David Moenning�s Daily State of the Markets 08/15

What's It Gonna Take?

Good morning. Stocks rallied from the outset yesterday on news of a cease-fire between Israel and Hezbollah and on word that BP will be able to move more crude out of Prudhoe Bay than was originally projected. Both stories pressured crude lower and traders celebrated the encouraging news. The Dow stepped lively from the opening bell and by mid-morning, the blue chips were sitting with a triple-digit gain.

But unfortunately, the bulls efforts seemed to lack conviction in front of the big PPI and CPI numbers and stocks began to sag once oil started to recover some of its losses. There was also a good bit of uneasiness among traders about whether the cease-fire would actually hold. This uneasiness led to some selling and by the end of the day, the big gains were gone and market watchers were left wondering what it would take to get the market out of the funk that has been prevalent since early May.

The calendar probably played a role in the disappointing action as well. With vacation season in full swing, volume was anything but impressive on the move higher. And when everything was said and done, the session left the bulls wanting.

While the cease-fire may have taken some of the risk premium out of oil, in the bigger picture, this market continues to be focused primarily on the economy, inflation, and whether or not the Fed will need to don their hiking boots again. And in light of the fact that the Fed has made it crystal clear that its next move will depend on the data, you can�t really blame traders for lacking conviction in front of the big inflation numbers scheduled for today and tomorrow.

Turning to this morning, it�s all about inflation, what little there seems to be, that is. The July PPI came in with an increase of just +0.1%, which was well below the expectations for a rise of +0.4%. Then the Core Rate actually FELL by -0.3% when expectations were for an increase of +0.2%. On a year-over-year basis, the Core Rate fell to a gain of just +1.3%, which is well within the Fed�s comfort zone.

The other economic news that hit the wires this morning also showed weakness. The August Empire Manufacturing Index was reported at 10.3 versus a consensus estimate of 15 and a prior reading of 15.6.

Stocks are screaming higher in response to the news as the data argues that the Fed did the right thing by pausing and may be able to stay off the hiking trail for a while.

Running through the pre-game indicators, the overseas markets are mixed with Asian markets in decline while European bourses are seeing fractional gains after the PPI numbers. Gold futures are moving a bit lower this morning and are currently exchanging hands at $634.00. Crude futures are trading lower at the moment and are off by $0.20 to $73.33 so far. Interest rates are lower this morning following the economic data with the 2-year currently quoted at 4.96% while the 10-yr is trading with a yield of 4.95% right now. And finally, with about an hour before the bell, stock futures in the U.S. are moving higher. The Dow futures are currently ahead by 72, the S&Ps are up 9, and the NASDAQ is also sporting a nice increase of more than 19 points at the moment.

Stocks �In Play� This Morning:

Motorola (MOT) � Mentioned cautiously in WSJ
BP PLC (BP) � Considering alternative pipeline use from Prudhoe Bay
Home Depot (HD) � Reported $0.93 vs. $0.92, Provides cautious guidance
Staples (SPLS) � Reported $0.22 vs. $0.22
Wal-Mart (WMT) � Reported $0.72 vs. $0.72
Dicks Sporting Goods (DKS) � Reported $0.47 vs. $0.44
AMR Corp (AMR) � Upgraded at Citigroup
Southwest Airlines (LUV) � Upgraded at Citigroup
Redback Networks (RBAK) � Upgraded at RBC Capital
Kraft (KFT) � Downgraded at UBS
UnumProvident (UNM) � Upgraded at BofA
Cephalon (CEPH) � Downgraded at Bernstein
Progress Energy (PGN) � Upgraded at Citigroup
Inco (N) � Downgraded at Friedman Billings Ramsey
WCI Communities (WCI) � Upgraded at JMP Securities
Verizon (VZ) � Downgraded at Rochdale
Express Scripts (ESRX) � UBS raises target, also CMX, MHS

Long positions in stocks mentioned: ESRX, CMX, MHS

** 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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