David Moenning's Daily State of the Markets: 07/31

What Wasn't Said Is Important

Good morning. Stocks bounced higher yesterday after being pummeled for steep losses during much of the past week. And although most will place yesterday's 93 point advance in the 'dead cat bounce' category, the bulls will take anything they can get at this stage.

Although none made the headlines, there were several reasons for the pop higher. First, despite all the talk about the 'death of the deal' there was a little M&A activity to pore over yesterday. This gave traders hope that the impact of the credit crunch may be overstated at this stage and allowed for a sigh of relief rally to get started.

Next, stocks seemed to get a boost after Standard & Poors upgraded Morgan Stanley's credit rating. S&P said Morgan should be able to maintain satisfactory earnings even if market conditions become considerably more challenging. And while S&P didn't come right out and say it, the credit rating agency effectively told us, "Hey, Morgan Stanley is gonna be fine."

But the big mover of the day came from the earnings reports from HSBC and GMAC. These two companies are important because both have been at the center of the subprime mortgage dilemma. In reality though, it was what wasn't said that was the key here. Instead of reporting disappointing earnings as a result of subprime problems and whining about the environment, both GMAC and HSBC actually came in with improved numbers. And while neither expressed a great deal of optimism for the low quality mortgage arena, the fact is that things don't appear to be getting any worse.

So, armed with the knowledge that the subprime problem doesn't appear to be spreading or heading further south, traders put aside their fears for the afternoon and did a little buying.

Turning to this morning, it looks like the bulls have regained possession of the ball in response to some stellar numbers from the likes of Sun Micro (NASDAQ: SUNW) and General Motors (NYSE: GM). But, we've also got a batch of economic data to sift through in the form of the Personal Income and Spending Report, so let's get to it. Personal Income came in a tenth under expectations at +0.4% in June. Spending was also a tenth light at +0.1%. However, the inflation components of the report - the PCE Deflator and the Employment Cost Index - were in line with expectations, which is a positive.

Running through the rest of the pre-game indicators, with the exception of Japan, foreign markets were significantly higher across the board. In the oil pits, crude futures are moving higher with the latest quote up $0.54 to $77.37. Interest rates are higher this morning as the flight to quality reverses. The yield on the 10-year is currently trading at 4.83%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to strong open. The Dow futures are currently ahead by about 90 points; the S&P's are above fair value by about 11 points, while the NASDAQ looks to be about 18 points ahead of fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Anadarko Petroleum (NYSE: APC) - Reported $1.38 vs. $0.79
CB Richard Ellis (NYSE: CBG) - Reported $0.66 vs. $0.41
Commscope (NYSE: CTV) - Reported $0.83 vs. $0.76
Mosaic (NYSE: MOS) - Reported $0.46 vs. $0.40
Principal Financial Group (NYSE: PFG) - Reported $1.05 vs. $0.97
Sun Microsystems (NASDAQ: SUNW) - Reported $0.09 vs. $0.05

Today's Earnings Before the Bell:

American Electric Power (NYSE: AEP) - Reported $0.64 vs. $0.58
Avon Products (NYSE: AVP) - Reported $0.26 vs. $0.42
BE Aerospace (NASDAQ: BEAV) - Reported $0.39 vs. $0.37
CBS Corp (NYSE: CBS) - Reported $0.54 vs. $0.51
Coach (NYSE: COH) - Reported $0.42 vs. $0.41
NICOR (NYSE: GAS) - Reported $0.40 vs. $0.38
General Motors (NYSE: GM) - Reported $2.30 vs. $1.08
Liz Claiborne (NYSE: LIZ) - Reported $0.26 vs. $0.23
Marathon Oil (NYSE: MRO) - Reported $2.25 vs. $2.13


News, Upgrades/Downgrades/Brokerage Research:*

Gannett Inc (NYSE: GCI) - Upgraded at Bear Stearns
Harman Intl (NYSE: HAR) - Downgraded at Citi
Celanese (NYSE: CE) - Upgraded at Citi
Radio Shack (NYSE: RSH) - Upgraded at Citi
Applied Materials (NASDAQ: AMAT) - Target increased at Credit Suisse
Unilever (NYSE: UN) - Downgraded at Credit Suisse
Varian Semiconductor (NASDAQ: VSEA) - Upgraded at Credit Suisse
Ship Finance Intl (NYSE: SFL) - Upgraded at JP Morgan
Weyerhaeuser (NYSE: WY) - Downgraded at Merrill Lynch
Exelon (NYSE: EXC) - Upgraded at UBS
Verizon (NYSE: VZ) - Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: MER, CTV, MOS, AVP, BEAV, MRO, AMAT

Note: All earnings reports compared to Reuter's consensus estimates

** For More of David Moenning's Market Analysis, Stock Portfolios, and Trading Ideas, visit: Top Guns Trading


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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