David Moenning's Daily State of the Markets:

155 and Counting

Good morning. Brace yourselves friends because after more than seven months of being forced to watch the action from the sidelines, it looks like the grizzly gang may have finally found a reason or three to get into the game. Yesterday’s drop of just 15 Dow points is hardly a reason to sound the alarm and frankly, the total pullback of 155 points, which represents a measly drop of -1.2% so far, looks like nothing more than a minor bout of profit taking that occurs from time to time.

But this time, our furry friends may have something to get excited about. In fact, it seems there are several issues working right now that have given traders a reason to avoid the overworked buy button for a spell.

At issue right now are the following: (1) Ongoing concerns about the possibility of sub-prime mortgage defaults spreading to higher quality mortgage markets. (2) Oil’s continued rise. (3) The very real question of what to do about Iran’s insistence on joining the nuclear club. And finally, (4) none other than Former Fed Chairman Mr. Alan Greenspan resurrected the “R Word” yesterday by suggesting that there was a possibility of a U.S. recession by the end of the year.

Taken by themselves, none of these issues represents much of a reason for worry. However, when grouped together, they present solid support for the idea that it might be time watch and wait for a while. And perhaps the biggest telling factor yesterday was this group of negative influences managed to help the bear camp overcome what could be the largest buyout by Private Equity in history.

Now toss in this morning’s latest issue concerning Chinese growth and, given that stocks are extended and due for a normal pullback, well, it’s pretty hard to argue with the bears this morning.

Turning to this morning, overseas markets are a sea of red numbers at the present time. China’s stock markets plunged overnight on concerns that regulators may become too aggressive in their efforts to cool down the economy as the word “bubble” was used by one official. In addition, the Dollar/Yen weakness continued and is being attributed to the unwinding of the “carry trade.” These troubles obviously spooked investors as the Shanghai Composite fell by more than -8.8% and China’s Shenzhen 300 dropped -9.2% - both were the biggest drops in 10 years.

So, in light of the fact that the Chinese decline spread west quickly, it is a pretty safe bet that stocks in the U.S. are going to come under some significant pressure during today’s session.

But before we get to the opening bell there is some economic data we need to review. The volatile Durable Goods report once again provided a pretty big surprise as the January report came in with a drop of -7.8%, which was a huge miss from the expectations of -0.3%. In digging into the report, we can skip the details and move directly to the summary: this report shows weakness just about everywhere. So, as usual, maybe Alan Greenspan knew something we didn’t.

Running through the pre-game indicators, all the major overseas markets are seeing substantial declines this morning. Gold futures are trading lower by $5.60 to $684.20 right now. In the oil pits, crude futures are off $0.94 this morning on worries over global growth and the latest quote is at $60.45. Interest rates are moving lower again this morning on economic worries and a flight to quality. The yield on the 10-year is currently trading at 4.59%. And finally, with an hour before the bell, stock futures in the U.S. are looking to open down hard. The Dow futures are currently down by about 80 points; the S&P’s are about 11 points under water, while the NASDAQ looks to be about 25 points below fair value at the moment.

Stocks “"n Play" This Morning:

CBS Corp (NYSE: CBS) – Reported $0.60 vs. $0.47
Federated Dept Stores (NYSE: FD) – Reported $1.66 vs. $1.58
Harrah’s Ent (NYSE: HET) – Reported $0.45 vs. $0.65
Nordstrom (NYSE: JWN) – Reported $0.84 vs. $0.90
NII Holdings (Nasdaq: NIHD) – Reported $0.60 vs. $0.44
Reliant Energy (NYSE: RRI) – Reported <$0.18> vs. <$0.20>
Radioshack (NYSE: RSH) – Reported $0.62 vs. $0.42
Sirius Satellite Radio (Nasdaq: SIRI) – Reported <$0.14> vs. <$0.19>
Target (NYSE: TGT) – Reported $1.29 vs. $1.27
Brocade Comm (Nasdaq: BRCD) – Upgraded at Bear Stearns, Goldman Sachs
Moodys Corp (NYSE: MCO) – Upgraded at Citigroup
Citrix Systems (Nasdaq: CTXS) – Upgraded at Credit Suisse
Freeport McMoran Copper (NYSE: FCX) – Upgraded at Credit Suisse
Barrick Gold (NYSE: ABX) – Upgraded at Credit Suisse
ABB Limited (NYSE: ABB) – Downgraded at Deutsche Bank
NYSE Group (NYSE: NYX) – Downgraded at JP Morgan
Bed Bath & Beyond (BBBY) – Downgraded at UBS
General Electric (NYSE: GE) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: BSC, GS, RRI

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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