David Moenning's Daily State of the Markets: 12/21

A New Problem To Ponder

Here's a link to listen to an Audio Version of the report:

In all fairness, the bulls have to be given some credit for trying lately. Although our heroes in horns have been attempting to put a smiley face on the end of the year and keep the S&P out of the red, unfortunately, new problems keep cropping up to keep things a little on the sloppy side.

This is the time of year when portfolio managers traditionally tend to do a little window dressing. The idea is to do some extra buying so as to put a nice little bow on your favorites for the end of year valuations. And although the practice is blatantly illegal, it seems to happen every year about this time.

However, this year, the game is not going exactly according to plan as we seem to encounter new credit difficulties on a daily basis. For example, while it appears that investors are finally beginning to get a handle on the extent of the subprime problems and the corresponding writedowns, yesterday, a new issue leapt to the forefront.

The big banks, mortgage companies, and brokerage firms have hedged a certain amount of their portfolios with bond insurance. The idea is that if the bond issuers go under, then the insurance companies will make the interest payments. However, the latest concern is that if the insurers such as MBIA (MBI) and AMBAC (ABK) go down, then, in short, there is going to be additional writeoffs ahead. This, of course, causes uncertainty, which, in turn, makes it more difficult for the bulls to do their year-end handiwork.

But with a quadruple witch expiration event getting underway, a surprisingly strong earnings report from Oracle (ORCL), and word from up north that Santa is loading up his sleigh, the bulls somehow managed to dress up the windows a bit yesterday as the major indices finished with modestly green screens.

Turning to this morning, a better-than expected earnings report from Research In Motion (RIMM) has put a spring in the bulls' step this morning. The news that the Blackberry maker outperformed on the top and the bottom lines of the financial statement, and then also managed to raise guidance for the quarter was cause for celebration in all things tech overnight.

We've also got some more economic data to review in the form of the November Personal Income and Spending report. We've just learned that Personal Incomes in November rose by +0.4%, which was below the consensus for an increase of +0.5%. On the other side of the equation, spending increased by +1.1%, which was much better than the consensus expectations for +0.6%. Turning to the inflation component of the report, the PCE Deflator was a smidge hotter than expected and the PCE Core came in right on target. However, on a year-over-year basis, the PCE Core, which is one of the Fed's favorite measures now sits at +2.2%, which is a couple of tenths above the stated comfort zone.

Running through the rest of the pre-game indicators; the overseas markets are higher across the board this morning. Crude futures are off a bit with the latest quote showing the January contract lower by $0.20 to $90.86. Interest rates are higher so far with the 10-yr trading at a yield of 4.08% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a stronger open. The Dow futures are currently ahead by about 105 points; the S&Ps are up by about 15 points, while the NASDAQ looks to be about 25 points ahead fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Computer Sciences Corp (CSC) – Reported $0.80 vs. $0.71
Micron Technology (MU) – Reported ($0.34) vs. ($0.19)
Research In Motion (RIMM) – Reported $0.65 vs. $0.62

Today's Earnings Before the Bell:

Circuit City – Reported ($0.64) vs. ($0.31)
Walgreen (WAG) – Reported $0.46 vs. $0.44

News, Upgrades/Downgrades/Brokerage Research:

Crown Castle Intl (CCI) – Target increased at Bear Stearns
SBA Comm (SBAC) – Target reduced at Bear Stearns
Micron Technology (MU) – Estimates reduced at Bear Stearns
AMBAC Financial Group (ABK) – Target reduced at Goldman
MBIA Inc (MBI) – Target reduced at Goldman
Sotheby’s (BID) – Estimate increased at JMP Securities
Schering Plough (SGP) – Upgraded at Lehman
Companhia Vale do Rio Doce (RIO) – Downgraded at Morgan Stanley
IMS Health (RX) – Upgraded at RW Baird
Rite Aid (RAD) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: None

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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