David Moenning�s Daily State of the Markets: 10/21

The �R� Word Surfaces

In a classic case of schizophrenic behavior, it was the economic news that turned Wednesday�s romp into Thursday�s rout. For starters, the Conference Board�s report on the Index of Leading Economic Indicators was reported weaker than the expected. The impact from the hurricanes was blamed for the decline, but in reality, that wasn�t the problem. The real issue of the day was the reality that the LEI fell for the third consecutive month, which is a classic signal of economic contraction. And although most everyone who plays the economic data with any degree of sophistication knows that this contraction signal should be taken with a grain of salt, it still got people�s attention. Thus, the primary question of the day was: Is the �R� word back in play?

We also got the Philly Fed report yesterday, which at first glance, appeared to be encouraging. But the Prices component (e.g. inflation) of the Philly Fed report presented a serious problem. The Prices Paid index jumped 14.9 points, which on top of September�s leap higher of 26.8 points, brought the index to its highest reading since November 1980 and the biggest two-month increase since September 1973! And as if these numbers are enough to get your attention, the Prices Received index also rose to its highest reading in a year. This is an indication that companies have been successful in passing through higher costs to customers. (Can you say, inflation?) And finally, more managers expect this trend to continue than at any time since January 1989.

So with earnings guidance a question mark, a contraction signal for the economy, and the Fed appearing determined to just keep going, it is little wonder that the market rolled over yesterday.

Turning our attention to this morning, it looks like Google may help traders to return their focus to the positives to end the week. After the close yesterday, Google blew away estimates on sales figures that were double those seen last year and net profit that was a mind boggling seven times higher. The stock is currently trading up $45.76 for a gain of more than 15%.In addition, oil continues to trend lower this morning as it appears Wilma will not threaten the supply chain in the Gulf. After a drop of -$1.38 yesterday, crude is trading down another -$0.32 today to $59.70.

So with stocks looking to open higher, the question is if Google will be enough to take attention away from the bigger picture concerns.

Stocks "In Play" This Morning:
GOOG � Blew away estimates to upside
NEM � Goldman positive on Gold companies. Top picks are NEM and FCX
TM � Upgraded at Morgan Stanley
CAT � Reports earnings of $0.94 vs F.C. est of $1.06
XRX � Reports in-line

Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: none

To see David Moenning�s Trading Record, his (Strong Buy) List, or the rank for any Top Guns Stocks, visit: http://www.AnotherWinningTrade.com/SI

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