David Moenning's Daily State of the Markets: 07/09

Suspect, But Encouraging

Stocks rose again on Friday, finishing the holiday-shortened week in fine fashion. However, with the volume once again on the light side and most traders at the beach working on their tans, the move is considered suspect by many analysts.

But, with the earnings parade about to begin (Alcoa kicks things off after the closing bell this afternoon), it is encouraging that those traders still at their desks have been able to put aside the recent worries about subprime mortgages and hedge fund blowups, and focus on the positive.
Friday was a perfect example of this improved mood on the street. Despite rising bond yields and annoyingly high oil prices, traders looked at the bright side and kept buying.

Although crude is once again hitting rude levels (futures closed up $1.00 at $72.81) and bond yields are once again threatening the 5.25% level, it is encouraging to note that attitude remains upbeat. While it was just a week or so ago that traders were sweating the move up in yields, this time, the move is being viewed as a modest positive.

Although it may sound a tad counterintuitive, the thinking is that yields are rising in response to improving economic data and NOT because of concerns about inflation or global liquidity. And since it is the economy that drives earnings and it is earnings growth that drives stock prices, for now at least, the fact that the recent data shows solid economic results without any inflationary pressures is a good thing.

But, as always, the proof will be in the pudding as analysts will be going over every earnings report with a fine toothed comb, looking for signs of inflationary stress or a worried consumer. So, with AA getting ready to kick off the parade, it’s time to get back to our desks and sharpen those pencils.

Turning to this morning, the mood remains positive as green screens overseas and ongoing talk of M&A activity is keeping the mood upbeat.

Running through the rest of the pre-game indicators, the overseas markets are higher across the board. Gold futures are higher by $8.20 this morning and are quoted at $663.00 right now. Crude futures are off by $0.09 with the latest quote at $72.72. Interest rates are moving down this morning as the 10-yr is trading with a yield of 5.16% right now. And finally, with about 45 minutes before the bell, stock futures in the U.S. are looking to open a little higher. The Dow futures are currently up by about 24 points; the S&Ps are about 1.20 above breakeven, and the NASDAQ looks to be a point under fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:
Janus Capital (NYSE: JNS) – Mentioned positively in Barron’s
Illinois Tool Works (NYSE: ITW) – Mentioned positively in Barron’s
Gilead Sciences (Nasdaq: GILD) – Mentioned positively in Barron’s
Ball Corp (NYSE: BLL) – Downgraded at BofA
Teva Pharmaceuticals (Nasdaq: TEVA) – Upgraded at Bear Stearns
Cummins (NYSE: CMI) – Upgraded at Bear Stearns
PACCAR (Nasdaq: PCAR) – Upgraded at Bear Stearns
Baidu.com (Nasdaq: BIDU) – Downgraded at Citi
Tyco (NYSE: TYC) – Downgraded at Citi
ENSCO Intl (NYSE: ESV) – Downgraded at Credit Suisse
Home Depot (NYSE: HD) – Upgraded at Goldman Sachs
Weatherford Intl (NYSE: WFT) – Upgraded at JP Morgan
Brinker Intl (NYSE: EAT) – Downgraded at Morgan Stanley
Terex (NYSE: TEX) – Upgraded at RW Baird
Harley Davidson (NYSE: HOG) – Upgraded at RW Baird
Yahoo! (Nasdaq: YHOO) – Downgraded at ThinkEquity

Mr. Moenning holds Long positions in stocks mentioned: GS, MS, TEX, CMI

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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