David Moenning's Daily State of the Markets: 10/29

Mr. Softee is Back

After being the poster child for technology during the early 1990’s, it has become common to think of Microsoft (Nasdaq: MSFT) as a mature company that can no longer be counted on for growth. However, Friday’s earnings report may cause some to rethink this assumption as the company commonly referred to as Mr. Softee blew away estimates and single-handedly drove the NASDAQ higher by almost 2%.

In the old days, a strong report from Microsoft would have easily driven the entire market higher. And while the software giant’s numbers were quite impressive, it was actually results from the country’s biggest mortgage lender, Countrywide Financial (NYSE: CFC) that helped the bulls return to form on Friday.

Although the results for Countrywide were actually lower than expected, the comments regarding the future were surprisingly upbeat. Countrywide said that it had enough liquidity to handle everything through 2008 and expected to return to profitability in short order. And just like that, suddenly there was hope that we may have finally seen the worst of the subprime problems.

So, despite oil another pop higher in oil – the December futures closed up $1.34 to $91.80 – the upbeat earnings reports appeared to help traders to experience a change of heart with regard to the outlook for the market on Friday. And by the time the closing bell rang, the bulls were singing a happy tune with yet another triple-digit gain capping off a nice week.

Looking ahead to this week, although the earnings parade will continue to roll as another 95 companies in the S&P 500 report earnings, the big issue of the week is the Halloween Fed meeting. Most analysts don’t expect the event to be too scary and look to Mr. Bernanke and company to announce a rate cut on Wednesday in response to the weak housing data we’ve seen lately. And while there is a good deal of discussion going on with regard to the size of the rate cut, the consensus expectation is for a 0.25% reduction in the Fed Funds and Discount Rate.

Turning to this morning, we don’t have any economic data today, but a storm blowing through Mexico is keeping oil in the spotlight. Mexican officials report that nearly 20% of the country’s production is currently shut down and it looks like the race to $100 crude is officially on. And as a reminder, the inflation-adjusted record for crude is somewhere in the vicinity of $110, so we’re betting that if oil keeps climbing, the bulls might have a new problem on their hands.

Running through the rest of the pre-game indicators; the overseas markets are higher across the board this morning. Crude futures are heading higher yet again today and the latest quote shows the December contract up $0.99 to $92.85. Interest rates are moving a bit higher this morning with the 10-yr trading at a yield of 4.41% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open higher. The Dow futures are currently ahead by about 40 points; the S&Ps are up by about 5 points, while the NASDAQ looks to be about 11 points ahead of fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Humana (NYSE: HUM) – Reported $1.53 vs. $1.48
Kellogg (NYSE: K) – Reported $0.76 vs. $0.73
CAN Financial (NYSE: CNA) – Reported $0.78 vs. $0.68
Simon Property Group (NYSE: SPG) – Reported $1.46 vs. $1.42
Verizon (NYSE: VZ) – Reported $0.63 vs. $0.62

News, Upgrades/Downgrades/Brokerage Research:

Potash (NYSE: POT) – Upgraded at BofA
Nvidia (Nasdaq: NVDA) – Target increased at Bear Stearns, Downgraded at Lehman
Developers Diversified Realty (NYSE: DDR) – Downgraded at Deutsche Bank
Baker Hughes (NYSE: BHI) – Downgraded at Friedman Billings
MEMC Electronic Materials (NYSE: WFR) – Upgraded at Friedman Billings
CVS Caremark (NYSE: CVS) – Target increased at Goldman Sachs
Heartland Express (HTLD) – Estimates & Target reduced at Goldman
Dell (Nasdaq: DELL) – Added to Conviction Buy list at Goldman
Hewlett Packard (NYSE: HPQ) – Removed from Conviction Buy list at Goldman
Coca Cola Femsa (NYSE: KOF) – Upgraded at Merrill Lynch
Aetna (NYSE: AET) – Downgraded at Merrill Lynch
Monsanto (NYSE: MON) – Target increased at Morgan Stanley
Western Refining (NYSE: WNR) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: MER, POT, BHI, MON

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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