David Moenning's Daily State of the Markets: 10/01

Waiting on the Damage Reports:

It is usually pretty tough to draw much of a conclusion about the future from just one session, especially when that one session happens to be the last trading day of a wild quarter. However, our opinion is that the recent 500 point rally may have substantially discounted the potential positives from the recent rate cuts. And as such, traders may now need additional input on the issues of corporate earnings, the damage caused by the credit crisis, and how the economy is faring over the coming weeks.

So, with the third quarter’s earnings parade set to start rolling shortly, it wouldn’t be terribly surprising to see stocks level off and search out an equilibrium point prior to taking in the new data. And in short, Friday may have been the first step on this path as stocks simply meandered a bit lower and appeared to be seeking direction.

Although it was the end of the quarter, Friday was a rather dull session which was highlighted by several news stories. For example, stocks were lower at the open in response to a report that UK’s troubled mortgage lender Northern Rock had been forced to continue to borrow heavily from the Bank of England. This, of course, raised the question of whether or not we have seen the worst of the subprime mess.

Next, we got word that Alan Greenspan had increased the chances of a recession in the U.S. from 33% to right around 50%. During an interview on a BBC radio program, Greenspan said that the chances of the U.S. sinking into a recession is actually less than 50%, although he is more uncertain about how strong world economies are at the present time. While Greenspan’s musings were hardly damning, the comments did attract some attention.

But the former Fed Chairman wasn’t the only fed-head to speak on Friday as we also heard from St. Louis Fed President William Poole and Chicago Fed Governor Frederic Mishkin. Poole’s comments were the most informative as he said that the impact of the financial turmoil is simply not known at the present time. Poole also made that case for a well-telegraphed Fed policy and went on to say that there are tentative signs that the financial markets are recovering.

Turning to this morning, the news out of Citigroup, which reduced their Q3 earnings projections by 60% due to “dislocations in the mortgage backed securities and credit markets,” has put a damper on the mood in the early going.

On the economic front, we don’t have any data to review before the bell, but we will get the ISM Manufacturing and Prices Pad reports at 10:00am eastern.

Running through the rest of the pre-game indicators, with the exception of Japan, the overseas markets are mostly lower this morning Crude futures are down $0.31 so far with the latest quote at $81.35. Interest rates are steady this morning with the 10-yr is trading at a yield of 4.58% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open rather flat. The Dow futures are currently off by about 8 points; the S&Ps are up by about a point, and the NASDAQ looks to be about 2 points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:
Citigroup (NYSE: C) – Reduces Q3 forecast by 60% due to dislocations in mortgages and credit markets
Borg Warner (NYSE: BWA) – Mentioned positively in Barron’s
AMR Corp (NYSE: AMR) – Mentioned positively in Barron’s
Citrix Systems (Nasdaq: CTXS) – Downgraded at BofA
Illinois Tool Works (NYSE: ITW) – Downgraded at Bear Stearns
Southwest Airlines (NYSE: LUV) – Downgraded at Citi
ConocoPhillips (NYSE: COP) – Downgraded at Deutsche Bank
Grupo Televisa (NYSE: TV) – Downgraded at Merrill Lynch
Research In Motion (Nasdaq: RIMM) – Downgraded at RBC Capital
3 Com (Nasdaq: COMS) – Downgraded at UBS
CME Group (NYSE: CME) – Upgraded at Wachovia

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

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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