David Moenning's Daily State of the Markets: 10/17

All Pumped Up�

It is safe to say that the bulls were more than a little excited by the time the closing bell rang on Thursday. It wasn’t so much that the 800 point intraday volatility had finally gone their way in the last hour. And it wasn’t really about the whispers that Google (GOOG) was going to report strong numbers. Nor was it the pinning of strike prices into the coming expiration. No, it was none other than “Ahhnold” (aka the Governor of California) that managed to get our heroes in horns all pumped up yesterday afternoon.

Despite a host of negatives, the bulls were able to rally around the hope that a positive bond auction in California would be a precursor of good things to come in the credit markets. And then some more Microsoft (MSFT)/Yahoo (YHOO) chatter also seemed to perk up the mood. However, up until about 2:30 eastern, the outcome of the session was anybody’s guess.

By mid-morning, it looked like any other day lately. Stocks were down 380 points and below last Friday’s closing lows, which, if it had held up, would have undoubtedly brought in more technical sellers in front of today’s expiration event. At issue were the usual concerns about the economy, the state of the earnings season, the potential for more writedowns in the banking sector (shocker), another plunge in the commodity space, hedge fund liquidations (which people are discovering need to be multiplied by a large number to include the leverage that hedge funds have been so fond of using lately), and the “unintended consequences” of the bailout plan – namely higher mortgage rates.
Although traders know full well that the current batch of economic data is rear-view mirror stuff, the reports that came out yesterday were indeed a little unnerving. For example, Industrial Production plunged by 2.8% in September, which was the largest monthly decline since December 1974. And while we can blame this one on the weather as apparently Gustav and Ike had a 2.25% impact on production, the Philly Fed number doesn’t get a pass here. The Philadelphia General Business Activity Index plummeted 41.3 points in October (the most since records began being kept in 1968) to -37.5, which was the lowest level in 18 years. In short, the data continues to point to an economy that is now in the throes of a recession.

However, the good news is that inflation appears to have peaked. As we continuously reminded people earlier in the year when everyone was freaking out about runaway inflation, commodity-based inflation can be quickly cured. And the recent plunge in commodities of all colors, shapes, and sizes has done just that.

Turning to the charts, so far it least it appears that the Crash Playbook continues to be spot on – although we do have to say that the rate at which the action has been unfolding does cause doubt to creep in every time the market moves 700 points in 10 minutes or so. But, as we’ve been saying, the pattern of an emotional panic low followed by a ferocious bounce and then the retest on lower volume is still looking good. If the patterns hold up, we can look forward to a volatile period of backing and filling with an upward bias – and of course some scary down days thrown in to keep us on our toes.

Turning to this morning, the WWWD (what would Warren do) crowd is celebrating Mr. Buffet’s op-ed piece in The New York Times in which the Oracle of Omaha suggests now is a great time for long-term investors to be buying stocks in the good ol’ U.S. of A. But based on the pre-market indicators, it looks like Buffet-based buyers may be able to get in a little cheaper this morning.

Running through the rest of the pre-game indicators, with the exception of Hong Kong, the major overseas markets are mostly higher. Crude futures are up a little with the latest quote showing oil trading higher by $0.80 to $70.65. On the interest rates board, we’ve got the yield on the 10-yr currently trading at 3.93% while the yield on the 3-month T-Bill is at 0.447% and overnight LIBOR is at 1.67%, which is down from 1.94% yesterday. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to another down open. The Dow futures are currently off by about 160 points; the S&P’s are down by about 19 points, while the NASDAQ looks to be about 25 points below fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Advanced Micro Devices (NYSE: AMD) – Reported $0.07 vs. -$0.39
Capital One (NYSE: COF) – Reported $1.03 vs. $0.97
Evergreen Solar (Nasdaq: ESLR) – Reported -$0.18 vs. -$0.10
Gilead Sciences (Nasdaq: GILD) – Reported $0.52 vs. $0.49
Google (Nasdaq: GOOG) – Reported $4.92 vs. $4.75
Intl Business Machines (NYSE: IBM) – Reported $2.05 vs. $2.02
Intuitive Surgical (Nasdaq: ISRG) – Reported $1.44 vs. $1.27
Stryker Corp (NYSE: SYK) – Reported $0.66 vs. $0.67
Zions Bancorp (Nasdaq: ZION) – Reported $0.47 vs. $0.65

Today’s Earnings Before the Bell:

Comerica (NYSE: CMA) – Reported $0.53 vs. $0.49
Foot Locker (NYSE: FL) – Reported -$0.59 vs. -$0.13
Honeywell (NYSE: HON) – Reported $0.97 vs. $0.95
Schlumberger (NYSE: SLB) – Reported $1.25 vs. $1.25

News, Upgrades/Downgrades/Brokerage Research:

Monster Worldwide (Nasdaq: MNST) – Downgraded at Bank of America
Foot Locker (NYSE: FL) – Upgraded at Citi
Symantec (Nasdaq: SYMC) – Upgraded at Freidman Billings Ramsey
Zions Bancorp (Nasdaq: ZION) – Downgraded at Freidman Billings, JP Morgan
Borg Warner (NYSE: BWA) – Upgraded at Goldman
Johnson Controls (NYSE: JCI) – Downgraded at Goldman
Luxottica (NYSE: LUX) – Downgraded at Goldman, JP Morgan
BP PLC (NYSE: BP) – Downgraded at Goldman
Royal Dutch Shell (NYSE: RDS.A) – Upgraded at Goldman
Bank of New York Mellon (NYSE: BK) – Upgraded at Janney Montgomery Scott
Macy’s (NYSE: M) – Upgraded at JP Morgan
Saks (NYSE: SKS) – Upgraded at JP Morgan
Kraft (NYSE: KFT) – Upgraded at Merrill
Textron (NYSE: TXT) – Estimates and target reduced at UBS
Merck (NYSE: MRK) – Upgraded at UBS
Wyeth (NYSE: WYE) – Upgraded at UBS
Masco (NYSE: MAS) – Upgraded at UBS
Juniper Networks (JNPR) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

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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