David Moenning's Daily State of the Markets: 7/9

Talking The Talk – Again

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

With the market looking like there was no bottom in sight and talk of insolvency in the banking sector making the rounds; the powers-that-be were out talking the talk again yesterday. If you will recall, on Monday, the market worry was that new accounting rules proposed by the FASB would force Fannie Mae (FNM) and Freddie Mac (FRE) to raise an additional $75 billion in capital. This created a near panic in the financials as people began to wonder where all of this new money was supposed to come from.

However, yesterday morning, both Fed Chairman Bernanke and OFHEO director Lockhart suggested that all may not be lost in the financial sector. Gentle Ben noted that the Fed is likely to extend the TAFFY for Investment Banks beyond the scheduled deadline and said that the short-term funding markets have “improved somewhat.” Mr. Lockhart then defended FNM and FRE by saying the GSE’s would not need to raise additional capital in response to the FASB proposals.

So, with Fannie and Freddie reversing course and Treasury Secretary Paulson doing some additional cheerleading, the financials enjoyed a serious bounce yesterday. And although the move can be considered to be of the dead-cat variety and driven by short-covering, the fact that the powers-that-be were out trying to convince investors that the sky wasn’t falling gave the overall market a boost in confidence.

It also didn’t hurt that a long-time bear reversed course yesterday at 2:45 eastern. The Sanford analyst said that the long correction which is now nearly a year old may be coming to an end and that the stock market is likely to soon resume the uptrend that began in 2006.

And finally, the fact that oil took a long-awaited dive of $5.33 to close at $136.04 definitely gave the bulls a boost yesterday. It was the biggest decline since the end of March and triggered by the G-8’s talk of the need to mitigate commodity inflation as well as easing tensions with Iran.

So there you have it. Despite some hawkish comments from Richmond Fed President Lacker, worries that the credit contagion could spread farther, and some pretty crummy economic data, stocks enjoyed a triple-digit rally yesterday. However, as is usually the case with these types of bounces, there is a great deal of skepticism regarding the staying power of the buying.

Turning to this morning, we don’t have any economic data to review before the bell. However, the newswires are picking up the slack as Iran is back in the news with a test-firing of nine missiles designed to warn Israel that it would retaliate if attacked.

Running through the rest of the pre-game indicators, the overseas markets are up nicely across the board as foreign markets followed Wall Street’s lead overnight. Crude futures are higher on geopolitical tensions by $2.05 with the latest quote at $138.09. Interest rates are moving up this morning as the 10-yr is trading with a yield of 3.91% right now. And finally, with about an hour before the bell, stock futures in the U.S. are improving and may manage to open higher. The Dow futures are currently up by about 25 points; the S&Ps are about 3 points above breakeven, while the NASDAQ looks to be about 4 points below fair value at the moment.


Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell
Alcoa (AA) – Reported $0.66 vs. $0.66

News, Upgrades/Downgrades/Brokerage Research:
Mattel (NYSE: MAT) – Upgraded at BMO Capital
Oceaneering Intl (NYSE: OII) – Upgraded at Calyon
ACE Ltd (NYSE: ACE) – Downgraded at Citi
Cameco Corp (NYSE: CCJ) – Upgraded at Friedman Billings
Alcoa (NYSE: AA) – Upgraded at Friedman Billings
Intuit (INTU) – Downgraded at Goldman
Digital River (DRIV) – Downgraded at Goldman
Emerson Electric (NYSE: EMR) – Added to Buy list at Goldman
Danaher (NYSE: DHR) – Removed from Buy list at Goldman
Transocean (NYSE: RIG) – Upgraded at JP Morgan
Wachovia (NYSE: WB) – Upgraded at Merrill Lynch
OfficeMax (NYSE: OMX) – Downgraded at Piper Jaffray
Nucor (NYSE: NUE) – Upgraded at UBS
Steel Dynamics (STLD) – Upgraded at UBS
Centex (NYSE: CTX) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: OII, STLD

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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