David Moenning's Daily State of the Markets: 9/10

T-Minus 15 Days

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

In an attempt to lighten the mood just a little, let me begin today’s missive with a tongue-in-cheek observation and perhaps some good news. After consulting my trusty $8 solar powered calculator, I have discerned that the current crisis will end in precisely 15 trading days. You see, at the current pace, in which the market loses 600 points or so a day, the DJIA will be at $0 in just three weeks!

But seriously folks, I’m sure you are all well aware of the fact that the stock market is now experiencing an all-out crash. Since the beginning of October, the S&P 500 has plummeted -21.88% and is now down -38% for the year. It is also worth noting that yesterday’s plunge of 679 points marked the sixth day in a row that the Dow has dropped by 1% or more. And to put this in perspective, I’m told that this hasn’t happened since 1897.

One of the biggest problems right now is that the market isn’t tanking on any specific event or bad news that hits the wires. Sure, there are grave concerns about the state of the consumer. And yes, there were worries yesterday about the $400 billion in Lehman debt that is currently being protected. And it is true that the GM (GM) news was disappointing yesterday afternoon. But in reality, the market is falling right now because of its own weight and traders appear to be responding with the cries of “get me out, now!”

But in looking for a scapegoat on which to blame yesterday’s bloodbath, one need look no further than the SEC. Mr. Cox who, in his infinite wisdom decided it was okay to let the hedge funds start shorting financials, oops, I mean the list of 800+ stocks remotely related to lending money, again. In all honesty, I was never in favor of the short-ban. But why, oh why would you let the ban on shorting stocks expire in the middle of the worst panic in 20 years?

Another factor at work right now is the trouble in the hedge fund community. With countless hedge funds staring at liquidation at the end of their fiscal year if things don’t pick up – and in a BIG hurry – it is little wonder that these fast money traders returned to the one game that has actually been working for them: shorting the financials. Remember, contrary to popular belief, hedge funds aren’t making money in this environment either as there is simply no place to hide on the long side.

But, if you can take your eyes off the horror in the stock market for a moment, there was actually some good news to be seen in the credit markets yesterday. First, according to Reuters, yields on the highest rated commercial paper dropped by 115 basis points yesterday to 2.35%. And then the state of California said yesterday that liquidity is improving as evidenced by Massachusetts’s sale of $750 Million in short-term notes. However, it will be very important to watch how IBM’s $4 Billion debt issuance will be received as this will indicate how high-end borrowers are being impacted.

Turning to this morning, as you’d expect, the global panic continues unabated with a plunge of nearly -10% in Japan and roughly -7% or more on the rest of the major foreign markets. There is some economic news this morning, but frankly, I don’t think anyone is going to be terribly interested in the fact that the Trade Deficit narrowed by a few billion last month.

Running through the rest of the pre-game indicators, as we mentioned there is a sea of red ink in the overseas markets. Crude futures are down again on global growth concerns with the latest quote showing oil trading down $3.74 to $82.85. Interest rates are up on the longer maturities with the yield on the 10-yr currently trading at 3.85% while the yield on the 3-month T-Bill continues to reflect a flight to safety and is now at 0.406%. And finally, with about 60 minutes before the bell, the futures in the U.S. are pointing down once again. The Dow futures are currently off by about 200 points; the S&P’s are down by about 26 points, while the NASDAQ looks to be about 27 points below fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

General Electric (NYSE: GE) – Reported $0.45 vs. $0.45
Host Hotels (NYSE: HST) – Reported $0.31 vs. $0.28

News, Upgrades/Downgrades/Brokerage Research:

Macy’s (NYSE: M) – Reduces 2008 guidance to $1.30 - $1.50 from $1.70 - $1.85
Dish Network (Nasdaq: DISH) – Upgraded at Bernstein
Abercrombie & Fitch (NYSE: ANF) – Upgraded at Citi
Aeropostale (NYSE: ARO) – Upgraded at Citi
Columbia Sportswear (Nasdaq: COLM) – Target reduced at Citi
Conagra (NYSE: CAG) – Removed from Top Picks Live list at Citi
General Mills (NYSE: GIS) – Removed from Top Picks Live list at Citi
Heinz (NYSE: HNZ) – Downgraded at Deutsche Bank
MasterCard (NYSE: MA) – Downgraded at Deutsche Bank
Align Technology (Nasdaq: ALGN) – Downgraded at Deutsche Bank
Humana (NYSE: HUM) – Mentioned positively at Goldman
Cigna (NYSE: CI) – Mentioned positively at Goldman
Duke Energy (NYSE: DUK) – Upgraded at Goldman
Principal Financial Group (NYSE: PFG) – Upgraded at Morgan Stanley
Google (Nasdaq: GOOG) – Target reduced at RBC Capital
AGCO (NYSE: AG) – Target reduced at UBS
Brinker Intl (NYSE: EAT) – Target reduced at UBS
Boeing (NYSE: BA) – Target reduced at UBS
Public Storage (NYSE: PSA) – Upgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: 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.

You May Also Be Interested In

• SpaceX sets IPO price at $135 ahead of roadshow in break with Wall Street norms
• Deutsche Bank Upgrades First Quantum Minerals (FM:CN) (FQVLF) to Buy
• Morgan Stanley turns more positive on cyclicals as earnings momentum broadens