David Moenning's Daily State of the Markets: 10/23

Is Oil Being Overlooked?

Good morning and welcome back. Friday�s session saw the bulls once again overcome some negative news and finish on a positive note. Despite a disappointing report from Caterpillar (CAT), which wound up dropping $10.02 or -14.5% on the day, the bulls simply refused to yield.

The report from CAT knocked about 50 points off the DJIA, but after an early slump, the major indices managed to recover in style. And while analysts and the media seem to be focusing their attention on earnings and the probability of a soft landing for the economy, the ongoing slide in the oil pits might be getting overlooked.

Friday�s market was a perfect example. While everyone was busy lauding Apple (AAPL) and Google (GOOG) for saving the day, the fact that oil fell $1.68 to $56.82 barely got mentioned. In fact, crude oil is now at its lowest level since June 2005, and from where we sit, this is a very significant development.

Lest we forget, up until just recently, this market was fixated on all things economic and what the Fed was going to do next. But almost lost in all of the new-high hoopla is the fact that oil prices have fallen from $78 to $57 since mid-July. Crude was down once again on the week, which marks the third consecutive weekly decline and the seventh drop in the last eight weeks.

We should remember that lower oil likely means a reduction in inflation expectations, which, in turn, ought to keep the Fed off the hiking trail and interest rates down. Lower rates and lower gasoline also makes for a happier consumer, which at this time of year, bodes well for the all-important holiday shopping season. And, in short, a good shopping season is good for the economy � which, in turn, is good for earnings and so on and so on.

It is also worthy of note that the chart of the S&P 500 appears to display an inverse pattern to the price of oil. So while we will get nothing short of a flood of earnings reports in the next couple of weeks, it will probably pay to keep an eye on the oil pits.

Turning to this morning, there is no economic news scheduled for today, and in fact it�s a pretty light week on the news front.

Tuesday: Richmond Fed Index

Wednesday: Existing Home Sales

Thursday: Durable Goods, New Homes Sales

Friday: 3rd Quarter GDP (Advance report), UofM Consumer Sentiment


Running through the pre-game indicators, with the exception of Japan, which moved up nicely overnight, the major overseas markets are fractionally lower this morning. Gold futures are down and are quoted at $589.90 right now. Crude oil futures for December are down -$0.78 to $58.55 at the moment. Interest rates are little changed this morning with the 2-year currently quoted at 4.92% while the 10-yr is trading with a yield of 4.82% right now. And finally, with an hour before the bell, stock futures in the U.S. are mixed. The Dow futures are currently ahead by 5, the S&Ps are down a fraction, and the NASDAQ is sitting at unchanged at the moment.

Stocks �In Play� This Morning:

Halliburton (HAL) � Reported $0.58 vs. $0.54
AT&T (T) � Reported $0.63 vs. $0.58
Oracle (ORCL) � Mentioned positively in Barron�s
Newmont Mining (NEM) � Mentioned positively in Barron�s
Nokia (NOK) � Mentioned positively in Barron�s
Agilent Technologies (A) � Mentioned positively in Barron�s
Pacific Sunwear (PSUN) � Upgraded at BofA
Comcast (CMCSA) � Price target increased at Bear Stearns
Best Buy (BBY) � Downgraded at Bernstein
Schering Plough (SGP) � Downgraded at Deutsche Bank
Dow Jones (DJ) � Upgraded at Deutsche Bank
E-Trade (ET) � Upgraded at Goldman Sachs
Intuit (INTU) � Downgraded at Merrill Lynch
Paychex (PAYX) � Upgraded at UBS
Citrix Systems (CTXS) � Upgraded at BMO Capital
Schlumberger (SLB) � Upgraded at Raymond James

Long positions in stocks mentioned: ORCL, ET, MER, INTU, T

** 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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