David Moenning's Daily State of the Markets: 08/03

Zigging and Zagging

Good morning. After zigging downward for the prior two days on worries over inflation and the Fed, stocks zagged higher yesterday on strong earnings from the likes of Time Warner and Procter & Gamble. Neither move provided our teams with a decided edge, but I guess traders have to do something while waiting on the Fed.

That "something" would appear to be making sure that the indices cling to important technical levels in front of the �big bad events.� Stocks have a tendency to hover around an equilibrium point in front of big reports and this time is proving no different. While stocks have moved up off their recent lows, the bulls have been unable to mount a charge above the overhead resistance due to the uncertainty of Friday�s Employment report and next week�s Fed meeting. And yet, at the same time, the bears have not been able to get anything going to the downside because of ongoing strong earnings results. So what we�re left with is a bunch of zigging and zagging.

With the all-important jobs report due out on Friday, no one would have blamed traders for taking the day off. And with oil prices once again pushing back above $75, it wouldn�t have been surprising to see the bears flex their muscles a bit yesterday. But instead, traders focused on the earnings and apparently liked what they saw. In addition, investors seem to figure that the odds still favor a positive outcome next Tuesday. In fact, the Fed Funds futures closed the session predicting just a 40% chance of another rate hike on the 8th.

Despite the green screens, we are left with more questions than answers right now. For example, will the Jobs Report show an economy that is too hot, too cold, or just right? Will inflation subside in the next couple of months? Will the Fed decide to pause now or after putting another notch in its belt? And finally, will Tropical Storm Chris (or any other storm this season) move into the gulf? (If so, then all bets are off.)

During a conference call with a client yesterday, I told the client that if he could answer any of these questions, then I could tell him what the market would do and when. However, until we can get some answers about inflation, the Fed, and the economy, we might be in for a lot more zigzag action.

Turning to this morning, there is no important economic news before the bell, but the monthly retail sales results are streaming in and we will get reports on Factory Orders and the ISM Non-manufacturing index at 10:00 am. On the news front, we�re faced with a mixture of good news and bad. First, the good news is that Tropical Storm Chris weakened overnight and appears to be taking a more southerly path, which, at this stage anyway, keeps the Gulf�s oil installations out of harm�s way. The bad news is that the Bank of England surprised the markets this morning with a rate hike of 25bps. The move took their benchmark lending rate to 4.75% and has created a sea of red in Europe.

Running through the rest of the pre-game indicators, overseas markets are lower across the board in Europe while Asian markets were little changed. Gold futures are moving lower this morning and are currently exchanging hands at $657.30. Oil is moving down in response to the weather news and crude futures are currently trading off by $0.76 to $75.05. Interest rates continue to trade near the June lows this morning with the 2-year currently quoted at 4.96% while the 10-yr is trading with a yield at 4.97% right now. And finally, with about an hour before the bell, stock futures in the U.S. look like they will zig lower at the open. The Dow futures are currently off by 40, the S&Ps are down by 5.60, and the NASDAQ is sporting a drop of about 9 points.

Stocks �In Play� This Morning:
Sprint Nextel (S) � Reported $0.32 vs. $0.33
Ericsson (ERICY) � Downgraded at Goldman Sachs
Trinity Inds (TRN) � Reported $0.70 vs. $0.63
CBS Corp (CBS) � Reported $0.49 vs. $0.50
CVS Corp (CVS) � Reported $0.40 vs. $0.37
Sunoco (SUN) � Reported $3.22 vs. $2.67, Upgraded at Deutsche Bank
Moody�s (MCO) � Downgraded at Citigroup
Starbucks (SBUX) � Reported $0.17 vs. $0.17, Downgraded at Thomas Weisel
Tesoro (TSO) � Reported $4.66 vs. $4.11
Avon Products (AVP) � Upgraded at Bear Stearns
Occidental Pete (OXY) � Downgraded at Goldman Sachs
PG&E (PCG) � Downgraded at Merrill Lynch
Cisco (CSCO) � Downgraded at RW Baird
Automatic Data Processing (ADP) � Upgraded at Citigroup
Arch Coal (ACI) � Upgraded at Freidman Billings
Medtronic (MDT) � Downgraded at Goldman, First Albany, Merrill, Morgan
Investment Tech Group (ITG) � Reported $0.56 vs. $0.55

Long positions in stocks mentioned: GS, TRN, SUN, TSO, BSC, CSCO, ITG

Medicare scales back payment cuts- Implications for MDT, BSX & STJ
08-02-2006 12:06:22 PM
Submited by Yaser Anwar (http://equityinvestmentideas.blogspot.com) - Medtronic (NYSE: MDT), Boston Scientific (NYSE: BSX) & St. Jude Medical (NYSE: STJ) heaved a sigh of relief yesterday after Medicare said it would cut payments to hospitals for top-selling medical devices by far less than originally proposed.

In April, the Centers for Medicare and Medicaid Services (CMS) indicated it would pare reimbursement next year for implantable cardioverter defibrillators (ICDs) and drug-coated heart stents by 20 to 30%. The sweeping changes to complex treatments and medical technology products is seen as the biggest since '83 in the payment system.

But after the market closed Tuesday, CMS said no medical device category would be cut more than 5.4 percent next year. Changes go into effect Oct.

According to Piper Jaffery analyst, Thomas Gunderson, "This is clearly better than what we expected from the perspective of Minneapolis-based cardiovascular device companies' perspective."

Medicare pays hospitals more than $125 billion a year. The planned changes might affect as much as $1.7 billion of that, the American Hospital Association said in June.

(sources: Bloomberg & Star Tribune)
David Moenning's Daily State of the Markets: 08/02
08-02-2006 10:15:32 AM
Not What They Wanted to Hear

Good morning. With the major indices sitting right at important resistance levels and talk of an end to the rate hikes becoming prominent, surprisingly strong economic data and news that inflation is percolating was NOT what the bulls wanted to hear yesterday. Since market players and the Fed are completely �data dependent� at the present time, one look at the reports from the ISM, Personal Income and Spending, and Pending Home Sales was all it took for the bears to grab the ball.

For the second straight day, it was stronger than expected economic news that was the catalyst for a modest decline. While the news that both Personal Income and Personal Spending were better than expected raised some eyebrows, it was the news that inflation-adjusted consumer spending rose to its highest level in 4 years that got the bears stirring.

While we recognize that reviewing the details of every economic report may not be the most exciting reading each morning, we need to remember that economic data is the name of the game right now. In short, if you want to understand why the markets are moving on a daily basis, then you�ve got to learn to love some of the relatively inane data such as the PCE Price Index, the ISM Composite, and my personal favorite, the non-defense ex-aircraft orders for durable goods.

Speaking of the ISM Composite, the index, which was formerly called the Purchasing Managers Index (this measures the activity of purchasing managers, who are the guys that actually do the ordering of stuff), came in much higher than expected yesterday. While there is a great deal of talk amongst the Fed and economists about a slowing economy, some of the data that has been released recently offers an opposing view. According to the ISM, �Manufacturing is proving to be quite resilient,� which was a sentiment mirrored by last week�s Beige Book report.

But the recent good news hasn�t been limited to manufacturing as Pending Home Sales and Construction Spending both came in above expectations.
Couple this with the Personal Income report and the recent Consumer Sentiment readings, and it appears that a dire economic condition isn�t exactly the picture that is being painted by the data.

The solid economic data, higher than expected inflation readings, relentlessly high oil prices, and the rather upbeat mood of the consumer doesn�t seem to promote the idea that the Fed needs to cease and desist right this second. And with the Fed apparently split on the topic of whether or not to raise rates for the 18th straight time next Tuesday, all this good news is not what the bulls are looking to hear.

So with some renewed concern about inflation and the Fed going too far, stocks probed the downside yesterday. The bulls will continue to argue that yesterday�s result didn�t really change much of anything and that the past two sloppy sessions have been merely a �pause that refreshes.� On the other hand, the bears continue to mumble about growing uncertainty and the fact that uncertainty is usually an item that winds up in their column.

Turning to this morning, although there is no economic data, or perhaps because there is no economic data, slated for today, traders appear to be in a better mood before the bell. Earnings are the primary catalysts so far, however, investors may be turning their attention to the weather channel soon as Tropical Storm Chris is attracting some attention in the oil pits.

Running through the rest of the pre-game indicators, overseas markets are higher across the board with both French and German bourses sporting gains of 1% so far. Gold futures are moving up a little this morning and are currently exchanging hands at $659.50. Oil is moving up again this morning, this time on the weather news, and crude futures are currently trading higher by $0.63 to $75.54. Interest rates are lower this morning with the 2-year currently quoted at 4.95% while the 10-yr is trading with a yield at 4.97% right now. And finally, with about an hour before the bell, stock futures in the U.S. are a little higher. The Dow futures are currently up by 17; the S&Ps are ahead by 1.80, and the NASDAQ is sporting an advance of about 4 points.

Stocks �In Play� This Morning:

Tiffany (TIF) � Mentioned positively in Barron�s
Sprint Nextel (S) � Mentioned positively in WSJ
Transocean (RIG) � Upgraded at BofA
Simon Property Group (SPG) � Downgraded at BofA
Ensco (ESV) � Upgraded at BofA, Also PDE, RDC
Marathon Oil (MRO) � Downgraded at C
Barrick Gold (ABX) � Added to Buy list at GS, Also FCX, TIN, X
Franklin Resources (BEN) � Mentioned positively at GS
Vornado Realty (VNO) � Downgraded at Merrill Lynch
Mobile Telesystems (MBT) � Upgraded at Merrill Lynch
Blue Nile (NILE) � Upgraded at Piper Jaffray
CBRL Group (CBRL) � Upgraded at Raymond James
US Steel (X) � Downgraded at UBS
Lowes (LOW) � Downgraded at UBS
Weatherford Intl (WFT) � Upgraded at Wachovia
Baker Hughes (BHI) � Downgraded at Wachovia
Automatic Data (ADP) � Reported $0.44 vs. $0.46, Authorizes buyback
Time Warner (TWX) � Reported $0.20 vs. $0.19
Procter & Gamble (PG) � Reported $0.55 vs. $0.54
CIGNA (CI) � Reported $2.31 vs. $1.93

Long positions in stocks mentioned: GS, MRO, BHI

** 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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