David Moenning's Daily State of the Markets: 09/07

Buy the Dip?

Good morning. For about a decade in the 1990�s, traders made a handsome living buying every dip in prices the bears could muster. However, the �Bubble Bear� of 2000 definitely killed the dip buyers� resolve and now every decline brings worry that the bear is back instead of giddiness over the next buying opportunity. So, after yesterday�s overdue dip in prices, the question of the day seems to be if and when the dip buyers might arrive.

Going into yesterday�s session, everybody saw that the major indices were a bit extended. Everybody saw that the recent rally had occurred on pathetic volume, which meant everybody saw that the move was suspect. Thus, it really wasn�t terribly surprising to see buyers �stand aside� on the first down day.

The cause for all the red ink yesterday was the increase in Unit Labor Costs contained in the Non-Farm Productivity report. With the Fed continuing to be the focal point of the market and the question of additional rate hikes still up in the air, it will suffice to say that this new sign of inflation did not sit well with investors.

While the Dow escaped with only minor damage, the rest of the major indices got spanked pretty hard on the news that there might be some wage inflation percolating. For example, the NASDAQ, which had led the move higher over the past month, got tagged for a loss of -1.7% and the small cap indices saw declines in excess of -2%. And while volume totals of 1.4 billion are still nothing to write home about, it was discouraging to see volume pick up on the decline.

But, the bottom line is that stocks never go straight up for long and a pullback of some form was to be expected after the recent run.

So, what do we expect from here? In short, the dip buyers should do their thing within the next day or two. We'll bet that there are probably plenty of underinvested managers who recognize that this year�s calendar is growing thin. And in light of the fact that the year�s return looks like it will once again hinge on the outcome of the final quarter, no one wants to miss the year-end rally � if it materializes.

Turning to this morning, concerns about U.S. economy, global inflation, and the direction of interest rates are keeping the foreign markets on the defensive once again. We don�t have any major economic data before the bell although, we will get a report on Wholesale Inventories and the weekly oil inventory numbers at 10:00 this morning. And finally keep your ears open for San Francisco Fed President Janet Yellen�s comments later this afternoon. Ms. Yellen tends to be on the dovish side of the fence, so perhaps the dip buyers will find something to latch onto.

Running through the pre-game indicators, as we mentioned, the major overseas markets are lower across the board for a second straight day. Gold futures are pulling back a bit and are currently down almost $6 to $636 this morning. Crude futures are waffling around breakeven this morning and are exchanging hands at $67.59 right now. Interest rates are once again moving a little higher this morning with the 2-year currently quoted at 4.84% while the 10-yr is trading with a yield of 4.83% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking lower. The Dow futures are currently off by 40 points, the S&Ps are down 4.70, and the NASDAQ is sporting a decline of about 5 points.

Stocks �In Play� This Morning

Apple Computer (AAPL) � Estimates raised at UBS
Procter & Gamble (PG) � Upgraded at Sun Trust
Pepsico (PEP) � Downgraded at Bernstein
Anheuser Busch (BUD) � Downgraded at Bernstein
Coca Cola Ent (CCE) � Downgraded at Bernstein
Total SA (TOT) � Downgraded at Merrill
Black & Decker (BDK) � Mentioned positively in Barron�s
Goldman Sachs (GS) � Estimates increased at Wachovia, also LEH
Bear Stearns (BSC) � Estimated reduced at Wachovia, also MS
Palm (PALM) � Lowers guidance, Downgraded at RBC, ThinkEquity
Southern Copper (PCU) � Added to Focus List at Bear Stearns
Express Scripts (ESRX) � Mentioned positively at Cowen
Martek Biosciences (MATK) � Downgraded at Citigroup
Honda Motor (HMC) � Downgraded at HSBC
Circuit City (CC) � Mentioned cautiously at BofA, also BBY
Nucor (NUE) � Mentioned positively at UBS

Long positions in stocks mentioned: NEM, BUD, MER, ESRX

** 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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