David Moenning's Daily State of the Markets: 11/12

Too Many Weapons

The bears ruled the day again on Friday and appear to be on a pretty good role at the moment – especially after the final hour swoon of 150 points. For those of you keeping score at home, last week’s three-day debacle was the worst performance for the DJIA since 2002.

It would appear that the bears simply have too many offensive weapons at the moment. Everybody knows about the credit crisis, but the fact that the market-leading Technology sector is now a source of problems is definitely a concern. And then when you toss in the worries over the consumer – who makes up two-thirds of the economy – it is easy to see why stocks are struggling.

Friday's action was dominated by the three areas just mentioned: Bank write-downs, problems in the tech-will-be-immune thesis, and sagging consumer attitudes.

Defining the biggest problem for the bulls on Friday is a tough call. The fact that Bank of America (BAC), Wachovia (WB), JP Morgan Chase (JPM) and Fannie Mae (FNM) all talked about increasing loan losses beyond the already staggering levels is definitely worth mentioning.

However, the realization that the Tech sector is not likely to be immune from the impending economic slowdown was not lost on traders. After Qualcomm provided disappointing guidance, which came on the heels of Cisco’s (CSCO) discouraging words about the coming quarter, traders continued to hit the sell button in four-letter-land. And given that tech had been the market leader until last week’s 6.5% drop in the NASDAQ, the bulls are left to wonder if there is any good news left out there.

The dark horse in the race for king of the bear camp has to be the sudden concern about the consumer. Investors may have been lulled into a sense of complacency over the past couple of years as the consumer has been able to brush off just about everything. But, the combination of falling home values, a decline in stocks, and oil still trading over $96 looks to be a problem. Especially since all of the above is occurring right in front of the holiday shopping season. Friday’s University of Michigan Consumer Sentiment number bore out this concern as the index came in a full 5 points below expectations and fell to the lowest level since October 2005.

So, with the bears armed and dangerous at the moment, we will have to watch the action carefully this week. And while it is common for things to appear the darkest before the dawn, we do have to admit that the uncertainty continues to warrant attention at the present time.

Turning to this morning, we don’t have any economic news to review today. However, on the news front, the Chinese caused a stir over the weekend by increasing the bank reserve requirement by 0.5%. In addition, talk of write-downs isn’t going away as the current discussion is centered on Goldman Sachs.

Running through the rest of the pre-game indicators; the overseas markets are mostly lower – especially in Asia. Crude futures are heading down with the latest quote showing the December contract off $1.24 to $95.08. Interest rates are a little lower again this morning with the 10-yr trading at a yield of 4.21% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking modestly lower. The Dow futures are currently off by about 9 points; the S&Ps are down by about 2 points, while the NASDAQ looks to be about 5 points below fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:
Echostar (DISH) – Reported $0.44 vs. $0.44

News, Upgrades/Downgrades/Brokerage Research:

IBM (NYSE: IBM) – To acquire Cognos (COGN) for $58/s cash
Wyeth (NYSE: WYE) – Upgraded at Merrill Lynch, Downgraded at Bear Stearns
Baker Hughes (NYSE: BHI) – Upgraded at Bernstein
Halliburton (NYSE: HAL) – Upgraded at Bernstein
Juniper Networks (Nasdaq: JNPR) – Downgraded at Bernstein
US Cellular (NYSE: USM) – Upgraded at Citi
E-Trade Financial (Nasdaq: ETFC) – Downgraded at Citi
Echostar (Nasdaq: DISH) – Downgraded at Citi
AFLAC (NYSE: AFL) – Downgraded at Citi
Deutsche Telecom (NYSE: DT) – Upgraded at Goldman Sachs
Mattel (NYSE: MAT) – Upgraded at JP Morgan
Mirant (NYSE: MIR) – Upgraded at Lehman
Fannie Mae (NYSE: FNM) – Downgraded at Lehman
Freddie Mac (NYSE: FRE) – Downgraded at Lehman
Microsoft (Nasdaq: MSFT) – Downgraded at Merrill Lynch
National Semi (NYSE: NSM) – Downgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: MER, AFL, JNPR


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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