David Moenning�s Daily State of the Markets: 01/04

Will the Cavalry Ride?

Good morning. Stocks began the New Year in style yesterday � well, in the morning anyway. Within the first hour of trading, stocks enjoyed triple-digit gains and the DJIA was once again sitting at a fresh new all-time high. The advance was prompted by falling oil prices, ongoing M&A activity, and the U.S. playing a bit of catch up to the global markets.

But, after the release of the minutes from the latest Fed meeting, it got messy in a hurry. Stocks plunged almost immediately following the details of the meeting and before you could remember the spelling of Goldilocks, the big gains turned into a fairly stiff decline.

Everybody knows that the economy is slowing at the present time. But, everybody assumes that the economy�s landing will be a soft one � I.E. the slowdown will be just that and that a recession will be avoided. In addition, everybody assumes that the Calvary (the Fed, in this case) stands ready to ride should the slowdown become too pronounced. However, yesterday, both of these assumptions were called into question and traders voted with their feet.

While some of the economic reports have been coming in a bit weaker than expected lately, the Fed minutes showed the FOMC�s biggest concern to be that �the risk that inflation would fail to moderate as desired.� This perceived stubbornness with regard to inflation combined with yesterday�s plunge in metals, which was tied to growth concerns, caused investors to rethink the idea that the Fed would come to the rescue.

Although yesterday�s big mid-day giveback on strong volume clearly represented a chink in the bulls� armor and may be a sign of more sloppiness to come, there wasn�t enough negativity to produce what the techies call a �key reversal day.� So, with the market overdue for a pullback, caution may be the better part of valor for the time being.

Turning to this morning, we don�t have any major economic data before the bell. However, we will get reports on Pending Home Sales, Factory Orders and the ISM Non-Manufacturing Index at 10:00 am.

Running through the rest of the pre-game indicators, with the exception of Japan, which played a little catch up after being closed for the holidays, the overseas markets are all moderately lower this morning. Gold futures are off a bit this morning with the last trade down $0.40 to $629.40. In the oil pit, crude futures are continuing to move lower this morning. The latest quote shows the February futures contract down $0.48 to $57.84. Interest rates are little changed this morning with the 10-year currently trading with a yield of 4.66%. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower. The Dow futures are currently off by 27 points; the S&Ps are about 4 points below breakeven, and the NASDAQ looks to be about 3 points under fair value at the moment.


Stocks �In Play� This Morning:

Kraft (KFT) � Downgraded at BofA
Sovereign Bancorp (SOV) � Downgraded at Bear Stearns
Amgen (AMGN) � Upgraded at Bear Stearns
Wachovia Corp (WB) � Upgraded at Credit Suisse
National City (NCC) � Downgraded at Credit Suisse
Pepsico (PEP) � Added to Focus List at JP Morgan
Komag (KOMG) � Downgraded at Merrill
Health Net (HNT) � Upgraded at Merrill
Duke Energy (DUK) � Downgraded at Merrill
Imclone (IMCL) � Upgraded at Merrill
Jabil Circuit (JBL) � Downgraded at Morgan Stanley
Genzyme (GENZ) � Upgraded at RW Baird
Hilton Hotels (HLT) � Downgraded at Thomas Weisel
Starwood Hotels (HOT) � Downgraded at Thomas Weisel
Marriott Intl (MAR) � Downgraded at Thomas Weisel
Weatherford Intl (WFT) � Downgraded at Wachovia
BJ Services (BJS) � Downgraded at Wachovia
Ensco Intl (ESV) � Downgraded at Wachovia
Con-Way (CNW) � Upgraded at Wachovia
Arkansas Best (ABFS) � Upgraded at Wachovia
Heartland Express (HTLD) � Upgraded at Wachovia
Zimmer Holdings (ZMH) � Upgraded at Wachovia
Check Point Software (CHKP) � Named Top Pick for 2007 at UBS

Long positions in stocks mentioned: BSC, MS, MER

** 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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