David Moenning’s Daily State of the Markets 06/26

Summer of Discontent?

Good morning. The biggest question facing the market right now is if there are more Bear Stearns-style time bombs ticking out there. In the early going yesterday, the bulls argued successfully that the failure of the BSC hedge funds was an isolated incident. This, coupled with some decent economic data saw the Dow up as much as 129 points and by mid-morning, everyone was breathing a little easier.

The bulls came into the session looking to recapture some of the big losses stemming from Friday’s thrashing. Our heroes in horns got a hand from the report on Existing Home sales, which came in a bit better than expected in May and April’s numbers were revised slightly higher. While the report suggests that we have yet to see a trough in the housing market, it was good enough to reduce fears of further declines in the subprime market, which, of course, lessened the worry over hedge funds investing in bonds backed by subprime mortgages.

While, we readily admit that calling the report on Existing Home sales positive is a bit of a stretch, it did provide the bulls the breathing room they needed to get a recovery going. And by the time the early lunch crowd started to head out, the day was looking pretty good.

But on the other side of the aisle, the bears continued to pound the table about the risks of more hedge fund blowups. And with the market bouncing higher, it looked like the argument was falling on deaf ears. But, after both Reuters and CNBC ran stories about the risks associated with subprime related bonds, the brokers started to take a hit and the day’s gains began to fade.

Next, the SEC lent the bears a hand by announcing an inquiry into the Bear Stearns fund and before you could rattle off the name of the now-famous fund (Bear Stearns High-Grade Structured Credit Strategies Enhanced Leveraged Fund) green turned to red and the fear was back. Let’s not forget that the hedge fund in question didn’t technically fail because its obligations are being backed by Bear Stearns itself. So, the fact that the SEC wants to sniff around a little was not lost on traders and stocks sank more than 50 points.

While cooler heads did prevail and the losses were minimized into the close, the fact that the bulls quickly went into retreat mode again yesterday does not bode well for the summer. So, with beach season now well underway, it might be tough bulls to get much done for a while, at least from a big picture standpoint.

Turning to this morning, we don’t have any economic data scheduled for release before the bell, but we will get a report on New Home Sales and the Richmond Fed Index at 10:00 am. In the early going, it looks like the bulls are once again trying to make a comeback, so it will be interesting to see if they can make it stick.

Running through the rest of the pre-game indicators, the foreign markets are lower across the board. Gold futures are moving down this morning by $3.30 to $650.30. In the oil pits, crude futures are moving down by $0.31 with the latest quote at $68.87. Interest rates are moving down again this morning with the yield on the 10-year currently trading at 5.08% level. And finally, with about an hour before the bell, stock futures in the U.S. are above fair value. The Dow futures are currently ahead by about 44 points; the S&P’s are up by about 5.60, while the NASDAQ looks to be about 9 points ahead of fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

Lennar (NYSE: LEN) – Reported <$0.22> vs. $0.01

News, Upgrades/Downgrades/Brokerage Research:*
Accenture (NYSE: ACN) – Target increased at BofA
Research In Motion (NASDAQ: RIMM) – Target increased at Credit Suisse
Owens Illinois (NYSE: OI) – Target increased at Citigroup
Parametric Technology (NASDAQ: PMTC) – Upgraded at Goldman Sachs
Adobe (NASDAQ: ADBE) – Downgraded at Goldman Sachs
Allegheny Energy (NYSE: AYE) – Upgraded at Jefferies
Biogen Idec (NASDAQ: BIIB) – Downgraded at Lehman
Celgene (NASDAQ: CELG) – Upgraded at Lehman
Genzyme (NASDAQ: GENZ) – Upgraded at Lehman
Arcelor Mittal (NYSE: MT) – Downgraded at Merrill Lynch

Mr. Moenning holds Long positions in stocks mentioned: GS, MER

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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