David Moenning's Daily State of the Markets: 12/10

December 10, 2007 9:52 AM EST
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What's the Next Move?

Stocks showed little movement on Friday in response to the better-than expected jobs report. The reason for the lackluster response is actually pretty straightforward. You see, the good news had been foreshadowed by the ADP report on Wednesday and stocks had already celebrated the positive economic news. And since stocks rarely pop higher for the same reason twice, the session would up being a consolidation day.

Friday's jobs data also seemed to suggest that a cut of 25 basis points by the Fed makes sense at this time. There had been public outcry by traders to cut by 0.50%, but this contingent seems to have been quieted after a week of decent numbers on the economic front.

While there is still a great deal of anticipation as to what Mr. Bernanke is going to have to say on Tuesday afternoon, we probably shouldn’t expect more fireworks following the meeting. The simple fact of the matter is that the 880 point move in the stock market over the past nine sessions has more than likely discounted the expected rate cut of 0.25%.

Therefore, the question of the day becomes: What's the next move? Sure, stocks could mosey higher into year-end as the Santa Claus rally could stick around. But once the calendar flips to 2008, traders have to be wondering what will trigger the market’s next move?

A Wall Street Journal article this morning speaks of a downward spiral in earnings caused by the economic slowdown. Then the bears are quick to point out that we haven’t seen the last of the subprime mess. And the simple fact of the matter is that Ben Bernanke doesn’t want to keep cutting rates unless he absolutely has to. Thus, it is fairly easy to paint a relatively dark picture for the beginning of next year.

However, it is also important to keep in mind that it generally doesn’t pay to stay too negative for too long. So, until and unless the economic picture darkens, we should probably assume that the market is currently tracing out a consolidation pattern and continue to give the bulls the benefit of the doubt.

Turning to this morning, we don’t have any economic data to review before the opening bell but there will be a report on the housing market later this morning. Looking at the pre-market, despite an announcement by UBS that the company will write down $10 billion in response to subprime exposure, stocks appear to be in a fairly upbeat mood.

Running through the rest of the pre-game indicators; the overseas markets are mixed by region this morning. Crude futures are up a bit so far with the latest quote showing the January contract trading up $0.12 to $88.40. Interest rates are a smidge lower with the 10-yr trading at a yield of 4.11% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 58 points; the S&Ps are up by about 5 points, while the NASDAQ looks to be about 5 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Beckman Coulter (NYSE: BEC) – Upgraded at Bank of America
Forward Air (Nasdaq: FWRD) – Downgraded at Bear Stearns
Amgen (Nasdaq: AMGN) – Downgraded at Bernstein, Merrill
Family Dollar Stores (NYSE: FDO) – Target reduced at Credit Suisse
Dominion Resources (NYSE: D) – Downgraded at Credit Suisse
Portugal Telecom (NYSE: PT) – Downgraded at Credit Suisse
Ford (NYSE: F) – Estimates reduced at Deutsche Bank
StatOilHydro (NYSE: STO) – Downgraded at Deutsche Bank
Emerson Electric (NYSE: EMR) – Downgraded at Deutsche Bank
Best Buy (NYSE: BBY) – Mentioned positively at Goldman Sachs
Kansas City Southern (NYSE: KSU) – Upgraded at Goldman Sachs
Hess Corp (NYSE: HES) – Downgraded at Goldman Sachs
Red Hat (NYSE: RHT) – Downgraded at Jefferies
ITT Educational Services (NYSE: ESI) – Upgraded at Lehman
Novellus (Nasdaq: NVLS) – Upgraded at Merrill Lynch
Foot Locker (NYSE: FL) – Upgraded at Merrill Lynch
Wendy's (NYSE: WEN) – Target reduced at UBS
Palm (Nasdaq: PALM) – Downgraded at UBS
Terex (NYSE: TEX) – Upgraded at UBS

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

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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