David Moenning Daily State of the Markets: 12/15

The Celebration Continues (Sort Of)

Yesterday, stocks appeared to continue to celebrate the idea that the Fed is almost done, the fact that Import Prices were actually lower than expected, and the very concept of the somewhat self-fulfilling year-end rally. The DJIA stepped lively to gain another 60 points, the S&P 500 put in a new cycle high, and the NYSE, S&P Small Cap, and Mid Cap indices all moved up to new all-time highs. Breadth was decent with more than 2000 advancing issues and volume wasn�t half-bad. So, at first glance, things looked pretty darn good, and one could argue that the Santa Rally may not be too far behind.

But, there was one teeny tiny flaw in yesterday�s celebratory mood. In short, the NASDAQ played the spoiler role and finished the session with a slight drop of 2 points. And while there was a very good explanation, the leadership in the bull camp was sure to take note of the red number, well, in between slaps on the back and sips of eggnog, that is.

It turns out that both Bear Stearns and Bank of America just aren�t in the spirit of the holiday at the moment, as not one, but both firms decided to downgrade the iPod nation yesterday. The bah-humbug attitude toward Apple created a decline of 4% in the NASDAQ�s poster-child, which managed to put a damper the entire index down throughout the day.

But one glance at the calendar reminds us that we are rapidly approaching the year-end markup season, which is also known as the Santa Claus rally. This is where fund managers share the gift of performance with one another as they continue to buy their favorite stocks right into the end of the year.

Turning to this morning, it�s time to put away the party hats and get back to work as we�ve got some new economic data to sift through. The November CPI report is sure to get some attention today as the headline number�s decline of -0.6% is a bit surprising. Expectations had been for CPI to show a decline of -0.4% (due to the pullback in energy prices), so the larger than expected drop is certainly a welcome sign.

However, it is the Core Rate that the Fed prefers to focus on. And when you strip out food and energy from the Consumer Price Index, the Core Rate shows a gain of +0.2%, which was right on target with expectations.

And before we get too charged up about the drop in the headline number, let�s remember that the Fed is mostly concerned about the potential for FUTURE inflation. So, in reality, since everybody knows that the CPI is being whipped around by oil prices right now, this morning�s numbers don�t provide much guidance on the subject of what to expect in the future.

This morning, we also got the Empire Manufacturing Index, which details manufacturing activity in the New York region, which came in at 28.7. This was much higher than expectations for a reading of 18.5 and shows stronger activity in the region.

So with decent news on the inflation and economic fronts, it will be interesting to see if the bulls will continue to party like its 1999, or if the bears will find a way to reassert themselves before year-end.

Stocks "In Play" This Morning:
AMGN � To acquire ABGX for $2.2 Billion
MSFT � Raises dividend 12.5% to $0.09
TWX � Reportedly wants to sell Atlanta Braves
GOOG � WSJ says GOOG will debut music section today

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