David Moenning's Daily State of the Markets:

Some Caution Returns

Good morning. With the NASDAQ moving up to a third straight new-cycle high and gaining ground for the sixth time in the past seven sessions, and the Russell 2000, S&P Small Cap, and Mid Cap indices finishing at new all-time highs, it is tough to say that the bulls went running scared yesterday. However, with some geopolitical uncertainty reentering the mix and oil prices hitting their highest levels of the year, we can say that there was definitely some caution in the air.

Thursday’s session wasn't terribly eventful or meaningful. Stocks tried to move up in the morning on the back of tech earnings and some new M&A news but then the blue chips began to struggle in response to crude prices moving above $60. And at the end of the day, the Dow was in the red for the second straight session while the S&P finished a smidge below breakeven.

Oil prices moved up in response to the weekly inventory numbers, which showed crude stockpiles above consensus estimates while gasoline and distillates both saw larger than expected drawdowns. The initial decline in stock prices did correspond directly to the pop higher in the crude and the fact that the April futures contract closed at $60.95 kept a lid on any late-day heroics from the bull camp.

While Iran’s public refusal to abide by the U.N.’s demands that the country stop enriching uranium wasn’t a headline grabbing event, it did seem to weigh on the market’s psyche yesterday. Although no one really expects any military action to evolve from this issue at this stage, the uncertainty over what could happen next may create some additional caution among traders going forward.

When you add up what we’ve seen so far during this holiday-shortened week, you’ve got some minor concerns about inflation, oil back above $60, and renewed geopolitical uncertainty. So the fact that the Dow has lost only a little ground so far while tech has managed to power higher has to be considered a positive.

Turning to this morning, there is no economic data to review before the bell and with the exception of a couple of economic reports that were in line with expectations across the pond, things are once again quiet on the news front.

Running through the pre-game indicators, the major overseas markets are mixed with prices lower in Asia and a smidge higher in Europe. Gold futures are trading down $0.30 this morning to $682.71 right now. In the oil pits, crude futures are up $0.23 this morning with the latest quote at $61.18. Interest rates are flat this morning with the yield on the 10-year currently trading at 4.71%. And finally, with an hour before the bell, stock futures in the U.S. are looking to open modestly lower. The Dow futures are currently off by about 4 points; the S&P’s are about 1 point under water, while the NASDAQ looks to be about 1 point above fair value at the moment.

Stocks “In Play” This Morning:
Clear Channel Comm (NYSE: CCU) – Reported $0.43 vs. $0.41
Chesapeake Energy (NYSE: CHK) – Reported $0.90 vs. $0.76
H&R Block (NYSE: HRB) – Reported $0.08 vs. $0.12
Intuit (Nasdaq: INTU) – Reported $0.45 vs. $0.42
NICOR (NYSE: GAS) – Reported $1.02 vs. $0.98
Lowes (NYSE: LOW) – Reported $0.40 vs. $0.37
UnitedHealth Group (NYSE: UNH) – Mentioned positively in Business Week
Paychex (Nasdaq: PAYX) – Mentioned positively in Barron’s
McDonald’s (NYSE: MCD) – Mentioned positively in Barron’s
Prudential (NYSE: PRU) – Mentioned positively in Barron’s
L-3 Comm (NYSE: LLL) – Downgraded at BofA
Eaton (NYSE: ETN) – Upgraded at Bear Stearns
Air Products (NYSE: APD) – Upgraded at Citigroup
Western Digital (NYSE: WDC) – Upgraded at Citigroup
Kindred Healthcare (NYSE: KND) – Upgraded at Lehman
Sony (NYSE: SNE) – Upgraded at Merrill Lynch
Coca Cola (NYSE: KO) – Upgraded at Morgan Stanley
Newmont Mining (NYSE: NEM) – Downgraded at RBC Capital
New Century Financial (NYSE: NEW) – Upgraded at UBS
Intl Sec Exchange Holdings (NYSE: ISE) – Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: LEH, MS, BSC, MER, KND

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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