David Moenning's Daily State of the Markets 07/05

Fireworks and Missiles Fly

Good morning. After suffering the consequences of the Russell rebalancing on Friday, stocks roared back in Monday�s shortened session. The Dow�s gain of almost 80 points recovered Friday�s entire rebalance-induced decline and put a smiley face on the first trading session of July and of the new quarter.

With most traders spending time with the family at the beach, it didn�t take much for the bulls to push their weight around and create an appropriate pre-fourth fireworks show. Volume was extremely light and the day didn�t really mean much in the bigger picture, but after a rough go of it during the second quarter, it was nice to see the bulls show a little patriotism and get the quarter started off on the right foot.

Cutting to the core issue here, Thursday�s Fed announcement continues to reverberate through the stock market. Yes, there is a distinct risk that the bulls have overdone their interpretation of the statement. In reality, there was no mention of a pause in the rate hike campaign and no real hint that August�s likely increase would be the last. However, the fact that Mr. Bernanke suggested that the Fed would be watching both sides of the equation left the bulls feeling warm and fuzzy.

Monday�s session appeared to confirm that the bulls are in control of the ball at the present time. The bulls will argue that the gain, albeit on extremely light volume, was technically a �follow-through day� of sorts. While our definition requires a 1% gain on increased volume, the fact that stocks have not yet given back any of Thursday post-fed blast has to be considered a positive. Couple this with the �Double 9 to 1 Buy Signal� that we detailed in our weekend State Report and things look fairly bright going forward.

As has been reiterated numerous times, the key to the markets� short and long-term prospects continues to be how the economic data evolves. The bulls will be hoping that Goldilocks makes another appearance soon as the �not too hot and not too cold� scenario on both the inflation and economic fronts would be the best outcome.

Although volume may remain light for the rest of the week, the bulls may have a tougher time getting their way this morning. North Korea has defied the west by firing up to seven missiles in a test designed to be a show of military strength. And while it is likely that the North Koreans are simply interested in obtaining a package of concessions similar to that being offered to Iran, the situation is unsettling on a geopolitical basis.

Running through the rest of the pre-game indicators, overseas markets are lower across the board in reaction to North Korea�s missile testing. Gold is moving higher this morning on the geopolitical situation and is currently up by $12.80 to $628.80 at the moment. Oil is a smidge lower this morning but the August crude contract remains stubbornly above $70 at $73.87 right now. Interest rates are moving up this morning with the 2-year currently trading at 5.21% while the 10-yr is quoted at 5.19 right now. And finally, with about an hour before the bell, stock futures in the U.S. are heading a little lower. The Dow futures are currently off by 37 points; the S&Ps are down by 5, and the NASDAQ is sporting a drop of almost 11 points.

Stocks �In Play� This Morning:

Coca Cola Enterprises (CCE) � Mentioned positively at UBS
AT&T (T) � Upgraded at BofA
Charter Communications (CHTR) � Upgraded at Citigroup
Vodafone (VOD) � Upgraded at Deutsche
Commerce Bancorp (CBH) � Downgraded at Bernstein
McGraw Hill Cos (MHP) � Upgraded at Citigroup
Check Point Software (CHKP) � Downgraded at Deutsche
Eli Lilly (LLY) � Added to Buy list at Goldman Sachs
Astrazeneca (AZN) � Downgraded at ING
Home Depot (HD) � Mentioned positively at Jefferies
Forest Oil (FST) � Upgraded at BMO Capital
Wal-Mart (WMT) � Mentioned positively at BofA

Positions in stocks mentioned: CCE, GS


** 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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