David Moenning's Daily State of the Markets 10/17

Bulls Hit an Oil Slick

In the early going yesterday morning, it looked like the bulls had everything going in their favor and stocks appeared to be on their way to another melt-up. Stronger than expected earnings reports from the likes of Yahoo! (YHOO), Intel (INTEL), Coca-Cola (KO), JP Morgan Chase (JPM), and Altria (MO) were the catalysts for the move and before you could get that second cup of coffee poured, the Dow was up 100 points.

However, it was downhill from there as the bulls appeared to slip on the oil slick left by crude futures moving through $89. To the surprise of many investors, the stock market has had little difficulty with oil prices moving steadily higher so far. And while one can argue that the increase in the crude is a result of a booming global economy, which of course, is good for earnings and stock prices, everyone knows there is a line in the sand somewhere, that when crossed, is going to present a problem for the market.

To be sure, the current move up in oil prices is not tied only to economic growth as the term geopolitical tensions is back. Tensions between Iraq and Turkey continue to dominate the talk in the oil pits and yesterday’s news that Turkey’s parliament had authorized a cross-border military offensive (something that was formerly referred to as an invasion) certainly helped keep a bid under oil prices during much of yesterday’s session. And although the November contract for crude actually wound up falling back to close at $87.41, the damage had been done.

The bears also got some help from the economic data yesterday. While everybody knows that the housing market is not exactly a bowl of cherries right now, the reports on Housing Starts and Building Permits were surprisingly weak. Housing Starts dropped -10.2% in September to their lowest level since March 1993 and are down more than 30% from year ago levels. The report on Building Permits was equally as bad with permits falling -7.3% last month to their lowest level since March 1995.

So, with oil pushing $90 and the century-mark just around the corner, and the dynamic duo of housing and short-term credit conditions continuing to be a source of consternation, it is little wonder that the bulls weren’t able to sustain their initial surge yesterday.

Turning to this morning, the combination of higher oil and a flat-out crummy report from the nation’s number 2 bank – Bank of America (BAC) – has stock futures seeing red in the early going. BAC said that “significant dislocations” in the capital markets were responsible for the company’s big “miss” where earnings were $0.24 light and revenues were about $2 billion shy of expectations.

Running through the rest of the pre-game indicators; the overseas markets were higher in Asia but are lower across the pond this morning. Crude futures are heading higher again with the latest quote up $0.52 to $87.92. Interest rates are moving lower this morning with the 10-yr trading at a yield of 4.50% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open lower. The Dow futures are currently off by about 60 points; the S&Ps are down by about 9 points, while the NASDAQ also looks to be about 9 points below fair value at the moment.

Stocks "In Play" This Morning:

Yesterday’s Earnings After the Bell:

Allstate (NYSE: ALL) – Reported $1.54 vs. $1.69
eBay (Nasdaq: EBAY) – Reported $0.37 vs. $0.33
E-Trade (Nasdaq: ETFC) – Reported $0.16 vs. $0.11
Noble Corp (NYSE: NE) – Reported $1.18 vs. $1.17
Sovereign Bancorp (NYSE: SOV) – Reported $0.19 vs. $0.11
Washington Mutual (NYSE: WM) – Reported $0.23 vs. $0.21

Today’s Earnings Before the Bell:

American Standard (NYSE: ASD) – Reported $0.65 vs. $0.69
Bank of America (NYSE: BAC) – Reported $0.82 vs. $1.06
Baxter Intl (NYSE: BAX) – Reported $0.70 vs. $0.60
Bank of New York Mellon Corp (NYSE: BK) – Reported $0.73 vs. $0.62
First Horizon National (NYSE: FHN) – Reported <$0.11> vs. $0.27
Hershey (NYSE: HSY) – Reported $0.68 vs. $0.71
Eli Lilly (NYSE: LLY) – Reported $0.91 vs. $0.87
Pfizer (NYSE: PFE) – Reported $0.58 vs. $0.52
PNC Financial Svcs (NYSE: PNC) – Reported $1.37 vs. $1.35
Southwest Air (NYSE: LUV) – Reported $0.22 vs. $0.21
UnitedHealth Group (NYSE: UNH) – Reported $0.95 vs. $0.92
Wyeth (NYSE: WYE) – Reported $0.90 vs. $0.90

News, Upgrades/Downgrades/Brokerage Research:

Lamar Advertising (Nasdaq: LAMR) – Downgraded at Bear Stearns
Mattel (NYSE: MAT) – Upgraded at Credit Suisse
eBay (Nasdaq: EBAY) – Downgraded at Deutsche Bank
E-Trade (Nasdaq: ETFC) – Downgraded at Deutsche Bank
Washington Mutual (NYSE: WM) – Downgraded at Friedman Billings
Stryker Corp (NYSE: SYK) – Target increased at Lehman
PALM Inc (Nasdaq: PALM) – Upgraded at Merrill Lynch
Repsol (NYSE: REP) – Upgraded at Merrill Lynch

Mr. Moenning holds Long positions in stocks mentioned: MER

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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