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

Balancing Act

Good morning. San Francisco Fed President Janet Yellen said it best yesterday by describing the Fed�s policy making efforts these days as a �balancing act.� Whenever the Fed finds itself up on the high wire, everybody understands that one false move could be a problem. For example, if the economy moderates too quickly or the housing slump accelerates, then the Fed may need to get the safety net positioned in a big hurry. Yesterday, Ms. Yellen suggested that inflation expectations appear to be �well anchored� but sees a �noticeable slowdown� in the economy.

So, with the Fed focused on the risks to the economy, as long as inflation remains in check, then GDP can be expected to keep on truckin� and stock investors just may have their happy ending to 2006.

But for right now, the stock market is up there on the high wire, right behind Ms. Yellen and her colleagues. And while the bulls appear to be in total balance at the moment, those in the glass-is-half-empty camp are keeping a close eye on the Fed for any signs of a slip.

Why the big-picture review, you ask? Because, other than North Korea joining the nuclear club, there wasn�t all that much to discuss in relation to yesterday�s action. Part of the problem with the session was the fact that the bond market was closed in observance of Columbus Day and there were several holidays around the globe. So naturally, volume was on the light side and in short, stocks seemed to be tethered once again to the price of oil.

Crude rose sharply on the news out of North Korea but then backed off after the world�s major powers condemned the test and seemed united in the quest to find a diplomatic solution. Oil futures hit a high of $61.30 before finishing the day higher by just $0.20 at $59.96.

Although it was a positive that stock traders were able to shake off the news out of North Korea, with the earnings parade warming up in the staging area, even the staunchest bulls may have been a bit hesitant in front of the numbers.

Speaking of earnings, as usual, Alcoa and Genentech will kick off the parade of reports today after the close. And to review, the key to this earnings season will be the outlook going forward -- as investors try to gauge the impact of the current slowdown in the economy.

Turning to this morning, once again we don�t have any economic news to review before the bell, but we will get the report on Wholesale Inventories at 10:00 am. Looking at the markets, so far at least, things are fairly quiet and the open on Wall Street is shaping to be modestly positive.

Running through the pre-game indicators, overseas markets are a bit higher across the board as foreign markets recover from yesterday�s North Korea jitters. Gold futures are moving down about $5 this morning and are quoted at $577.70 right now. Crude oil futures are also moving a little lower so far and are currently off by $0.45 at $59.51. Interest rates are moving higher with the 2-year currently quoted at 4.78% while the 10-yr is trading with a yield of 4.73% right now. And finally, with an hour before the bell, stock futures in the U.S. are a trading slightly above fair value. The Dow futures are currently ahead by 7 points, the S&Ps are up 1, and the NASDAQ is sporting a gain of about 5 points at the moment.

Stocks �In Play� This Morning:

Swift Transportation (SWFT) � Increases Q3 Earnings guidance
Google (GOOG) � Confirms purchase of YouTube for $1.6Billion in stock
USG Corp (USG) � Mentioned positively in Barron�s regarding purchase by Berkshire Hathaway
Vodafone (VOD) � Mentioned positively in WSJ, Upgraded at Bernstein
Brinker Intl (EAT) � Downgraded at Bear Stearns
Pepsico (PEP) � Estimates increased at Bernstein
PNC Financial (PNC) � Upgraded at Citigroup
Intuit (INTU) � Downgraded at Citigroup
Symantec (SYMC) � Mentioned positively at Goldman Sachs
Anadarko Petroleum (APC) � Upgraded at Goldman Sachs, Also Devon Energy
Forest Labs (FRX) � Downgraded at HSBC
Toll Brothers (TOL) � Upgraded at JP Morgan, Also DR Horton, Standard Pacific
Knight Capital (NITE) � Estimates increased at Keefe, Bruyette & Woods
Chicago Mercantile Exchange (CME) � Downgraded at Raymond James
Starbucks (SBUX) � Downgraded at UBS

Long positions in stocks mentioned: EAT, INTU, SYMC, NITE, CME

** 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.

www.TopGunsTrading.com

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