David Moenning's Daily State of the Markets: 5/12

A Passing Grade So Far

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

Stocks continued to pull back on Friday on the back of new troubles in the financial sector and worry over the impact of yet another record high close for oil. But, in terms of the test of the breakout zone that we spoke of on Friday morning, so far at least, it looks like the market gets a passing grade.

It was little surprise that AIG reported a loss, but the severity of the loss ($7.81 billion to be exact) and the announcement that the company plans to raise $12.5 billion took investors by surprise. Add to that the news that Citigroup (C) announced plans to sell off $400 Billion in non-core assets and it becomes pretty clear that all is not well in the financial sector. In short, the fact that we may have seen the worst of the credit crisis has been a reason to rally, but the reality is that the troubles are far from over in the sector.

It also didn’t help matters that oil prices surged to a record high yet again on Friday. Ongoing attacks on pipelines in the Niger Delta caused crude prices to increase another $2.44 and close at $126.13. Needless to say, crude’s rude rise of almost $10 over the past week alone continues to weigh on the minds of anyone who drives a car.

Although stocks did pull back on Friday, the retest of the breakout area appears to have been successful – well, so far at least, anyway. The fact that the pullback occurred on light volume and that prices finished above the old resistance level puts a letter grade of “B” on the test so far. However, should prices deteriorate much from here on the Dow, that letter grade is likely to sink fast.
As we’ve mentioned, because stocks had moved up more than 11% in just two months, a pullback of sorts is to be expected. And while the technicians tell us that it is important for the major indices to remain above the all-important breakout zones, our attitude right now is that a pullback in this situation is normal and we probably shouldn’t get too worked up over where prices go in the short-term.

Turning to this morning, we don’t have any economic data to review today but we will get speeches from Fedheads Charles Evans of Chicago and Dennis Lockhart of Atlanta. And then in the week ahead, we will get a look at some very important inflation and consumer data. For example, on Wednesday morning we will get both the CPI and Retail Sales numbers.

On the news front, other than massive earthquakes and a reserve requirement increase in China, things are fairly quiet.

Running through the rest of the pre-game indicators; the foreign markets are moving slightly higher. Crude futures are moving down so far with the latest quote showing oil trading down $1.79 to $124.17. Interest rates are moving up as the yield on the 10-yr is currently trading at 3.78%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a flat-to-slightly-higher open. The Dow futures are currently ahead by about 25 points; the S&P’s are up about 2 points, while the NASDAQ looks to be about a single point above fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

MBIA (NYSE: MBI) – Reported -$13.03 vs. -$0.11

Hecla Mining (NYSE: HL) – Reported $0.10 vs. $0.12
Sprint Nextel (NYSE: S) – Reported $0.04 vs. $0.02

News, Upgrades/Downgrades/Brokerage Research:

FedEx Corp (NYSE: FDX) – Reduced guidance for quarter to $1.45 - $1.50 vs. $1.60 - $1.80
Hewlett-Packard (NYSE: HPQ) – Mentioned positively at Citi
Wal-Mart (NYSE: WMT) – Target increased at Citi
Pacific Sunwear (PSUN) – Downgraded at Citi
Public Storage (NYSE: PSA) – Downgraded at Deutsche Bank
Telecom Italia (NYSE: TI) – Upgraded at Deutsche Bank
Albemarle (NYSE: ALB) – Added to Conviction Buy list at Goldman
Marsh & McLennan (NYSE: MMC) – Upgraded at Goldman
American Intl Group (NYSE: AIG) – Downgraded at Goldman
Dollar Tree Stores (DLTR) – Downgraded at JP Morgan
El Paso Corp (NYSE: EP) – Upgraded at JP Morgan
Alcoa (NYSE: AA) – Target increased at Morgan Stanley
EBay (Nasdaq: EBAY) – Mentioned positively at Morgan Stanley
Imclone (Nasdaq: IMCL) – Downgraded at Morgan Stanley
LM Ericsson (Nasdaq: ERIC) – Upgraded at RBC

Mr. Moenning holds Long positions in stocks mentioned: WMT

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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