David Moenning's Daily State of the Markets:

A Chance of Showers

Good morning and a Happy Friday to all. Yesterday�s action clarified that the market�s focus right now continues to be on the forecast for the economy. And unfortunately, the forecast is currently calling for cloudy with a chance of showers.

Investors completely ignored lower oil prices and instead continued to dwell on the economic data and what the Fed is going to do next. Although the bond market is predicting very little chance of a rate hike at the September meeting, that hasn�t kept stock investors from playing the �what if� game.

Even the usually dovish Janet Yellen helped spur fears of the Fed overdoing it yesterday by stating that inflation remains "uncomfortably high." In her prepared remarks, the San Francisco Fed President went on to say that the inflation outlook is "highly uncertain." Yellen said an economic slowdown is underway, she noted there is "clear evidence" of cooling in the housing market, and suggested that the Fed must continue to monitor the extent of the slowdown. And while there was really nothing new in the speech, her relatively hawkish comments were enough to kill the dip buyers� spirit yesterday afternoon.

In short, stocks finished in the red for the second straight day on fears that the economy might land harder than expected. And while there are few signs of a hard landing right now, the continued softening of the housing market is enough to keep fear alive whenever stocks are overbought.

However, before we succumb completely to the doom and gloom, let�s remember that the bears were due to win a round in here somewhere. After watching stock prices march merrily higher since mid-July on less than impressive volume, a pullback was certainly to be expected. And now that our furry friends have succeeded in dampening the mood, it will be interesting to see if the bulls can regroup any time soon.

Turning to this morning, there is no economic data scheduled for release before the opening bell. And although the forecast hasn�t really changed since yesterday�s closing bell, the mood seems to be much improved this morning.

On the news front, The Bank of Japan followed the Bank of England�s lead overnight and left rates unchanged. Although, one Japanese Governor did say that he expects inflation to rise in the coming months. But for now, overseas investors seem to have embraced steady rates and lower oil prices as there are an awful lot of green screens in the foreign markets so far today.

Running through the pre-game indicators, the overseas markets are modestly higher across the board. Gold futures are continuing their pullback and are currently down another $5 to $619.80 this morning. Crude futures are steady this morning and are exchanging hands just $0.15 higher at $67.47 right now. Interest rates are a little lower this morning with the 2-year currently quoted at 4.80% while the 10-yr is trading with a yield of 4.78% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving a little higher. The Dow futures are currently about 25 points ahead of fair value, the S&Ps are up by 2.40, and the NASDAQ is sporting an advance of about 3 points.

Stocks �In Play� This Morning:
Apple Computer (AAPL) � Added to Buy List at Goldman Sachs
Ralcorp Holdings (RAH) � Upgraded at JP Morgan
General Mills (GIS) � Downgraded at JP Morgan
Micron Technology (MU) � Upgraded at Jefferies
Gilead Sciences (GILD) � Mentioned positively in Business Week
Burger King (BKC) � Mentioned positively in Business Week
Camden Property Trust (CPT) � Debt Rating raised at Fitch
Prudential (PRU) � Upgraded at Merrill Lynch, Also JP Morgan
JC Penney (JCP) � Downgraded at UBS
Schlumberger (SLB) � Upgraded at UBS
National Semiconductor (NSM) � Downgraded at JMP Securities
Wachovia (WB) � Downgraded at BofA
Choice Hotels (CHH) � Upgraded at CIBC
Borders Group (BGP) � Upgraded at Credit Suisse
Barnes & Noble (BKS) � Downgraded at Credit Suisse
Hewlett Packard (HPQ) � Removed from Buy List at Goldman Sachs
IBM (IBM) � Price target raised at Bear Stearns

Long positions in stocks mentioned: CPT, MER, JCP, SLB, IBM

** 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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