David Moenning's Daily State of the Markets: 08/29

Voicing Their Displeasure

There were lots of reasons for stocks to sell off yesterday. It is the last gasp of the summer vacation season, Moody’s reported that credit card defaults are on the rise, Consumer Confidence slumped, Merrill downgraded several big financials, and the minutes from the latest Fed meeting reminded investors of the risk to the economy. However, it appeared that the biggest reason for the afternoon plunge was a temper tantrum being thrown by traders over their view Fed’s intentions.

With experienced traders looking for another shoe to drop in the mortgage mess, lots of uncertainty ahead in September in terms of the Fed, earnings, and economic data, and technicians looking for a retest of the lows, it was little wonder that there was not much interest in stepping in front of the selling train yesterday afternoon.

It was truly an ugly day with the major indices all losing more than -2.1% on the session. And while stocks were down more than 100 points most of the day on the back of the sharpest drop in consumer confidence in more than two years, it was the release of the Fed minutes that seemed to cause the selling to accelerate.

Due to the fact that the Fed has cut the Discount Rate in a creative fashion since the August 7th meeting, the Fed minutes, like much of the economic data being released right now, have to be considered old news. However, traders were secretly hoping for some sort of indication that the Fed planned on cutting rates at their September 18th meeting. And when they didn’t get what they wanted, traders hit the sell button repeatedly in order to voice their displeasure to Mr. Bernanke.

While the FOMC did note that "A further deterioration in financial conditions could not be ruled out” and that such a development “might require a policy response," traders were apparently disappointed that the Fed’s stated focal point continues to be inflation.

But perhaps the biggest problem in the Fed’s report was that the language reminded investors that the economy IS at risk from the credit crisis. This, coupled with the consumer confidence numbers and the ongoing crummy housing data, and it’s not much of a stretch to start believing all the recession talk these days.

On a positive note, a couple technicians residing in the bull camp have pointed out that several of the major indices could possibly be tracing out a head-and-shoulders bottom at the present time. And while we admire their optimism, we'll have to wait and see on that one.

Turning to this morning, once again, we don't have any economic data to review before the bell. In looking at the pre-market trading, foreign markets initially followed Wall Street lower, but some optimism crept into European bourses around mid-day and appears to have spilled over into trading in the US so far.

Running through the rest of the pre-game indicators, the overseas markets are mixed this morning. Crude futures are higher by $0.39 with the latest quote at $72.12. Interest rates are testing the year's lows so far as the 10-yr is trading with a yield of 4.52% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking to rebound at the open. The Dow futures are currently ahead by about 70 points; the S&Ps are up by a bit more than 8 points, and the NASDAQ looks to also be about 8 points above fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Big Lots (NYSE: BIG) – Reported $0.21 vs. $0.12
Joy Global (NASDAQ: JOYG) – Reported $0.66 vs. $0.69
Williams Sonoma (NYSE: WSM) – Reported $0.23 vs. $0.16


News, Upgrades/Downgrades/Brokerage Research:

Wynn Resorts (NASDAQ: WYNN) – Downgraded at Bear Stearns
Bear Stearns (NYSE: BSC) – Downgraded at CIBC
Align Technology (NASDAQ: ALGN) – Downgraded at Jefferies
Sonic Corp (NASDAQ: SONC) – Downgraded at JP Morgan
Molson Coors Brewing (NYSE: TAP) – Upgraded at JP Morgan
Polo Ralph Lauren (NYSE: RL) – Upgraded at Merrill Lynch

Mr. Moenning holds Long positions in stocks mentioned: MER, ALGN

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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