David Moenning's Daily State of the Markets: 10/27

More of the Same?

With the futures coming into Friday’s session lock-limit down, meaning they couldn’t fall any farther until the opening bell rang, and the foreign markets in a freefall, it looked like the crisis on Wall Street was going to get worse – a lot worse. The thinking, at least in the bull camp, has been that the panic low on 10/10 will likely hold up and therefore, the recent volatility is seen as simply part of the bottoming process. However, with stocks looking like they were going to lose 500 points or more at the open, the worry at the corner of Broad and Wall on Friday morning was that all bets might soon be off.

The problem, in a nutshell, is that the U.S.’s economic and financial woes appear to be going global. There was forced selling in Japan and weaker-than expected economic data in Europe. Now toss in the ongoing wipeout in oil and commodities, and it becomes clear that investors now fear the worst from an economic standpoint.

Heck, even the announcement from OPEC, which has now lost all credibility, that they are planning to cut oil production for the first time in two years had no bearing on crude prices. Given the need for cash among the oil producing countries, the thinking is that while OPEC may talk tough here, the actual implementation of production cuts remains a question mark.

Getting back to the stock market, while a loss of 312 points on the Dow isn’t exactly a positive, the good news on Friday is that it wasn’t any worse than that. Thus, the bulls, in a rather perverse line of thinking, tried to tell anyone that would listen on Friday afternoon that the fact we didn’t go down farther was actually a good thing.

However, one look at the futures in the early going would seem to argue otherwise as we appear to have more of the same this morning. Even with another globally coordinated rate cut a near certainty in the near future, the overseas markets are getting pummeled once again. While Japan’s drop of -6.4% pales in comparison to Hong Kong’s plunge of -12.7%, the Nikkei did close at its lowest level in 26 years!

So with forced selling around the globe likely to continue, it would appear that we have to don the helmets, buckle in and prepare to ride out the final 5 trading days of October.

Running through the rest of the pre-game indicators, the major overseas markets are down hard. Crude futures are continuing to fall on the global slowdown theme with the latest quote showing oil trading lower by $2.01 to $62.14. On the interest rates front, we’ve got the yield on the 10-yr currently trading at 3.63% while the yield on the 3-month T-Bill is at 0.859% and overnight LIBOR is at 1.27% which is down from Friday’s rate of 1.28%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to another rough open. The Dow futures are currently off by about 270 points; the S&P’s are down by about 32 points, while the NASDAQ looks to be about 34 points below fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

BE Aerospace (BEAV) – Reported $0.59 vs. $0.58
FPL Group (NYSE: FPL) – Reported $1.92 vs. $0.34
Loews Corp (NYSE: L) – Reported -$0.33 vs. $0.66
Lorillard (NYSE: LO) – Reported $1.38 vs. $1.36
Penn National Gaming (PENN) – Reported $0.50 vs. $0.34
Verizon (NYSE: VZ) – Reported $0.66 vs. $0.65
Tidewater (NYSE: TDW) – Reported $1.85 vs. $1.84

News, Upgrades/Downgrades/Brokerage Research:

Northern Trust (Nasdaq: NTRS) – Announces participation in TARP with $1.5B sale of preferred stock and warrants to U.S. Treasury
Fortress Investment Group (NYSE: FIG) – Upgraded at Citi
Home Properties (NYSE: HME) – Upgraded at Citi
Taubman Centers (NYSE: TCO) – Upgraded at Citi
Chubb (NYSE: CB) – Target increased at Citi
National City (NYSE: NCC) – Downgraded at Citi
Tanger Factory Outlets (NYSE: SKT) – Upgraded at Citi
PepsiCo (NYSE: PEP) – Downgraded at Deutsche Bank
Coca Cola Enterprises (NYSE: CCE) – Upgraded at Goldman
Pepsi Bottling Group (NYSE: PBG) – Upgraded at Goldman
Federated Investors (NYSE: FII) – Upgraded at JP Morgan
Prudential (NYSE: PRU) – Upgraded at JP Morgan

T. Rowe Price (Nasdaq: TROW) – Upgraded at Keefe, Bruyette Woods, Wachovia
Franklin Resources (NYSE: BEN) – Upgraded at Keefe, Bruyette Woods
Caterpillar (NYSE: CAT) – Downgraded at Merrill
Developers Diversified Realty (NYSE: DDR) – Upgraded at Merrill
Rockwell Collins (NYSE: COL) – Downgraded at Morgan Stanley
Raytheon (NYSE: RTN) – Downgraded at Morgan Stanley
Amylin Pharmaceuticals (Nasdaq: AMLN) – Downgraded at Morgan Stanley
Juniper Networks (Nasdaq: JNPR) – Upgraded at Oppenheimer
Syniverse Holdings (NYSE: SVR) – Initiated Outperform at Oppenheimer
US Steel (NYSE: X) – Downgraded at UBS
Nortel Networks (NYSE: NT) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: SVR

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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