David Moenning's Daily State of the Markets: 2/14

Another Sweetheart Session?

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

Stocks turned a third straight sweetheart session yesterday, as the bulls appeared to be feeling the love in front of Valentine’s Day from a better-than expected report on Retail Sales. Although there was some negative news and stocks once again finished off their highs on declining volume, the bulls come into today feeling pretty good about themselves for a change.

The primary catalysts for Wednesday’s gain of 179 points were a solid earnings report from tech bellwether, Applied Materials (AMAT) and word from the Commerce Department that contradicted the reports that the American consumer is on life support.

With Retail Sales coming in with a gain of +0.3% in January, which was well above the estimates for a reading of between unchanged and a drop of -0.4%, the argument that the economy is in dire straits seemed to fall a bit flat. In fact, one can now argue that after a weak December, the economy may have actually improved a bit in January.

Okay, that may be taking things a little too far. But with Treasury Secretary Hank Paulson telling us that the economy remains on a growth path and just about everyone else in Washington D.C. pledging yesterday to do whatever it takes in order to lend the economy a hand, it is relatively easy to see why some of our furry friends may have been scrambling to cover some shorts.

But before one falls head over heels in love with this market, we should remember that much of this week’s move has been technical in nature. And as such, we should watch the overhead resistance levels very carefully. Should the rally bump its head in the 12,800 – 13,000 range, then one could easily argue that what we’ve seen recently is just a reflex bounce. However, if the bulls can find a way to get some volume behind a move above resistance, then we may finally have something to talk about.

Turning to this morning, there is a fair amount of anxiety regarding Fed Chairman Bernanke’s testimony in front of the Senate Banking Committee slated for this morning at 10:00 am. Investors will primarily be looking to hear confirmation that the Fed is still entertaining the idea of further rate cuts. Mr. Bernanke will be accompanied by Treasury Secretary Paulson and the SEC’s Christopher Cox. But that’s not all we’ll get on the economy today because at 1:30 pm we’ll hear from Chicago Fed President Charles Evans.

Running through the rest of the pre-game indicators; the overseas markets are higher across the board. Crude futures are higher so far this morning with the latest quote up $1.14 to $94.41. Interest rates are moving up with the 10-yr trading at a yield of 3.74% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a flattish open. The Dow futures are currently up about 30 points, which is about even with fair value; the S&Ps are right at breakeven, while the NASDAQ looks to be about 2 points above fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Agilent (NYSE: A) – Reported $0.34 vs. $0.38
AMERIGROUP (NYSE: AGP) – Reported $0.57 vs. $0.56
Baidu.com (Nasdaq: BIDU) – Reported $0.92 vs. $0.75
Network Appliance (Nasdaq: NTAP) – Reported $0.37 vs. $0.34
Nvidia (Nasdaq: NVDA) – Reported $0.42 vs. $0.41
Vulcan Materials (NYSE: VMC) – Reported $1.12 vs. $1.09

Today’s Earnings Before the Bell:

Alexion Pharmaceuticals (Nasdaq: ALXN) – Reported -$0.33 vs. -$0.48
Comcast (Nasdaq: CMCSA) – Reported $0.20 vs. $0.18
Encana (NYSE: ECA) – Reported $1.33 vs. $1.26
Marriott (NYSE: MAR) – Reported $0.62 vs. $0.62

News, Upgrades/Downgrades/Brokerage Research:

Burlington Northern (NYSE: BNI) – Target increased at Bear Stearns
Canadian Natl Railway (NYSE: CNI) – Target increased at Bear Stearns
Norfolk Souther (NYSE: NFC) – Target increased at Bear Stearns
Union Pacific (NYSE: UNP) – Target increased at Bear Stearns
Network Appliance (NTAP) – Downgraded at Citi
Goldman Sachs (NYSE: GS) – Target reduced at Deutsche Bank
UBS (NYSE: UBS) – Target reduced at Deutsche Bank
Arkansas Best (Nasdaq: ABFS) – Upgraded at Goldman
YRC Worldwide (Nasdaq: YRCW) – Upgraded at Goldman
Con-Way (NYSE: CNW) – Added to Conviction Buy list at Goldman
Intel (Nasdaq: INTC) – Removed from Conviction Buy list at Goldman
Repsol (NYSE: REP) – Upgraded at Goldman
Micron Technology (NYSE: MU) – Downgraded at Goldman
Level 3 Comm (Nasdaq: LVLT) – Downgraded at Morgan Stanley
ValueClick (Nasdaq: VCLK) – Upgraded at Oppenheimer, RW Baird
Baidu.com (Nasdaq: BIDU) – Upgraded at RBC
BE Aerospace (Nasdaq: BEAV) – Downgraded at UBS
Safeway (NYSE: SWY) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: BNI

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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