David Moenning's Daily State of the Markets: 02/13

Where Are The Bears?

Good morning. Objective observers of the recent market activity have but one question these days: Where the heck are the bears? In short, despite a rather nice table being set for them, our furry friends can’t seem to find their way to the dining room. And while most analysts are giving the bulls all the credit, we’ve got to wonder why the bears haven’t suited up for the game recently.

Again, from an objective standpoint, the bears would seem to have a pretty good opportunity to wreak some havoc right now. On the bears’ side of the ledger we find that there is a distinct shortage of positive catalysts at the moment, this is the longest period of time since 1954 without a decline of even -2% in the DJIA, it’s an options expiration week, there’s a boatload of economic data due out on Thursday, and finally, after Friday’s tough talk by Fed Governors Fisher and Poole, investors are sure to be waiting patiently to hear what Ben Bernanke has to say on Wednesday.

The point is that all of the above argues for the bulls taking to the sidelines for a while, which would seem to favor the bears. With no real impetus other than dip buying to warrant any action by the bulls, one might expect to see a lack of buying interest - and yesterday's volume totals certainly support this idea. So, as a result, with the market admittedly extended to the upside, the bears ought to be making our lives miserable with some corrective action.

But instead, after a Fed scare on Friday and some downside action at mid-day, the bear camp was able to muster a drop of just -28 points yesterday. Are you kidding me?

Sure, we can see how yesterday’s sharp drop in oil prices (the March contract closed down -$2.08 to $57.81) might have provided the dip buyers with a reason to act. After all, if Saudi Arabia is happy with prices in the mid-to-high $50’s, then that’s probably where prices will stay for the foreseeable future. And with energy prices remaining at what are now considered reasonable levels, the American consumer is likely to continue their love affair with the shopping mall.

We will also have to admit that with the exception of our short-term sentiment work, all of our market models remain positive on balance. But the distinct lack of any selling pressure is indeed a bit puzzling right now. So, I guess we’re either being set up for one heck of a drop when some negative catalyst shows up or this is one very impressive bull run.

Turning to this morning, the mood in the early going has turned upbeat on an upgrade of GM and the potential for a big M&A deal in the metals sector. The London Times reports that both BHP Billiton and Rio Tinto are working on a bid for Alcoa. And while Reuters is arguing that BHP is not in the running at the present time, the fact that bids continue to be made is a positive for stocks.

Running through the pre-game indicators, with the exception of Hong Kong, the major overseas markets are all higher. Gold futures are trading up $4.40 to $617.70 right now. In the oil pits, crude futures are lower this morning with the latest quote showing the futures contract down $0.09 to $57.72. Interest rates are little changed this morning with the yield on the 10-year currently trading at 4.80%. And finally, with an hour before the bell, stock futures in the U.S. are looking to open higher. The Dow futures are currently ahead by about 34 points thanks to GM and Alcoa; the S&P’s are 3 points above board, while the NASDAQ looks to be about 2 points ahead of fair value at the moment.

Stocks “In Play” This Morning:

Coca Cola Ent (NYSE: CCE) – Reported $0.20 vs. $0.16, Downgraded at Citigroup
Alcoa (NYSE: AA) – London Times reports both BHP and Rio Tinto are preparing bids for AA
Grant Prideco (NYSE: GRP) – Upgraded at BofA
Hewlett-Packard (NYSE: HPQ) – Price target increased at BofA
Automatic Data Processing (NYSE: ADP) – Upgraded at BofA
Applebee’s (Nasdaq: APPB) – Upgraded at Bear Stearns, Prudential
Level 3 Comm (Nasdaq: LVLT) – Upgraded at Deutsche Bank
Circuit City (NYSE: CC) – Downgraded at Goldman Sachs
Hansen Natural (Nasdaq: HANS) – Downgraded at Goldman Sachs, JP Morgan
Hydril (Nasdaq: HYDL) – Downgraded at JP Morgan, Lehman, Raymond James
Assurant (NYSE: AIZ) – Upgraded at Merrill Lynch
General Motors (NYSE: GM) – Upgraded at Merrill Lynch
Ford (NYSE: F) – Downgraded at Merrill
Crown Castle (NYSE: CCI) – Upgraded at RBC Capital
Johnson & Johnson (NYSE: JNJ) – Target lowered at UBS
Brookfield Asset Mgmt (NYSE: BAM) – Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: BSC, GS, MER, LVLT, CCI, BAM

Note: All earnings reports compared to Reuters 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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