David Moenning Daily State of the Markets: 12/06

Some Doubt Returns

For the first time in six weeks or so, it appears that some doubt may have crept back into the market. Since sentiment indicators have reached optimistic levels recently, this is actually a good thing in the bigger picture, but it meant a second straight day of decline for the Dow.

Note that our headline did not suggest that fear has returned, far from it. No, at this stage of the game, fear is a long way off. What we saw yesterday was a small dose of doubt entering the bull camp. It was the realization that maybe, just maybe, stocks can�t run straight up indefinitely, regardless of the time of year. Maybe, just maybe, with the price of oil back over $60, the issues of inflation and energy�s impact on the consumer should be reconsidered. Maybe, just maybe, the ISM�s Non-Manufacturing report suggested that economic growth could moderate. And if any of this is true, then maybe, just maybe, the days of big fun for the bulls are numbered.

So with crude futures springing over $60 early in yesterday�s session, traders decided to take some profits in the leading areas. At this point in the game, with stocks overbought and sentiment too strong, a pullback is to be expected. And from where we sit, a pullback is the appropriate label for the time being. While the market does have some big-picture issues, the reasons given for yesterday�s decline are a bit weak.

So at the end of the day, we are left with the idea that stocks are encountering a mild pullback at the moment, which has been spurred by a small degree of doubt creeping in. We�d look for the market to react positively to a drop in oil prices as confirmation of this view. However, if oil should continue to rise or if the Fed announces that they plan to raise rates more than a couple more times, all bets are off as doubt could turn to fear in a big hurry.

Turning to this morning, it looks like the bulls may try and retake the leadership role. Crude oil is trading lower by -$0.24 to $59.67 as the colder weather in the northeast isn�t expected to stick around long. On the economic front, the report on Q3 Productivity came in a bit better than expected. Productivity showed a gain of +4.7% versus expectations of +4.5% and Unit Labor Costs (a key component to inflation) fell by -1%, which was a smidge better than the expected drop of -0.9%.

Stock futures are moving modestly higher at the moment (Dow +24, S&P +3.50, and NASDAQ +5.0) and bonds are a tad lower than yesterday�s close.

So with the market still sitting near the recent highs, the question of the day is will yesterday�s doubt be quickly erased or will the bears find a way to introduce fear back into the equation?

Stocks "In Play" This Morning:
C � Downgraded at Fox-Pitt, Kelton
AAPL � INTC processors to be introduced in Taiwan on 6/6
AMGN � Pru initiates with Neutral rating
SHLD � Reports $0.35 vs $0.32
DDS � Reports narrower than expected loss
TGT � Sees Dec Comps at +4-5%

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

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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