David Moenning's Daily State of the Markets: 08/06

Bear's Not-So Soothing Words

Stocks got smacked around again on Friday as traders feared that both the economic data and the subprime mess may be worsening. Although the majority of the damage was done in the final fifteen minutes, where the Dow dove more than 120 points, the bottom line is that the day ended very badly for the bulls.

Traders took one look at the all-important jobs data on Friday morning and began to fear that the economy may not be as strong as previously thought. The report showed that the economy created far fewer jobs than economists had expected and that the unemployment rate ticked higher by a tenth to 4.6%.

Then, ninety minutes later, the ISM report on the services sector of the economy confirmed the slowdown in the manufacturing sector with the biggest drop in almost two years. In short, the report showed that business conditions were "mixed" and that price pressures (a measure of inflation) remain elevated.

This combination helped put some fear into an already jittery market. But, in reality it was the conference call from Bear Stearns (NYSE: BSC) late in the day that caused traders to start leaning hard on the sell button. The conference call was in response to Standard & Poor's lowering of Bear Stearns debt outlook to "negative." S&P had said that Bear, which is the biggest underwriter of mortgage bonds in the country, may have problems that could hurt the firm "for an extended period."

Bear took the comments personally and immediately issued a press release and lined up a conference call. In an effort assuage fears, Bear told analysts that it had "abundant liquidity" to weather this storm and tried to calm some nerves.

However, the conference call contained two comments that really got the bears fired up. First, the company said that it would be suspending its stock buyback program in an effort to remain as liquid as possible. And second, the company's Chief Financial Officer Sam Molinaro said the bond market turmoil may be a worse predicament than the '87 Crash and the bursting of the internet bubble in 2000.

These comments took traders by surprise and were inflammatory, to say the least. The typical response was something along the lines of, "Are you kidding me.worse than 1987... worse than the 2000 Bubble? It's time to sell!"

And sell they did as stocks went into a free-fall. The major indices dove straight into the close and as we mentioned, the Dow plunged -120 in the final fifteen minutes.

Turning to this morning, some sanity appears to have returned to the markets. The fact that nothing bad happened over the weekend seems to be an encouraging sign and there is some talk that the Fed will provide some soothing comments tomorrow at its monthly meeting.

Running through the rest of the pre-game indicators, foreign markets are mixed. In the oil pits, crude futures are moving lower with the latest quote off $1.10 to $74.38. Interest rates are lower this morning as the yield on the 10-year is currently trading at 4.68%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a higher open at the present time. The Dow futures are currently about 50 points ahead; the S&P's are higher by about 8 points, while the NASDAQ looks to be about 15 point above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:*
Coventry Health Care (NYSE: CVH) - Upgraded at Banc of America
Electronic Arts (NASDAQ: ERTS) - Upgraded at Bear Stearns
Tenet Healthcare (NYSE: THC) - Upgraded at Bear Stearns
Take Two Interactive (NASDAQ: TTWO) - Upgraded at Bear Stearns
Pacer Intl (NASDAQ: PACR) - Upgraded at Bear Stearns
Ann Taylor Stores (NYSE: ANN) - Upgraded at Citi
Wyeth (NYSE: WYE) - Downgraded at Cowen
Merck (NYSE: MRK) - Upgraded at Cowen
Simon Property Group (NYSE: SPG) - Upgraded at Credit Suisse
France Telecom (NYSE: FTE) - Upgraded at Goldman Sachs
CheckFree (NASDAQ: CKFR) - Downgraded at JP Morgan
Intuit (NASDAQ: INTU) - Upgraded at Merrill Lynch
TD Ameritrade (NASDAQ: AMTD) - Upgraded at UBS
Merrill Lynch (NYSE: MER) - Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: MER

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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