David Moenning's Daily State of the Markets: 3/10

From Bad to Worse?

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

Friday's jobs report got the headlines but it was actually fears that the credit crisis is going from bad to worse that triggered another day of selling. The end result was a breakdown on the charts and new 52-week lows for the Dow, S&P 500, and NASDAQ indices.

Make no mistake about it; the labor department’s report on job growth was not a positive. Since analysts had been looking for no change in the payroll figures, the drop of 63,000 definitely raised some eyebrows. The problem is the job losses in February were the largest since March 2003 and perhaps more importantly, marked the second straight monthly decline. And this, of course, lends credence to the argument that the economy is currently in recession.

As you'd expect, stocks opened lower on the news but then recovered as investors may have realized that data showing a weak economy isn’t exactly newsworthy. However, concerns about credit and the banking industry soon took center stage and gave the bears plenty of room to work.

For starters, word that Washington Mutual (WM) was searching for a cash infusion left traders to wonder if there were any financial institutions left in America that weren’t out begging for cash right now. Next, shares of Carlyle were suspended due to "substantial additional margin calls and additional default notices." In addition, there was the comment late on Friday that Ambac (ABK) was going to need another billion dollars to survive, which obviously doesn’t bode well for the outlook in the group.

And finally, if one looked past the fact that the Fed didn’t lower rates on Friday and dug into the FOMC's two announcements, it becomes clear that all is definitely not well in the credit markets. The Fed not only increased the amount of the next two Taffy offerings from $30 to $50 billion, but also offered up another $100 billion in term repos. And as one analyst mentioned over the weekend, this move makes it appear that the Fed has become a pawn shop for securities no one will buy.

However, the bears argue that the most important event to occur on Friday was the break below the lower end of the recent trading range. Chart technicians tell us that this amounts to a signal that the market is about to embark on the next leg down and that the bulls will be left defenseless during this phase.

Turning to this morning, we don’t have any economic data to sift through before the bell and the calendar for the early part of the week is fairly light. In the pre-market, despite news of an FBI probe into Countrywide (CFC), stocks are holding up fairly well as rumors of an imminent rate cut from the Fed are once again making the rounds.

Running through the rest of the pre-game indicators; foreign markets are mostly lower in response to Wall Street’s rough ride on Friday. Crude futures are moving down so far with the latest quote off by $0.73 to $104.42. Interest rates are moving down with the 10-yr trading at a yield of 3.50% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to flattish open. The Dow futures are currently ahead by about 20 points; the S&Ps are up by about 2 points while the NASDAQ looks to be about 1 point above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Crown Holdings (NYSE: CCK) – Upgraded at Bank of America
Aeropostale (NYSE: ARO) – Downgraded at Bank of America
Anheuser Busch (NYSE: BUD) – Target reduced at Credit Suisse
PepsiCo Inc (NYSE: PEP) – Target reduced at Credit Suisse
PepsiAmericas (NYSE: PAS) – Target reduced at Credit Suisse
Apria Healthcare Group (NYSE: AHG) – Downgraded at Deutsche Bank
Washington Mutual (NYSE: WM) – Fitch lowers long-term issuer default ratings
Wells Fargo (NYSE: WFC) – Fitch lowers long-term issuer default ratings
First Horizon National (NYSE: FHN) – Fitch lowers long-term issuer default ratings
Blackrock Inc (NYSE: BLK) – Estimates reduced at Goldman
Eaton Vance (NYSE: EV) – Estimates reduced at Goldman
Franklin Resources (NYSE: BEN) – Estimates reduced at Goldman
Janus Capital Group (NYSE: JNS) – Estimates reduced at Goldman
Waddell & Reed (NYSE: WDR) – Estimates reduced at Goldman
JC Penney (NYSE: JCP) – Upgraded at Goldman
Nordstrom (NYSE: JWN) – Upgraded at Goldman
Staples (Nasdaq: SPLS) – Downgraded at Goldman
Applied Materials (Nasdaq: AMAT) – Target increased at JP Morgan
99 Cents Only (NYSE: NDN) – Upgraded at Lehman
Ciena Corp (Nasdaq: CIEN) – Downgraded at Piper Jaffray

Mr. Moenning holds Long positions in stocks mentioned: AMAT

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.


David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

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