David Moenning's Daily State of the Markets: 11/21

Script? What Script?

At this time of year, the holiday shortened weeks usually follow a simple script of very little volatility. Although history shows that the sessions before and after a holiday usually end in an upbeat fashion, they are traditionally rather boring affairs that don’t exhibit much movement in the indices. The reasoning behind the lack of volatility is really very simple as traders are more focused on family than on their trading.

However, so far at least, this week is not exactly going according to plan as the Dow was whipped up and down yesterday in a 268 point range. The day started on an upbeat note and it looked like traders were once again following the script. But just after lunch the market fell victim to the rumor mill and things got very interesting very quickly.

Stocks moved higher on the back of an upbeat report from Hewlett Packard (HPQ), an increase in the price target of Google (GOOG), an upgrade of Exxon Mobil (XOM), better than expected numbers from Nordstrom’s (JWN), and a modestly better-than expected report on October’s housing data. All of the above led to a solid triple-digit gain and it looked like the bulls would head into their Thanksgiving happy.

However, things took a turn for the worse after Freddie Mac (FRE) said that they were considering cutting their dividend by 50% and had hired a Wall Street firm to explore capital raising alternatives. It also didn’t help that the Office Depot (ODP) and Target (TGT) reports had reinforced the idea of some spillover from the housing correction or that the Fed minutes showed that Bernanke’s gang had reduced their 2008 economic forecast. Cutting to the chase, the FOMC now sees the U.S. economy growing in a range of 1.8% to 2.5%, which is down sharply from the summer’s range of 2.5% to 2.75%.

But things really got fun after lunch as the rumors started to fly and traders reacted quickly to each story. First, word that Countrywide Financial (CFC) was heading to bankruptcy made the rounds and the Dow dove more than 100 points within minutes. So, suddenly, the warm-and-fuzzy up day had turned to red and fear was in the air.

The fact that the oil contract finished the day up a whopping $3.39 to a new record high of $98.03 also gave the bears something to crow about.

However, just about the time the technicians were announcing that stocks had broken down to new lows and a bear market was upon us, the rumors of an emergency rate cut made the rounds and stocks enjoyed a furious rally in the last 40 minutes. So, while the bulls did in fact get their up day, the session was anything but traditional.

Turning to this morning, it appears that the pre-Thanksgiving up-day script is also being tossed aside as worries over the Fed’s cut in the outlook for the U.S. economy has taken a toll on the overseas markets.
Hong Kong fell -4.15%, Japan dropped -2.46%, France is off -2.03%, Germany’s DAX is down -1.81%, and in the UK, stocks are down -1.68% at the moment.

Finally, with about an hour before the bell, stock futures in the U.S. are looking to open down hard as the S&P futures are currently about 15 points below fair value at the moment.

Stocks “In Play” This Morning:
Today’s Earnings Before the Bell:
Deere & Co (NYSE: DE) – Reported $1.88 vs. $1.54

News, Upgrades/Downgrades/Brokerage Research:
Office Depot (NYSE: ODP) – Downgraded at Bear Stearns, Upgraded at Credit Suisse
Dicks Sporting Goods (NYSE: DKS) – Upgraded at Citi
Freeport-McMoRan (NYSE: FCX) – Removed from Conviction Buy list at Goldman
Aon Corp (NYSE: AOC) – Upgraded at Goldman
Circuit City (NYSE: CC) – Downgraded at JP Morgan
Telecom Italia (NYSE: TI) – Downgraded at Lehman
Deutsche Telekom (NYSE: DT) – Upgraded at Lehman
Simon Property Group (NYSE: SPG) – Upgraded at Merrill Lynch
Gamestop (NYSE: GME) – Target reduced at UBS

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

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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