David Moenning's Daily State of the Markets: 06/16

Not THAT Bad

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

After being smacked around over the past week or so, stocks managed to reverse course and rally for a second straight day on Friday. Although the action wasn’t exactly rip-roaring, the bulls were happy to see some green on the screens for a change.

Usually it is fairly easy to identify the catalyst when the Dow pops for a gain of 166 points. However, during Friday's session, the rally could be pinned on a host of stories, which, when combined, seemed to provide the impression that things might not be as bad as the recent plunges seemed to project.

For example, our laundry list of reasons for the rally include an improving dollar, a pullback in oil, a core CPI number that wasn’t alarming, some M&A activity, renewed confidence in the FOMC, and better economic stats. And while none of the above was enough on its own to get anybody particularly excited, the combination seemed to work for the bull camp – or, at the very least, provide the bears a reason to cover some shorts.

The theme of the day seemed to be that things may not be THAT bad out there after all. While the University of Michigan's Consumer Sentiment numbers hit a 28-year low, the rest of the day’s data points were fairly upbeat.

One of the keys to the day was the action in the greenback. Although the U.S. Dollar has been in a steady downtrend now for several years, there is a growing feeling that ‘the times they are a changin.’ The thinking here is that everyone understands the Fed is effectively powerless with regard to the relentless rise in crude oil, which in turn is putting pressure on inflation. However, at least part of the problem on the crude front stems from the decline in the dollar. Thus, since the people in Washington CAN do a little something about the dollar, we’ve been hearing an ever-so subtle shift in the rhetoric on the greenback lately. This is leading many traders to believe that we could see the dollar start to get some support.

Speaking of oil, it also didn’t hurt that the Saudi’s started talking about taking some action to increase production. So, with the dollar rising and the idea of more supply being bandied about, oil for July delivery pulled back $1.88 to $134.86.

It was also heartening to see some deals start happening again. While the pace of M&A activity isn’t what it used to be, TrimTabs did report that last week’s deal activity was the highest level the year.

And finally, Alan Greenspan chipped in his two cents to help the bulls' cause. The former Fed Chairman noted Friday that there is now a “reduced possibility” of a deep recession and that the U.S. financial markets have enjoyed a "pronounced turnaround" since March.

Turning to this morning, traders are anxiously awaiting this week’s reports from the brokerage community. Lehman (LEH) had already told us how bad things were going to be last week, but inquiring minds want to know if there are any more shoes to drop in the credit crisis and if Goldman (GS) was once again able to avoid any missteps in the current financial minefield.

On the economic front, the Empire Manufacturing General Business Conditions Index fell 5 points in June to a reading of -8.7, which was below expectations. In addition, the data on new orders, shipments, and unfilled orders were negative and lower than their May levels.

Running through the rest of the pre-game indicators; the foreign markets are mixed by region with Asia up and Europe down. Crude futures are moving up with the latest quote showing oil trading higher by $1.24 to $136.10. Interest rates are pulling back this morning with the yield on the 10-yr currently trading at 4.21%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to softer open. The Dow futures are currently off by about 50 points; the S&P’s are down by about 6 points, while the NASDAQ looks to be about 11 points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Invitrogen (Nasdaq: IVGN) – Downgraded at Bank of America
SunPower (Nasdaq: SPWR) – Upgraded at Credit Suisse
OfficeMax (NYSE: OMX) – Downgraded at Credit Suisse
Talbot’s (NYSE: TLB) – Upgraded at Friedman Billings
GameStop (NYSE: GME) – Upgraded at Goldman Sachs
YRC Worldwide (Nasdaq: YRCW) – Upgraded at JP Morgan
General Electric (NYSE: GE) – Downgraded at JP Morgan
Denbury Resources (NYSE: DNR) – Upgraded at Lehman
Apartment Investment & Mgmt (NYSE: AIV) – Upgraded at Merrill
Vornado (NYSE: VNO) – Upgraded at Merrill
Wendy’s (NYSE: WEN) – Upgraded at Morgan Stanley
AT&T (NYSE: T) – Downgraded at UBS
Verizon (NYSE: VZ) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: IVGN, DNR

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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

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