David Moenning’s Daily State of the Markets: 2/19

Bad News Continues, But...

Here's a link to listen to an Audio Version of the report:

If Friday's market action showed us anything, it was that the dominant factor of trading on a daily basis continues to be the news flow relating to the economy and the credit markets. Although traders came into last week feeling rather upbeat, by Friday, the steady stream of bad news had put the bulls back on their heels once again.

The good news, however, is that despite another batch of disappointing economic news and a downbeat outlook from Best Buy (BBY), the market didn’t turn tail and run on Friday – even in front of a long holiday weekend. Therefore, while the bears appeared to resume control of the action on Thursday, by the time the closing bell rang on Friday, it wasn’t entirely clear which way prices might be headed next.

In reality, the bulls have to be encouraged by the action seen on Friday.
Although the Dow did finish in the red, the S&P 500, NYSE, and Banking indices all managed to find their way into the plus column by the close.

However, it was anything but easy going for our heroes in horns as the news flow continued to weigh heavily on traders’ minds. There was an increase in Import Prices, which argues that inflation is far from dead.

There was the Empire Manufacturing Index, which came in below expectations and sported the first negative reading in three years. There was the weakest report from the University of Michigan’s Consumer Sentiment since 1992. There was talk of more writedowns across the pond (which came to fruition this morning) and a Financial Times report that talked about the idea of big banks simply walking away from their LBO funding obligations.

And finally, Best Buy (BBY) reduced their outlook for the coming quarter, which, of course, caused concerns about the consumer to linger.

But through it all, stock prices actually held up fairly well at the end of last week. The technicians will argue that what we are seeing right now is a constructive basing pattern. And while this process can be maddening and take a while to complete, the thinking is that the longer the major indices remain above their January lows, the more likely it is that stocks will eventually break out to the upside.

Turning to this morning, the major indices in the U.S. are a bright shade of green at the moment and it is once again the news flow that is responsible for turning the tide. Word that Wal-Mart’s earnings were better than expected are helping put smiles on the bulls’ faces as well as a report that AMBAC may be close to securing the capital it needs to retain its triple-A rating. And finally it was announced that Britain’s embattled mortgage lender, Northern Rock will be nationalized. So, despite some trouble with math at UBS this morning, it looks to be a decent open for stock prices here in the U.S.

Running through the rest of the pre-game indicators; the overseas markets are mostly higher this morning. Crude futures are moving up with the latest quote up $1.89 to $97.39. Interest rates are also moving up with the 10-yr trading at a yield of 3.87% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to strong open. The Dow futures are currently up about 160 points; the S&Ps are ahead by almost 17 points, while the NASDAQ looks to be about 23 points above fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:
Holly Corp (NYSE: HOC) – Reported $0.90 vs. $0.63
Medtronic (NYSE: MDT) – Reported $0.63 vs. $0.61
Medco Health Solutions (NYSE: MHS) – Reported $0.43 vs. $0.41
OfficeMax (NYSE: OMX) – Reported $0.65 vs. $0.52
Wal-Mart (NYSE: WMT) – Reported $1.04 vs. $1.01

News, Upgrades/Downgrades/Brokerage Research:
British American Tobacco (NYSE: BTI) – Upgraded at Deutsche Bank
PMC Sierra (Nasdaq: PMCS) – Target reduced at Goldman
FMC Technologies (NYSE: FTI) – Downgraded at JP Morgan
Hansen Natural (Nasdaq: HANS) – Upgraded at JP Morgan
Hitachi (NYSE: HIT) – Upgraded at JP Morgan Comp
Vale do Rio Doce (NYSE: RIO) – Upgraded at Morgan Stanley
Wyeth (NYSE: WYE) – Upgraded at Morgan Stanley
Allied Waste (NYSE: AW) – Upgraded at Raymond James
Micron Technology (NYSE: MU) – Upgraded at Thomas Weisel
United States Steel (NYSE: X) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: WMT

Note: All earnings reports compared to Reuter’s 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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