David Moenning's Daily State of the Markets: 1/11

David Moenning's Daily State of the Markets:

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

Too Little, Too Late?

The market seemed to get what it wanted from Ben Bernanke yesterday but, surprisingly failed to respond in an enthusiastic manner. The Fed Chairman acknowledged that things are not going well in the economy right now and that the Fed is prepared to act in a decisive and timely fashion. However, with the data looking like it's been falling off a cliff recently, the question now is if the Fed’s upcoming rate cut will be too little too late.

Usually, all it takes to get a rally going in stocks is some sort of hint that the Bernanke Cavalry is going to ride. After all, everybody knows that it is generally a bad idea to "fight the Fed" and that rate cuts from the FOMC can usually get the economy moving forward in a relatively short period of time..

However, after last week’s dismal jobs report; yesterday’s data showing that 31 out of 46 retailers missed expectations during the holiday shopping season; and a never ending string of problems in the financial sector, traders were less than inspired by the Ben Bernanke show at 1:00 p.m.

While the Fedspeak was responsible for getting stocks out of their morning doldrums, prices retreated almost as quickly as they had advanced in the early afternoon. And it was actually a report that Bank of America (NYSE: BAC) was in "advanced talks" to acquire Countrywide Financial (NYSE: CFC) that finally convinced traders to cover some more shorts and push stocks up +117 points into the close.

Turning to this morning, the most appropriate phrase to sum up the situation is, "Houston, we have another problem (or three)." Although the deal between Bank of America and Countrywide was confirmed this morning at about 7:00 am, news stories from American Express (NYSE: AXP) and Merrill Lynch (NYSE: MER) have put a definite damper on any hopes for a continuation of the oversold rally.

After the close yesterday, American Express guided earnings lower for the fourth quarter on anticipated writedowns tied to credit card delinquencies. While this isn’t exactly news in the sector, the real problem in the report was the mention that the company is seeing signs of a slower economy and slower card member spending.

Next up, there was a report that Mother Merrill will take writedowns totaling $15 billion in Q4, which obviously exceeds the current estimates. Again, the idea of Merrill writing off CDO securities isn’t exactly a new concept. However, the feeling is that this situation gets worse at every turn and thus, causes traders to revisit the question of whether or not we’ve seen the worst from the subprime mess.

Finally, the report on Import Prices this morning was a bit disconcerting as prices are up 10.9% over the last 12 months.

Looking ahead, we'll get some additional Fedspeak today at 12:45 and 1:00 pm eastern time. And then don’t forget that the earnings parade really starts to roll next week.

Running through the rest of the pre-game indicators; the overseas markets are lower across the board. Crude futures are down again with the latest quote showing the February contract lower by $0.53 to $93.18. Interest rates are little changed with the 10-yr trading at a yield of 3.88% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing lower. The Dow futures are currently off by about 120 points; the S&Ps are lower by about 15, while the NASDAQ looks to be about 18 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Infosys (Nasdaq: INFY) – Reported $0.52 vs. $0.51

News, Upgrades/Downgrades/Brokerage Research:

Continental Airlines (NYSE: CAL) – Upgraded at Bear Stearns
Verizon (NYSE: VZ) – Upgraded at Davenport
Apache (NYSE: APA) – Target increased at Deutsche Bank
Anglogold (NYSE: AU) – Downgraded at Deutsche Bank
Freeport McMoRan (NYSE: FCX) – Target reduced at Deutsche Bank
American Express (NYSE: AXP) – Upgraded at Goldman Sachs, Friedman Billings
PG&E Corp (NYSE: PCG) – Upgraded at Goldman
Juniper Networks (Nasdaq: JNPR) – Downgraded at JMP Sec, JP Morgan
Expediters Intl Wash (Nasdaq: EXPD) – Upgraded at JP Morgan
Honeywell (NYSE: HON) – Upgraded at JP Morgan
Dun & Bradstreet (NYSE: DNB) – Upgraded at JP Morgan
Dell (Nasdaq: DELL) – Upgraded at JP Morgan
Bear Stearns (NYSE: BSC) – Upgraded at Merrill Lynch
Medco Health Solutions (NYSE: MHS) – Downgraded at Morgan Stanley
Taubman Centers (NYSE: TCO) – Upgraded at UBS
Gilead Sciences (Nasdaq:GILD) – Target increased at UBS
Illumina (Nasdaq: ILMN) – Upgraded at UBS

Mr. Moenning holds Long positions in stocks mentioned: None

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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