David Moenning's Daily State of the Markets: 09/26

Ignoring the Negative

In this business, it is important to give credit where credit is due. So, despite the fact that there were a host of concerns yesterday that would have sent stocks spiraling down a month ago, you’ve got to give the bulls some credit for simply ignoring anything and everything that could be considered a negative. And in short, what could have easily wound up being an ugly session turned out fairly nicely for the bullishly inclined.

One didn’t have to look very far to find potentially negative catalysts yesterday. The day got started off on the wrong foot as both Target (NYSE: TGT) and Lowe’s (NYSE: LOW) warned of lower earnings expectations for the quarter. Next, the Conference Board reported that Consumer Confidence fell 5.8 points in September to its lowest reading in almost two years.

Then the bad news on the housing market started pouring in again. Although the report on Existing Home Sales actually came in a bit better than expected, the fact that home sales declined for the sixth consecutive month and were down 12.8% from year-ago levels wasn’t lost on observers. And separately, according the S&P/Case-Shiller, the price of homes continued to fall nationwide in July as prices dropped 4.5% over the past year, which was the most since 1991. Next, Lennar (LEN) posted its worst quarterly loss in the company’s history. And finally, UBS initiated coverage on the homebuilders with a “pessimistic outlook.” UBS said that the housing market isn’t likely to bottom out until sometime in 2009.

However, there was some good news to report yesterday as the Richmond Fed showed that manufacturing in the central Atlantic region actually increased in September. The Manufacturing Activity Index gained 7 points to a reading of +14, which was the best level since April 2006. But unfortunately, the service sector, which has been the lifeblood of the economy, dropped back a bit to its lowest level in two years.

But through it all, stocks refused to yield. Strength in technology and a minor late-day buying spree lifted the Dow into positive territory. So, again, you’ve got to give the bulls some credit here as the battle cry continues to be: “Don’t fight the Fed.”

Turning to this morning, stocks are getting a boost in the early going from the tentative agreement between General Motors and United Auto Workers Union. Traders are also encouraged by the fact that no one showed up to an auction in the UK for distressed borrowers. This suggests that we may have seen the worst of the credit crunch.

We’ve also got some economic data to sift through in the form of the report on August Durable Goods sales. The Government reported that the sale of Durable Goods in August fell by -4.9%, which was below the consensus estimate for a drop of -3.5%. And when you strip out transportation, the number came in on the light side as well, at -1.8% versus -0.8%.

Running through the rest of the pre-game indicators, the overseas markets are higher this morning Crude futures are up $0.55 so far with the latest quote at $80.08. Interest rates are a bit higher this morning with the 10-yr is trading at a yield of 4.63% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open to the upside. The Dow futures are currently ahead by about 60 points; the S&Ps are up by about 6 points, and the NASDAQ looks to be about 10 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Thermo Fisher Scientific (NYSE: TMO) – BofA initiates coverage with a Buy rating
CNOOC LTD (NYSE: CEO) – Downgraded at Bear Stearns
Research In Motion (Nasdaq: RIMM) – Citi initiates coverage with Buy, Target increased at Lehman
CIT Group (NYSE: CIT) – Upgraded at Credit Suisse
Verisign (Nasdaq: VRSN) – Downgraded at Credit Suisse
Sprint Nextel (NYSE: S) – Downgraded at Goldman Sachs
Statoil (NYSE: STO) – Downgraded at JP Morgan
CVS Caremark (NYSE: CVS) – Upgraded at JP Morgan
Office Depot (NYSE: ODP) – Upgraded at JP Morgan
Walgreen (NYSE: WAG) – Downgraded at JP Morgan
Staples (Nasdaq: SPLS) – Downgraded at JP Morgan
Moody’s (NYSE: MCO) – Estimates reduced at Morgan Stanley
Under Armour (NYSE: UA) – Downgraded at UBS
American Eagle Outfitters (NYSE: AEO) – Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: MER, TGT, TAP

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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