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David Moenning�s Daily State of the Markets: 04/05

April 5, 2006 9:36 AM EDT
Balance Restored

The bulls recovered their balance yesterday after Monday�s rather worrisome stumble. Stocks moved up in the early going on word that Citigroup had been cleared to get back into the M&A game and this time, the bulls managed to hold onto the gains into the close.

There was no obvious catalyst for the move higher so market commentators were left to speculate on the reasons for the strength. However, besides the usual April reinvestment demand from tax refunds flowing into stocks and the feeling that the upcoming earnings season will be strong once again, the real key to the day were the reassuring comments from Fed governors Lacker and Fisher.

Dallas Fed President Richard Fisher, who is most famous for his baseball analogies last year, helped improve the mood by stating that economists may need to rethink the inflationary implications of the Phillips Curve. In English, Mr. Fisher suggested that the idea of rising employment eventually leading to inflation may no longer be relevant in today�s global and technologically advanced economy. Traders took the assessment to mean that a strong employment report this week would not necessarily become an argument for further rate hikes.

Also speaking on the inflation front, Richmond Fed President Jeffrey Lacker said that growth in the economy is currently �solid� and that �inflation is low and stable.� Mr. Lacker reinforced the idea that the Price Index for Core PCE (Personal Consumption Expenditures) is a Fed favorite by specifically stating that this indicator shows inflation is well contained.

The idea that two Fed governors would both sing the same tune on the subject of inflation gave traders hope and inspired some buying. In the big picture, the market is looking for assurances that Mr. Bernanke and company are not going to overdo it with rate hikes and wind up hurting the economy in their first at-bat in the big game. The thinking is that if the Fed quits sometime soon, the economy will continue to prosper and with M&A activity suggesting there are still values in the market, the bulls may have some upside.

The result was a rebound in the Dow and S&P while the NASDAQ hit another fresh cycle high and the NYSE and Mid Cap indices finished at new all-time highs. However, while breadth was decent, volume was unimpressive. So with stocks now nearing an oversold condition, it will be interesting to see if traders will be willing to follow the bulls any further in front of Friday�s employment report.

Turning to this morning, stocks are fairly quiet an hour before the bell. On the economic front, once again there is no data before the bell, but we will get the ISM�s Non-Manufacturing readings at 10:00 a.m. eastern.

Running through the pre-game indicators, Hong Kong was closed for holiday and the rest of the overseas markets are hovering around breakeven. Oil futures are moving slightly lower this morning and are currently trading off -$0.06 to $66.17. Natural Gas is trading down -$0.10 to $6.97. Gold is up $1.40 at $592. Bond yields are flat this morning with the 2-yr yield at 4.80% and 10-yr is currently trading at 4.85%. And finally, stock futures in the U.S. are doing little before the bell with the Dow futures sporting a drop of 3 points, the S&Ps are down by $0.70, and the NASDAQ futures are gaining +1.30.

Stocks �In Play� This Morning:
QCOM � South Korean Antitrust regulators investigating company
CCE � Upgraded at Stifel, Nicolaus
NBR � Oilfield Services and Equipment sector upgraded at Citigroup
PNRA � Reported Q1 revenues of $194M vs. $196M
CHK � Bernstein initiates coverage with Mkt Perform rating
FCS � Downgraded at Credit Suisse
SLAB � Upgraded at Credit Suisse
STX � Downgraded at Goldman
BOL � Downgraded at Bear Stearns
DJ � Downgraded at Merrill
MDT � Barron�s says recent pullback is a buying opportunity
AAPL � Stuff Magazine says company to offer Bluetooth-enabled iPod
MOT � To launch online store to sell handsets
STJ � Guides lower
SHLD � Approves additional share repurchases of $500M

Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: QCOM, CCE, CHK, MOT, SHLD

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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