumors, which caused traders to sell first and ask questions later.

Turning to this morning, there has been no further news on the subject of banking problems across the pond, which is a good thing. And the fact the European markets did not follow Wall Street lower for a change and are actually fractionally higher at the moment suggests that perhaps Friday's selling was simply an overreaction to a rumor, which is something that almost never happens on Wall Street ;-)

Running through the rest of the pre-game indicators, with the exception of Japan, the foreign markets are fractionally higher. In the oil pits, crude futures are moving down for a change with the latest quote off $0.40 at $75.39. Interest rates are doing little this morning with the yield on the 10-year currently trading at 4.95%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a higher open at the present time. The Dow futures are currently ahead by about 44 points; the S&P's are higher by more than 5 points, while the NASDAQ looks to be almost
5 points above fair value at the moment.

Stocks "In Play" This Morning:

Today's Earnings Before the Bell:

Halliburton (NYSE: HAL) - Reported $0.63 vs. $0.56 Hasbro (NYSE: HAS) - Reported $0.24 vs. $0.18 Merck (NYSE: MRK) - Reported $0.82 vs. $0.72 Schering Plough (NYSE: SGP) - Reported $0.41 vs. $0.35 Weatherford Intl (NYSE: WFT) - Reported $0.68 vs. $0.70

News, Upgrades/Downgrades/Brokerage Research:*
Transocean (NYSE: RIG) - Agrees to merger of equals with GlobalSantaFe (NYSE: GSF)
Precision Castparts (NYSE: PCP) - Target increased at Banc of America
ConocoPhillips (NYSE: COP) - Upgraded at Banc of America
Anheuser Busch (NYSE: BUD) - Upgraded at Citi
Eastman Chemical (NYSE: EMN) - Upgraded at Citi
Amgen (NASDAQ: AMGN) - Upgraded at Citi
HSBC Holdings (NYSE: HBC) - Upgraded at Lehman Brothers
AFLAC (NYSE: AFL) - Upgraded at Lehman Brothers

Mr. Moenning holds Long positions in stocks mentioned: PCP

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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