David Moenning's Daily State of the Markets: 01/08

Slowdown Showdown

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

The battle cry of market technicians is "the tape tells all." And while I don’t claim to be a card carrying techie – mainly because I believe it is important to understand why things are happening instead of blindly following the wiggles and giggles of lines on a chart – there is no arguing the fact that the charts say an awful lot right now. In short, with talk of recession running rampant and a growing fear that this academically inclined Fed is behind the curve, it makes a great deal of sense that the charts are perched on a precipice at the current time.

As we've mentioned, the major indices are currently sitting right at the lows of the trading range that has been in effect for the past six months. And in the vernacular of the old west, it looks like we’ve got a showdown on our hands. Both sides are staring eye to eye with guns drawn and the only question now is who will blink first?

Will it be the bulls, who are betting that the Bernanke cavalry will wake up and ride to the rescue? Our heroes in horns are wearing their white hats and are hoping that additional rate cuts will help the economy avoid recession. Therefore, their argument is that the indices will be able to stand their ground.

On the other end of the dusty street, the bears counter that the slowdown in the U.S. is not only real but is also beginning to spread around the globe. And without the global growth story, our furry friends are quick to suggest the idea that the current trading range is about to break to the downside.

So with each side doing their best Clint Eastwood imitation, market watchers are left to wonder who will be left standing at the end of the current showdown.

Yesterday's action provided little in the way of answers as the bulls attempted to get a rebound started but were thwarted early with an Iranian gunboat incident and ongoing worries about recession. But after Atlanta Fed President Lockhart said some things that actually made sense, some buying emerged and the showdown continued.

Although the Fed doesn't meet for three more weeks, there is a chance that this situation will be resolved sooner rather than later as the earnings parade is once again about to roll. Alcoa (AA) will kick things off tomorrow and then the reports will start to flow in earnest next week. And by the time the FOMC gets around to discussing their plans, we should have a clear-cut view of what corporate America thinks about the future.

Turning to this morning, we don't have any economic data to review before the bell, but we will get some new housing data at 10:00 a.m. In pre-market trading, it looks like the bulls are trying to dig in their heels and make a stand, but we’ll have to wait until 4:00 p.m. to see if they were successful.

Running through the rest of the pre-game indicators; the overseas markets are mostly higher. Crude futures are up on concerns in Nigeria with the latest quote showing the February contract higher by $1.51 to $96.60. Interest rates are up on a yield basis with the 10-yr trading at a yield of 3.86% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently up by about 40 points; the S&Ps are higher by about 7, while the NASDAQ looks to be about 12 points above fair value at the moment.

Stocks "In Play" This Morning:

Today's Earnings Before the Bell:

Family Dollar Stores (NYSE: FDO) – Reported $0.37 vs. $0.37
Constellation Brands (NYSE: STZ) – Reported $0.55 vs. $0.55

News, Upgrades/Downgrades/Brokerage Research:

Starbucks (Nasdaq: SBUX) – Upgraded at Bank of America
Baxter Intl (NYSE: BAX) – Upgraded at Citi
Circuit City (NYSE: CC) – Downgraded at Cowen
Best Buy (NYSE: BBY) – Downgraded at Cowen
Medco Health Solutions (NYSE: MHS) – Downgraded at Goldman Sachs
AmerisourceBergen (NYSE: ABC) – Upgraded at Goldman Sachs
Health Net Inc (NYSE: HNT) – Added to Conviction Buy list at Goldman Sachs
Companhia Vale do Rio Doce (NYSE: RIO) – Downgraded at Goldman Sachs
Infosys (Nasdaq: INFY) – Upgraded at Lehman
Illinois Tool Works (NYSE: ITW) – Downgraded at Merrill Lynch
American Eagle Outfitters (NYSE: AEO) – Target reduced at UBS
Federated Investors (NYSE: FII) – Upgraded at UBS
Intuitive Surgical (Nasdaq: ISRG) – Downgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: ISRG

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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