David Moenning's Daily State of the Markets: 09/11

Stuck In The Middle?

From a big-picture standpoint, stocks appear to be stuck in the middle of the bad news from Friday’s Employment report and the potential good news of a Fed rate cut next Tuesday. And in short, yesterday’s trading reflected the uncertainty of this good news/bad news situation.

Stocks opened higher on increased guidance from Intel (Nasdaq: INTC). This was the latest in a series of comments that suggest Technology is back and has resumed a leadership role. And given that Tech is believed to be cyclical in nature, many see a series of rate cuts putting the wind at the back of the stocks over in four-letter-land.

But from there, the day became a roller coaster ride as traders reacted to every piece of news. For example, stocks pulled back after San Francisco Fed President Janet Yellen said that the current financial situation has “added appreciably to downside risks for the economy.” However, traders quickly figured out that this type of comment was actually supportive of a rate cut, so stocks rallied back.

However, Dallas Fed President Richard Fisher put the assumption of a rate cut in question at about 1:15 pm when he said that monetary policy is not a popularity contest and that it is not the job of the Fed to protect specific risk takers – but rather to protect the system. But on the plus side, Mr. Fisher mentioned that the current credit conditions do not appear to be having a major impact on the economy.

From there, the financials led a very nice rally. The advance was spurred by talk of a 100 bp cut in rates by a prominent economist and an announcement that billionaire Joseph Lewis was plunking down big bucks for additional shares of Bear Stearns.

But unfortunately, the optimism didn't last and stocks faded into the close. While there was no specific catalyst for the late-day fade, it is pretty clear that the uncertainty of the big picture and the almost conflicting remarks from Fed officials were to blame.

Turning to this morning, stocks look a little stronger after yet another speech from a Fed Governor seemed to support a cut in rates. Fed Governor Frederic Mishkin told a group of money managers and economists last night that the housing downturn and tightening in the credit markets could weigh on consumer spending and that the Fed will “act as needed” to contain the damage.

Running through the rest of the pre-game indicators, the overseas markets are mostly higher right now. Crude futures are off by -$0.08, but the latest quote is at $77.41. Interest rates are up a smidge this morning and the 10-yr is trading at a yield of 4.35% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open higher. The Dow futures are currently ahead by about 60 points; the S&Ps are up by 7 points, and the NASDAQ looks to be about 12 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Western Digital (NYSE: WDC) – Upgraded at Bear Stearns
LSI Logic (NYSE: LSI) – Upgraded at Deutsche Bank
Pepsico (NYSE: PEP) – Upgraded at Goldman Sachs
MGM Mirage (NYSE: MGM) – Named top value pick at Jefferies
Alcoa (NYSE: AA) – JP Morgan lowers estimates
Masco (NYSE: MAS) – Downgraded at Merrill Lynch
Marriott (NYSE: MAR) – Upgraded at Thomas Weisel Partners
Starwood Hotels (NYSE: HOT) – Upgraded at Thomas Weisel Partners
Tellabs (Nasdaq TLAB) – Target reduced at UBS
Wendy’s (NYSE: WEN) – Target reduced at UBS
Thornburg Mortgage (NYSE: TMA) – 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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