David Moenning's Daily State of the Markets: 09/12

Hedge Fund Follies

Good morning. While the major indices finished little-changed yesterday, it did not mean that there was little happening. Let�s see, oil prices fell for the sixth straight day, gold and precious metals plunged, and we got lots more Fed chatter to sift through. But at the end of the day, it was the rotation game played amongst the hedge fund community (something we like to call �hedge fund follies�) that was the real story.

The popular press will talk about the drop in oil prices (crude for October delivery finished at $66.25) being a catalyst for investors to begin moving into other sectors, such as technology. But in reality, it was the fast money rotating out of energy and metals and into tech, drugs, and retail.

There was also talk about the �risk premium� coming off of the metals due to Iran�s sudden willingness to talk. Gold responded by free-falling $20 to a close of $597.30, which was the lowest level since the end of June.

But, ask yourself the following questions: Are the values in technology really any more compelling now than they were two weeks ago? Did anything change fundamentally which would justify a mass movement to tech? Is Iran really going to suddenly change their mind and stop enriching uranium? And are terrorists going to decide to stop attacking the West? No, in all likelihood, this is simply a case of traders leaving one �trade� and trying another � all at the same time.

We also got to decipher some more comments from the Fed yesterday. This time it was St. Louis Fed President William Poole�s turn to spin some words for the markets to interpret. However, Mr. Poole limited his commentary to generalities and said that the upcoming data �could take the Fed in either direction.�

Unfortunately, all of this leaves us with more questions than answers right now. Is the selling in energy and the metals stocks going to continue? Will tech become �the trade� into the end of the year? Will oil prices continue to fall? Would the Fed really raise rates again this year? Stay tuned, because this is getting interesting.

Turning to this morning, an attack on the U.S. Embassy in Damascus by Islamic militants has put the concept of �risk premium� back on the table and we see that the metals are rebounding a bit in response.

On the economic front, the inflation numbers in the UK came in a bit hotter than expected and the trade deficit in the U.S. was also a little higher than the consensus. Also, be on the lookout for more Fed chatter today, as we will hear from San Francisco Fed President Janet Yellen again later today.

Running through the rest of the pre-game indicators, the overseas markets are mixed. Gold futures are moving up a bit and are currently higher by $3.70 to $601.30. Crude futures are fairly steady this morning and are exchanging hands just $0.31 lower at $65.30 right now. Interest rates are a little higher this morning with the 2-year currently quoted at 4.84% while the 10-yr is trading with a yield of 4.81% right now. And finally, with about an hour before the bell, stock futures in the U.S. are showing little change. The Dow futures are currently hovering a couple points above unchanged, the S&Ps are down by a fraction, and the NASDAQ is also sporting a fractional decline at the moment.

Stocks �In Play� This Morning:

Qualcomm (QCOM) � Added to Focus List at Cowen
Advanced Micro Devices (AMD) � Upgraded at Lehman
Texas Instruments (TXN) � Tightens guidance to middle of range
Applied Materials (AMAT) � Upgraded at Credit Suisse
Valero (VLO) � Downgraded at Lehman. Also TSO, SUN, FTO
Lone Star Tech (LSS) � Upgraded at Bear Stearns
Boeing (BA) � BofA restates Buy rating
ABN Amro (ABN) � Upgraded at JP Morgan
Steris (STE) � Upgraded at Keybanc
Genentech (DNA) � Upgraded at RW Baird
Best Buy (BBY) � Reports $0.47 vs. $0.44
Teradyne (TER) � Estimates reduced at Merriman
Goldman Sachs (GS) � Reports $3.45 vs. $2.98
Google (GOOG) � One of top picks fore remainder of 06 at Needham
Freescale Semi (FSL) � Upgraded at AmTech
Research in Motion (RIMM) � Price target increased at AmTech

Long positions in stocks mentioned: AMAT, SUN

** 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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