David Moenning's Daily State of the Markets:

ECB Bucks Up

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

While it was anything but smooth sailing and a rather disappointing effort overall; stocks finally managed to finish in the green yesterday. The gain was primarily in response to the move by the ECB, which pumped a whopping 500 Billion Euros into the banking system yesterday via 16-day loans to financial institutions. The move was part of an ongoing effort by central banks to ensure that there is ample liquidity available into year-end and was initially perceived as perhaps the beginning of the end to the short-term funding crisis.

But, despite some early enthusiasm toward the ECB's move and solid early gains in stocks, traders basically remain unconvinced that things are going well here. For example, although Goldman Sachs (GS) reported strong numbers before the bell yesterday, the fact that management warned that the recent lack of liquidity in the global capital markets has made them cautious about the near-term outlook was a bit disconcerting.

Speaking of disconcerting, it isn’t exactly encouraging that traders are continuing to sell any and all rallies. For example, although stocks did open higher, it wasn't long before worries over the credit markets and the state of the economy took over. And by mid-morning, the Dow was staring at yet another big decline.

However, the reality is that money can solve most problems in the markets. And with the U.S. Central Bank, the ECB, and the Bank of England all throwing money at the current funding paralysis, traders seemed to take solace in the idea that efforts are being made to fix the problem.

The good news is that short-term interest rates did decline in response to the big banks’ interventions. For example, one month rates in Europe traded about 45 basis points below the prior day’s close. And with the Bank of England’s $20 Billion action, the three-month rates were down about 0.50% from Monday’s trade.

So, does throwing money at the problem actually fix the problem? In short, the stock market’s rather uninspiring gain of 65 points says, "We're not so sure." But, big banks tossing around big money is definitely a step in the right direction.

Turning to this morning, stocks seem to be holding up fairly well in the face of some rather negative news items. The ECB's President said this morning that the economy faces "a period of protracted inflation," which, in English, means that we shouldn't expect rate cuts from the ECB any time soon. Next, Morgan Stanley (MS) reported a loss of $3.61 for the quarter, which included additional writedowns of $5.7 billion in November and was a pretty big miss relative to the drop of $0.39 that Reuters had estimated.

Running through the rest of the pre-game indicators; with the exception of Hong Kong, the overseas markets are mostly lower this morning. Crude futures are up a bit with the latest quote showing the January contract higher by $0.31 to $90.43. Interest rates are lower so far with the 10-yr trading at a yield of 4.08% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a flat-to modestly lower open. The Dow futures are currently off by about 10 points; the S&Ps are down by about 2 points, while the NASDAQ looks to be about a point below fair value at the moment.

Stocks "In Play" This Morning:

Today's Earnings Before the Bell:

General Mills (GIS) – Reported $1.14 vs. $1.14
Joy Global (JOYG) – Reported $0.80 vs. $0.82
Morgan Stanley (MS) – Reported <$3.61> vs. <$0.39>

News, Upgrades/Downgrades/Brokerage Research:

Grant Prideco (NYSE: GRP) – Downgraded at Bank of America
Take Two Interactive (Nasdaq: TTWO) – Upgraded at Citi
Blue Nile (Nasdaq: NILE) – Upgraded at Citi
Barrick Gold (NYSE: ABX) – Target increased at Credit Suisse
NYMEX Holdings (NYSE: NMX) – Upgraded at Deutsche Bank
UBS (NYSE: UBS) – Downgraded at Goldman Sachs
National Semiconductor (NYSE: NSM) – Downgraded at Goldman Sachs
Weatherford Intl (NYSE: WFT) – Upgraded at Goldman Sachs
Schlumberger (NYSE: SLB) – Upgraded at Goldman Sachs
Baker Hughes (NYSE: BHI) – Downgraded at Goldman
BJ Services (NYSE: BJS) – Downgraded at Goldman
BP PLC (NYSE: BP) – Downgraded at JP Morgan
Occidental Petroleum (NYSE: OXY) – Upgraded at Morgan Stanley
Plantronics (NYSE: PLT) – Upgraded at RW Baird
H&R Block (NYSE: HRB) – Target increased at UBS
Jacobs Engineering (NYSE: JEC) – Target increased at UBS
Allstate (NYSE: ALL) – Target reduced at UBS

Mr. Moenning holds Long positions in stocks mentioned: ABX, OXY

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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