David Moenning's Daily State of the Markets: 12/20

On The One Hand...

Here's a link to listen to an Audio Version of the report:

The stock market appears to currently be suffering from a case of too much data. Well, okay, it isn’t really the amount of data that is the problem, but rather the fact that each new piece of information seems to conflict with the last. This has created a tug-of-war environment with the bottom line being that the bears are holding the upper hand in the game right now.

Take yesterday's market action as an example. We had Morgan Stanley's (MS) first-ever quarterly loss, which included an additional $5.7 Billion write-down, which doesn’t exactly sound like a positive. But then it was also announced that China was investing $5 Billion in the big broker, which actually does seem positive. Unless, of course, you choose to look at the political aspects of foreign governments continuing to come in and bail out some of Wall Street’s finest. Then, the idea of the Chinese investing $5 Billion for 9.9% of the company might be considered a bad thing.

Next, we had Alan Greenspan opposing the government's plan to freeze the teaser rates, which, was taken as a negative since nobody can seem to agree on what to do with this mess. And speaking of subprime problems, we then got the results of the first "Taffy" which is the street's new official term for the Fed’s Term Auction Facility (TAF), which were actually pretty good. But, then, as you might have guessed by now, we got some bad news in the form of the S&P downgrade of the Municipal Bond insurers MBIA (MBI) and Ambac (ABK).

Also in the "not good" category was the speech given by Richmond Fed President Jeffery Lacker, who said that the Fed must keep overall inflation down and not just the core rate. The problem here is that it is beginning to sound like the FOMC is planning to change the rules in the middle of the game. Whereas, up to this point, the Fed had been concerned primarily about the core rate of inflation; all of a sudden, we are hearing an awful lot of talk about the headline numbers. And with the headline numbers being quite high right now due to the increase in commodity prices, it is tough to see this as a positive.

Finally, we had yet another homebuilder disappoint the already low Wall Street earnings estimates as Hovnanian (HOV) reported a loss of $7.42, which was just a smidge higher than the expectations for a loss of $1.63. And after the housing starts numbers had come in on the punk side, this data served to remind investors that a turn in the housing market is not occurring just yet.

So, when you lump all of this together, it is little wonder that the stock market continued to move in an up-and-down fashion yesterday. And although the gyrations were considerably less violent on Wednesday, the outcome continued to lack clarity.

Turning to this morning, we've got some economic data to review in the form of the third quarter's GDP results. Since this is the government's third shot at the numbers, let's just say that the majority of the report was in line with expectations. But unfortunately, both the Core PCE and the Price Index numbers, which are measures of inflation, were a bit higher than the consensus.

Running through the rest of the pre-game indicators; the overseas markets are mostly higher this morning. Crude futures are off a smidge with the latest quote showing the January contract lower by $0.02 to $91.22. Interest rates are lower so far with the 10-yr trading at a yield of 4.04% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a modestly better open. The Dow futures are currently ahead by about 15 points; the S&Ps are up by about 5 points, while the NASDAQ looks to be about 15 point ahead fair value at the moment on the better-than expected results from Oracle (ORCL) last night.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Accenture (CAN) – Reported $0.60 vs. $0.56
3Com (COMS) – Reported $0.03 vs. $0.02
Nike (NKE) – Reported $0.71 vs. $0.66
Oracle (ORCL) – Reported $0.31 vs. $0.27
Paychex (PAYX) – Reported $0.40 vs. $0.35

Today's Earnings Before the Bell:

Bear Stearns (NYSE: BSC) – Reported <$6.90> vs. <$1.80>
Conagra (NYSE: CAG) – Reported $0.53 vs. $0.44
FedEx (NYSE: FDX) – Reported $1.54 vs. $1.50

News, Upgrades/Downgrades/Brokerage Research:

Nationwide Financial (NYSE: NFS) – Upgraded at Bank of America
RadioShack (NYSE: RSH) – Upgraded at Bank of America
MasterCard (NYSE: MA) – Upgraded at Bear Stearns
Hess Corp (NYSE: HES) – Downgraded at Citi
PetroBras (NYSE: PBR) – Upgraded at Citi
Convergys (NYSE: CVG) – Upgraded at Goldman Sachs
Under Armour (NYSE: UA) – Target increased at Think Equity
MEMC Electronic Materials (NYSE: WFR) – Target increased at UBS
Wynn Resorts (Nasdaq: WYNN) – Upgraded at UBS
Holly Corp (NYSE: HOC) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: MA

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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