David Moenning Daily State of the Markets: 1/13

Let the Games Begin

With the fabled �first five days of January� behind us, it was time for all the players to return to the table. And after seven straight up days on the NASDAQ, the bears had simply seen enough. So armed with an overbought market, parabolic moves on the charts, and lots of chatter about Iran, our furry friends finally got a chance to get in this year�s game.

With Secretary of State Condoleezza Rice raising �significant concerns� about Iran�s nuclear program, traders recognized the potential for trouble and decided to do some selling. The fact that Secretary Rice wants to refer the matter to the UN�s Security Council while Iran says it wants to pursue �peaceful nuclear research,� brings up the possibility for disruption of supply from the world�s fourth largest exporter of oil.

However, it was interesting to note that while stock traders seized the situation as an opportunity to rein in some profits, the oil markets didn�t really show much concern. Crude futures finished flat at $63.94, so those closest to the situation don�t appear to be overly worried about a disruption of supply at the present time.

But at the corner of Broad and Wall, a flat finish would have been a �desired result� as the major stock indices were all swimming in red ink. But let�s leave yesterday�s action at this; the bulls had pushed their luck a little too far and thus, it was time to let the other team play for a while.

Turning to this morning, the markets have some fairly important data to digest before the opening bell with regard to inflation and the health of the economy.

This morning�s PPI report was pretty much a continuation of the current trend. While the �headline number� took traders� breath away with a surge of +0.9%, which was MUCH higher that the expectations for an increase of +0.4%, the Core rate once again proved to be benign. The Core inflation number, which excludes those pesky non-issues of food and energy, showed an increase of just +0.1%, which was actually below the expectations for an increase of +0.2%. And on a year-over-year basis, it was encouraging to see that the Core rate rose by just +1.7%. In short, the report suggests that underlying inflation pressure remain modest despite the surge in oil.

Elsewhere on the economic front this morning, the report on Retail Sales was a bit on the disappointing side. Sales for December were below expectations at +0.7%, when +0.9% had been the guesstimate from economists. And when you strip out autos (which can cause this data series to be a bit volatile), the song remained the same, as sales rose by +0.2% when expectations had been for an increase of +0.4%.

In addition to the economic data, traders are also digesting the rhetoric from the situation in Iran. This morning, Iran is threatening to end cooperation with the world�s nuclear regulators if they are referred to the UN Security Council. And while one can easily categorize all of this as posturing, it does create a certain degree of uncertainty as far as the markets are concerned.

So with inflation numbers which, depending on your point of view, are both encouraging and worrisome, some punk data on the state of the consumer, and what could easily turn into a mess in the Middle East, it will be interesting to see which way traders decide to go today. On one hand, the data suggests that Goldilocks is still in the building. But on the other hand, we�ve got a long holiday weekend ahead of us and traders may not be all that interested in sitting by the newswire for updates on the situation in Iran.

Stocks "In Play" This Morning:
GDT � BSX raises offer to $73
WFMI � WSJ expresses concerns over valuations
AMD � Downgraded at Deutsche Bank
INTC � Bear Sterns reduces estimates for Q4
AMGN � Mentioned positively at Bear Sterns, Top biotech pick at Citigroup
BA � UBS expecting to see strong orders in 06

Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: AMD, INTC, AMGN

To see David Moenning�s Trading Record, his (Strong Buy) List, or the rank for any Top Guns Stocks, visit: http://www.AnotherWinningTrade.com/SI

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