David Moenning's Daily State of the Markets: 07/11

Changing The Focus

Good morning. With the earnings parade about to begin in earnest, investors appear to have changed their focus from anything and everything related to the Fed and the economy toward the performance of individual companies. Analysts are expecting another quarter of double-digit earnings gains for the S&P 500. And with a rather distinct lack of negative preannouncements, expectations are running high � especially in the bull camp.

The focus on earnings, coupled with a spate of merger activity and lower oil prices for the third straight day, had traders in a good mood in the early going on Monday. Stocks stepped lively out of the gate to a gain of more than 80 points. But unfortunately, a downgrade in technology spoiled the fun. The negative sentiment in tech pushed the NASDAQ to a loss on the day and the blue chip indices wound up struggling to keep their heads above water.

You didn�t have to look very far to find the reason for yesterday�s sloppy finish as the Tech sector was the definitive drag on the indices. With a big preannouncement from EMC (EMC) as well as warnings from the likes of Kronos (KRON) and EMS Technologies (ELMG), the stage was definitely set for some selling. Merrill Lynch�s Joe Osha then put a dagger in the back of tech bulls with a pretty big downgrade. Mr. Osha opined that the semis will see significantly lower top-line growth this quarter. This obviously caused the sentiment in tech to move south quickly as the SOX (Philadelphia Semiconductor Index) dropped 2.2% and finished at its lowest level since May 2005.

So with the NASDAQ retesting the recent lows and the S&P 500 moving back toward its 200 day moving average, it looks like the bulls will need some help from earnings if they intend to make a stand here. Unfortunately though, Alcoa�s (AA) report did not provide the spark the bulls were looking for. While the aluminum manufacturer�s earnings numbers came in above expectations, the revenue results were a bit light and the stock is being punished in pre-market trading.

Turning to this morning, traders don�t have any economic news to guide them today so the focus is likely to remain on earnings for a while. And speaking of earnings, Lucent has put a negative spin on all things tech once again this morning by issuing a profit warning. Late yesterday, the company said it expects to miss this quarter�s earnings targets due to slower sales, which resulted in a drop of 7% after the statement was released.

Running through the rest of the pre-game indicators, overseas markets were lower across the board. Gold is moving higher this morning and is currently ahead by $7.30 to $633.40 at the moment. Oil is also moving a bit higher this morning after three days of decline. The August crude contract is currently trading up by $0.56 to $74.17 right now. Interest rates are moving down a bit this morning with the 2-year currently trading at 5.17% while the 10-yr is testing the recent low yield at 5.12% right now. And finally, with about an hour before the bell, stock futures in the U.S. are heading a little lower. The Dow futures are currently off by 21 points; the S&Ps are down by 2.40, and the NASDAQ is sporting a decline of about 9 points.

Stocks �In Play� This Morning:

Gilead Sciences (GILD) � Price target increased at Piper Jaffray
Bell South (BLS) � Downgraded at AG Edwards
Google (GOOG) � Estimates raised at Thomas Weisel
Alcoa (AA) � Reported $0.90 vs. $0.86, Revenues $7.96B vs. $8.14B
Lucent (LU) � Lowers guidance, Downgraded at RW Baird, Upgraded at C
TD Ameritrade (AMTD) � Upgraded at BofA
Camden Property Tr (CPT) � Upgraded at Deutsche
1-800 Flowers (FLWS) � Upgraded at Goldman Sachs
OSI Restaurants (OSI) � Upgraded at Jefferies
AMR Corp (AMR) � Downgraded at Merrill
Murphy Oil (MUR) � Downgraded at Lehman
Petro Brasileiro (PBR) � Upgraded at Lehman
Hess Corp (HES) � Downgraded at Lehman
HCA Inc (HCA) � Downgraded at Prudential
Vodafone (VOD) � Downgraded at UBS
Pepsi Bottling (PBG) � Reported $0.61 vs. $0.59, Revenues $3.14B vs. $3.03B
Kohls (KSS) � Mentioned cautiously in Barron�s

Positions in stocks mentioned: GS, GILD, BLS, CPT

** 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.

You May Also Be Interested In

• After-Hours Movers: AMAT, DLO, GLOB, YSS, ETON
• After-Hours Movers: P, RIOT, BW, RKLB, HIMS, UPWK
• After-Hours Movers: CSCO, COHR, HLIT, CBRS, STUB, ENS