David Moenning's Daily State of the Markets:

In the Zone

Good morning and Happy Friday. Although the usual hoopla was absent, the DJIA did manage to both move above and close above the 12,000 level on Thursday. However, with the earnings and economic news coming in mixed, the enthusiasm for the milestone was rather muted.

While the Dow scored its 9th record close in the last 3 weeks, the overall market action was a bit erratic. Sure, there were some nice earnings reports from the likes of Coca Cola and Apple. But given the disappointing action from Advanced Micro Devices, Dell, and Honeywell, the weaker than expected results from the LEI and the Philly Fed reports, and the fact that oil marched higher yesterday, it was actually surprising to see any green screens at all at the end of the day.

The explanation for the move up is simple. The bulls continue to be �in the zone� as the �It�s all good� attitude just keeps moving stocks higher. For example, the surprise weakness in last month�s Philly Fed report spooked investors and caused a scary selloff as traders fretted that the economy was cooling too fast. However, this month�s shortfall (Philly Fed General Activity Index came in at -0.7% vs. +0.8%) was simply taken in stride. (But, to be fair, the Future Activity Index spiked higher and the Inflation component continued to ease.)

Continuing on the economic front, the Index of Leading Economic Indicators rose just +0.1% in September, which was below the forecasts for an increase of +0.3%. There were some bright spots in the report as Consumer Expectations rose smartly, but overall, the indicator suggests an uninspiring rate of growth for the economy.

For those that might consider the economic data a negative, we reply, �Au Contraire.� Lest we forget, sub par growth is a good thing these days. You see, the fact that GDP can continue to grow is a potential positive for earnings and the fact that the growth rate is sub par helps keep inflation � and the Fed � at bay. Therefore, what�s good is good and what�s bad is bad, unless, of course, the good is, well, too good.

So, with Goldilocks aboard the bull train, stocks just keep inching higher. And while there are lots of things for the bears to complain about in relation to the current move up, the bottom line is that the bulls are controlling the ball right now and their opponents have been nowhere to be found.

Turning to this morning, there is no economic news scheduled for today, so the earnings parade will attract most of the attention. So far this morning, it�s the big miss by Caterpillar and their reduced guidance that has stocks looking a little stressed in the pre-market.

Running through the pre-game indicators, the major overseas markets are fractionally higher this morning. Gold futures are down a couple bucks and are quoted at $600.40 right now. Crude oil futures are currently a quarter higher to $58.75 at the moment. Interest rates are waffling in the recent zone this morning with the 2-year currently quoted at 4.86% while the 10-yr is trading with a yield of 4.78% right now. And finally, with an hour before the bell, stock futures in the U.S. are mixed. The Dow futures are currently off by 30, the S&Ps are down a fraction, and the NASDAQ is sporting a gain of about 1 point.

Stocks �In Play� This Morning:

Caterpillar (CAT) � Reported $1.14 vs. $1.35, Guided lower
3M (MMM) � Reported $1.17 vs. $1.13
Merck (MRK) � Reported $0.51 vs. $0.50
Schlumberger (SLB) � Reported $0.81 vs. $0.77
Google (GOOG) � Reported $2.62 vs. $2.41
Sunoco (SUN) � Mentioned positively in Barron�s
Business Objects (BOBJ) � Downgraded at BofA
Hershey (HSY) � Upgraded at Bear Stearns
Sandisk (SNDK) � Reported $0.61 vs. $0.57, � Downgraded at C, Oppenheimer
UnitedHealth (UNH) � Mentioned positively at Citigroup
Armor Holdings (AH) � Removed from Buy List at Goldman Sachs
General Dynamics (GD) � Downgraded at Goldman Sachs
Coca Cola (KO) � Added to Focus List at Merrill Lynch
Ericsson (ERIC) � Upgraded at Prudential
Pfizer (PFE) � Downgraded at Raymond James
United Parcel Service (UPS) � Downgraded at Raymond James
Yahoo (YHOO) � Downgraded at Stifel Nicolaus
Whole Foods (WFMI) � Downgraded at UBS

Long positions in stocks mentioned: SUN, SNDK, MER

** 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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