David Moenning's Daily State of the Markets: 3/13

Deja vu All Over Again?

Here’s a link to listen to an Audio Version of the report:
http://PlayAudioMessage.com/play.asp?m=489710&f=SGCDXB&ps=13&c=FFFFFF&pm=2&h=25

With stocks having moved back up to the lower end of the trading range in response to the Fed’s new Term Securities Lending Facility and new worries regarding the health of the financial markets emerging daily, it feels as if we’ve got a case of déjà vu all over again happening. Sure, it was enjoyable to see the Dow blast higher by 416 points on Tuesday, which was the biggest gain in five years. However, yesterday, the fear and uncertainty returned, as traders may have come to realize that the Fed can’t fix all the market’s woes at once.

The bulls will argue it was positive that the markets held on to the majority of the Tuesday’s big gain and that yesterday’s bout with a little profit taking was normal. But on the other side of the aisle, the bears can be heard suggesting that Tuesday was all about short-covering and then, the fact that their counterparts weren’t able to produce some follow-through yesterday buying is a harbinger of bad things to come.

Stocks opened higher on the back of strong guidance from industrial bellwether, Caterpillar (CAT) and reassuring comments from Bear Stearns� (BSC) chief executive Alan Schwartz regarding the financial health of the firm. In addition, the bulls were heartened by word out of Freddie Mac
(FRE) that the company has no plans to raise additional capital.

But, with oil hitting $110 intraday, despite a bearish report on crude inventories, and bond yields falling, it became clear relatively quickly that the enthusiasm for the Fed’s latest move was waning. It also didn’t help that news background was more worrisome than normal. For example, we got word that hedge fund redemptions and liquidations are on the rise, which, of course, will create more forced selling. We heard that losses from Home Equity Loans are rising. We got more evidence that the economic slowdown is spreading as UPS said package volumes declined in February.
Freddie Mac (FRE) got people’s attention by announcing that the decline in the housing market was only one-third complete. And finally, there was a report that talked about the decrease of corporate buybacks, which, given the reduction in stock prices is hardly encouraging.

The bottom line here is that while investors DO believe the Fed is on the right path and will cut rates again next week, given the environment, they are unwilling to make any large commitments until the backdrop can improve a bit. In other words, we need to see some evidence that the measures that have been taken thus far will actually have an impact. We need to see the dollar stop going down. We need to see the economic data uptick. We need to see liquidity return to some form of normalcy in the credit markets.� And we need to be convinced that there are NOT more shoes to drop, such as the rumored liquidity problems at Bear Stearns, in the credit crisis.

Turning to this morning, things do not appear to be going the bulls’ way in the early going. The announcement by Carlyle Group that they will default on their remaining debt shows that the measures taken by global central bankers may be too little too late. Then with oil at record highs and gold hitting $1000, the lack-of-confidence trade appears to be alive and well.

On the economic front, anyone who hoped that the data would improve the pre-market mood was wrong. The report on Retail Sales came in weaker than expected as sales dropped -0.6% versus expectations for an increase of� +0.2%. And when you strip out autos, the song remains the same as sales fell -0.2% versus the consensus for an increase of +0.2%.

Running through the rest of the pre-game indicators; foreign markets are down hard across the board on the Carlyle news as well as the dollar’s continued slide. Crude futures are moving up again with the latest quote higher by $0.36 to $110.28. Interest rates are moving down sharply with the 10-yr trading at a yield of 3.41% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a very weak open. The Dow futures are currently off by about 160 points; the S&Ps are down by about 18 points while the NASDAQ looks to be about 21 points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Monsanto (NYSE: MON) – Upgraded at Bank of America

Freeport McMoRan (NYSE: FCX) – added to Top Picks Live list at Citi

Countrywide Financial (NYSE: CFC) – Issuer Default rating cut at Fitch

Charles River Labs (NYSE: CRL) – Upgraded at Goldman

Pharmaceutical Product Dev (PPDI) – Downgraded at Goldman

Frontier Oil (NYSE: FTO) – Removed from Conviction Buy list at Goldman

Anixter Intl (NYSE: AXE) – Downgraded at Merrill Lynch

American Intl Group (NYSE: AIG) – Downgraded at Morgan Stanley

Humana (NYSE: HUM) – Target increased at Oppenheimer

UnitedHealth Group (NYSE: UNH) – Target reduced at UBS

Federated Investors (NYSE: FII) – Downgraded at UBS

Astrazeneca (NYSE: AZN) – Downgraded 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: http://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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