David Moenning’s Daily State of the Markets: 02/12

Talking Tough Or Just Talking?

Good Monday morning and welcome back to the game. Friday started out like any other day with the upside action returning immediately after a day of retreat. The way things have been going lately, the bulls probably thought that Thursday’s intraday drop of nearly 100 points represented the pullback that everyone had been looking for and thus, it was time to resume buying. An upgrade of GM and Ford got things started on the right foot and it felt like the race back to new high territory was on.

But with oil flirting with the $60 level and a couple of discouraging corporate reports hitting the wires, the enthusiasm waned as the morning progressed. And then right in the middle of the lunch break, things turned south in a big hurry.

It turns out that not one, but two Fed Governors were out talking tough on inflation and interest rates. To be sure, most analysts have brushed aside any thoughts of the Fed doing anything in either direction in the foreseeable future. But Friday’s tough talk brought back the fear that Bernanke’s gang might actually consider returning to the hiking trail.

Logic would seem to dictate that investors have no reason to fear the Fed. At this stage of the game, the Goldilocks scenario for the economy remains intact and as such, there has been no hint of inflation lately.

Therefore, we will have to assume that St. Louis Fed President William Poole and Dallas Fed President Richard Fisher’s comments amounted to nothing more than a gentle reminder that the Fed could still raise rates IF either the economy or inflation begins to heat up.

With a market that is – and I believe we may have mentioned this a time or two lately – a bit extended, the tough talk was all it took to put the bears into attack mode and force the bulls to stand aside for a while.

However, a certain contingent of dip-buyers must have considered the statements by Poole and Fisher to be old news as some buying in the last 30 minutes kept Friday’s damage to a modest level.

Looking at the week ahead, the question on everyone’s mind is whether or not the downside action seen at the end of the week will continue. Unlike last week, we’ve got a rather full calendar of economic data and it’s an options expiration week to boot - so it's a pretty safe bet that we'll see some volatility early in the week.

Turning to this morning, there is no economic data scheduled for release before the bell and the early trading activity isn’t giving us much in terms of the day’s direction.

Running through the pre-game indicators, with the exception of Japan, the major overseas markets are all lower. Gold is trading down -$2.70 to $669.40 right now. In the oil pits, crude futures are also lower this morning with the latest quote showing the March contract down $0.78 to $59.11. Interest rates are a little higher again this morning with the yield on the 10-year currently trading at 4.80%. And finally, with an hour before the bell, stock futures in the U.S. are looking to open perhaps a smidge higher. The Dow futures are currently ahead by about 10 points; the S&P’s are 1.50 points above board, while the NASDAQ looks to be about 3 points ahead of fair value at the moment.

Stocks “In Play” This Morning:

CIT Group (NYSE: CIP) – Mentioned positively in Barron’s
UnitedHealth Group (NYSE: UNH) – Mentioned positively in Barron’s
Affiliated Managers (NYSE: AMG) – Mentioned positively in Barron’s
St. Jude Medical (NYSE: STJ) – Upgraded at Bear Stearns
Boston Scientific (NYSE: BSX) – Downgraded at Bear Stearns
Southwest Airlines (NYSE: LUV) – Upgraded at Bear Stearns
Qwest (NYSE: Q) – Upgraded at CIBC
Disney (NYSE: DIS) – Upgraded at CIBC
Apple (Nasdaq: AAPL) – Upgraded at Citigroup
Ciena (Nasdaq: CIEN) – Upgraded at Credit Suisse
Penn National Gaming (Nasdaq: PENN) – Downgraded at Deutsche Bank
Express Scripts (Nasdaq: ESRX) – Upgraded at Jefferies
MasterCard (NYSE: MA) – Upgraded at Keefe, Bruyette
Adobe Systems (Nasdaq: ADBE) – Upgraded at Oppenheimer
Panera Bread (Nasdaq: PNRA) – Upgraded at Raymond James
Kraft (NYSE: KFT) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: BSC, GS, AYE, CCI, ITY, Q


Note: All earnings reports compared to Reuters consensus estimates


** 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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