David Moenning�s Daily State of the Markets:03/23

David Moenning�s Daily State of the Markets:

The Bulls Answer Back

A day after the bears declared that they were back in the game, the bulls answered right back yesterday. The Dow�s gain of +82 points made up all of Tuesday�s loss and wound up pushing the venerable index to its best close since May 21, 2001. And for those of you keeping score at home, if the DJIA can find a way to add another 21 points from here, we will stop talking about new four and one-half year highs and start talking about the Dow�s best level since January 2000.

Unfortunately, it was a rather lonely march as the S&P Small Cap index was the only other major index to join in on the new-high fun (although the NYSE and Russell 2000 are within spitting distance of new high ground).
And as long as we are casting aspersions, we should note that the volume was uninspiring. But after Tuesday�s apparent reversal lower, the bulls will breathe a sigh of relief and probably be happy with the result.

The day started off a bit on the shaky side after Microsoft announced that Vista, their new operating system, wouldn�t be on the shelves for the 2006 holiday shopping season. With the consumer launch now scheduled for January, it means that consumers are likely to delay any computer purchases until after Christmas. To put it mildly, this is NOT what retailers or any tech company leveraged to the PC business wanted to hear.

However, positive results from Morgan Stanley, solid gains for many of the industrials, and falling oil and gasoline prices helped the market and even the NASDAQ overcome a soft opening. And after an S&P report forecasted that earnings would grow by 11% during the first quarter of 2006, traders soon forgot about Mr. Softie�s troubles and focused on what is working in the market. After all, PC-tech hasn�t been a leader for quite some time and the tech that is working (the gadgets and wireless
stuff) seems to be doing just fine without the behemoth from Redmond.

So with the Fed meeting now just days away, the bulls decided to continue discounting the good news to come. Traders assume that the Fed will raise rates just one or two more times and that the economy and Wall Street alike will continue to prosper. Personally, that sounds like an awful lot of assuming, but hey, one thing I�ve learned is it rarely pays to argue with the bulls when they�re on a roll.

Turning to this morning, the report on weekly jobless claims came in pretty much in line with expectations. Continuing on the economic front, we�ll also get the numbers on Existing Home Sales at 10:00 a.m. Stocks appear to be sluggish in pre-market activity with Adobe providing a disappointing outlook while Yahoo caught an upgrade.

Running through the pre-game indicators about an hour before the bell, overseas markets are mixed. Oil futures are up a little this morning with crude currently trading at $61.95. Natural Gas is trading higher at $7.15 right now. Bond yields are a little lower this morning with the 10-yr currently quoted at 4.69%. And finally, stock futures in the U.S. are a bit lower at the moment with the S&Ps below fair value by about -1.40.

Stocks �In Play� This Morning:
ADBE � Reported $0.32 vs. $0.29, but outlook disappointing
KBH � Reported $2.02 vs. $1.96
YRCW � Warns of earnings shortfall for current quarter
QCOM � Oppenheimer initiates coverage with Buy
FRX � Downgraded at Credit Suisse
WOR � Upgraded at CIBC
KFT � Downgraded at Lehman
EBAY � WSJ reports company testing cell phone transaction service
YHOO � Upgraded at UBS
AAPL � NY Post says company may pull iTunes from France
COP � Upgraded at Prudential
GIS � Reported $0.69 vs. $0.65, also CMX

Disclosure: At the time of publication Mr. Moenning and/or related companies are long the following positions: LEH, WOR, QCOM

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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