David Moenning's Daily State of the Markets: 4/16

Is It Official?

Here’s a link to listen to an Audio Version of the report:
http://PlayAudioMessage.com/play.asp?m=497524&f=EMGMZA&ps=13&c=FFFFFF&pm=2&h=25�

There is an old saw that says the best time to invest in the stock market is when the U.S. Government announces that the economy is in recession. The thinking here is that since the government doesn't exactly move swiftly, by the time they announce a recession, we’ve probably already seen the worst. So, given that Lehman Brothers (LEH) stated publicly yesterday that the worst is now over in the credit crisis and that Goldman Sachs (GS) made a similar proclamation last week, should we apply the same type of thinking? Or, since these two firms reside in the anything-butslow moving world of trading, should we perhaps take the contrarian view and go the other way with these announcements?

A cynic might argue that the market's recent move up to the top of the trading range was based on the idea that we have seen the worst. But since the bulls were unable to gather the support needed to break out of the range, it would appear that stocks have since retreated on fears that the "all clear" assumption might have been a bit premature.

Despite a rather worrisome report on the inflation front and another surge in oil prices yesterday, stocks were able to brush aside these pesky issues and finished in the green. Never mind that oil surged to another new record high of $113.79. Forget about the fact that foreclosures in the U.S. surged 57% and that bank repossessions more than doubled in March from year-ago levels. And I guess the markets decided to just ignore the comment from Citigroup (C) which said that the auction-rate securities market, which imploded in February, will "cease to exist."

No, investors seem to be focus yesterday on the idea that the worst is behind us. It also didn’t hurt that the Empire State Manufacturing Survey rebounded 22.9 points in April, indicating some stabilization in New York State business conditions. It was the second largest jump on record and actually exceeded expectations for a slight improvement to a reading of -16.8. And while it may be a bit of stretch, perhaps we should take this report and assume the worst is over in the economy.

So, with another big batch of economic data still to come this week and stocks having moved down to the middle of the trading range, traders decided to look on the bright side yesterday and assume that the worst in indeed behind us. Yes, the volume was light and the buying interest was anything but robust. But, with all the bad news out there these days, the bulls argue that yesterday’s action is a harbinger of good things to come. But given that there are two sides to this argument right now, we will have to wait and see.

Turning to this morning, traders appeared to like the earnings report from Intel (INTC). After the close yesterday, the chipmaker reported an in-line quarter but then had good things to say about the future, which, of course, is a good thing right now.

On the economic front, we've got some more inflation data to review. The government reported that the CPI in March increased by +0.3%, which was in line with the expectations for an increase of +0.3%. And then when you strip out food and energy – because, after all, nobody uses those things anyway�- the Core rate came in with an increase of +0.2%, which again was in line with expectations. On a year-over-year basis, the CPI advanced 4.0%, which was dead on with the estimates, while the Core advanced by 2.4%.

In addition, we got another punk report on the state of the housing market, where it is very hard to argue that the worst is behind us. Housing Starts were down -11.9% and Permits fell -5.8%.

Running through the rest of the pre-game indicators; the foreign markets are mostly higher on the Intel report. Crude futures are moving up again with the latest quote showing oil higher by $0.24 to $114.03. Interest rates are moving up with the 10-yr trading at a yield of 3.61% so far. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to solid move up. The Dow futures are currently ahead by about 70 points; the S&P’s are up about 8 points, while the NASDAQ looks to be about 20 points above fair value at the moment.

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:
Intel (Nasdaq: INTC) – Reported $0.25 vs. $0.25
Washington Mutual (NYSE: WM) – Reported (1.40). vs. ($1.40)

Today’s Earnings Before the Bell:
JP Morgan (NYSE: JPM) – Reported $0.68 vs. $0.71
Coca Cola (NYSE: KO) – Reported $0.67 vs. $0.63
Wells Fargo (NYSE: WFC) – Reported $0.60 vs. $0.57

News, Upgrades/Downgrades/Brokerage Research:
ITT Corp (NYSE: ITT) – Downgraded at Credit Suisse
Monsanto (NYSE: MON) – Estimates increased at Goldman Sachs
DuPont (NYSE: DD) – Estimates increased at Goldman Sachs
Intel (Nasdaq: INTC) – Target increased at Goldman Sachs
Elan Corp (NYSE: ELN) – Upgraded at Goldman Sachs
Macy’s (NYSE: M) – Downgraded at JP Morgan
Altria (NYSE: MO) – Downgraded at JP Morgan
State Street (NYSE: STT) – Downgraded at Merrill Lynch
LSI Corp (NYSE: LSI) – Downgraded at Merrill Lynch
Health Net (NYSE: HNT) – Estimates reduced at Morgan Stanley
UnitedHealth (NYSE: UNH) – Estimates reduced at Morgan Stanley
SLM Corp (NYSE: SLM) – Downgraded at Morgan Stanley

Mr. Moenning holds Long positions in stocks mentioned: KO

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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