David Moenning's Daily State of the Markets: 12/28

Reality Revisited

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

Reality returned to the corner of Broad and Wall yesterday in the form of a 192 point decline. In short, after six days of a Santa Claus rally, which had pushed the Dow up nearly 400 points, traders were smacked in the face with a reality check on Thursday.

It didn’t take much digging to determine the source of the discontent yesterday. And although the assassination of Pakistan’s former Prime Minister Benazir Bhutto just days before an important election and the ensuing political unrest created a somber tone, it wasn’t the only “problem” on the day.

While it is very difficult to look past the tragic news out of Pakistan, the other news on the day wasn’t exactly encouraging either. First, Goldman Sachs (GS) came out with a report that estimated additional writedowns for the big banks and brokerages would total more than $33 Billion in the fourth quarter. Then there was the speculation, also by Goldman, that Citigroup (C) would need to cut its dividend by 40%.

On the economic front, the Durable Goods data brought worries about a recession back to the forefront. As we reported yesterday before the open, orders for durable goods rose by just +0.1% in November, which was well below economists’ expectations for an increase of 3.0%. And although the report was definitely skewed by the 22% drop in defense orders, when one strips out the big-ticket transportation numbers, orders in November actually fell by -0.7%.

Although data showing a slowing economy isn't exactly newsworthy these days, a quick rundown of our economic headlines give you a feel for the overall mood. For example, our economic report from yesterday included headlines such as: "Durable Goods Slide," "Consumer Confidence Remains Weak," "Labor Markets Continue to Soften," and "Mortgage Activity Slows."

Then when you toss in the fact that the geopolitical issues have helped oil prices resume their march toward $100 (the February contract closed higher by $0.65 at $96.62), it is fairly easy to see why the traders that were at their desks yesterday weren’t overly enthusiastic by the end of the day.

Turning to this morning, a report that some of the big banks are looking to sell assets in order to shore up their balance sheets is being viewed as proactive and has put a spring in the bulls' step so far.

We don't have any economic data to review before the bell, but we will get reports on the Chicago Purchasing Managers Index at 9:45am Eastern and then New Home Sales at 10:00am.

Running through the rest of the pre-game indicators; as expected, the overseas markets are mostly lower this morning. Crude futures are a little higher with the latest quote showing the February contract up by $0.34 to $96.96. Interest rates are lower so far with the 10-yr trading at a yield of 4.16% 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 up by about 90 points; the S&Ps are higher by about 13 points, while the NASDAQ looks to be about 17 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Blockbuster (NYSE: BBI) – Mentioned positively in Barron's
Christopher & Banks (NYSE: CBK) – Mentioned cautiously at RBC Capital
Anadarko Petroleum (NYSE: APC) – Target increased at UBS

Mr. Moenning holds Long positions in stocks mentioned: 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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