Let's Stop All The Pretending

Includes: EWG, EWI, EWP, EWQ, EZU
by: David Moenning

We need to call a spade a spade here. So many analysts, managers, and pundits come on TV to tell us - with absolute certainty, by the way - (a) what the market is going to do next, (b) what will happen next to the economy, (c) what the Fed will do and when, and (d) what will happen in Europe. However, the bottom line is that nobody can predict any of this stuff because all of the above intertwined as well as tied to data that we don't have yet and events that haven't occurred yet. So, as investors, we all need to collectively stop pretending we know what is going to happen next.

As I've written a time or twenty, I am a firm believer that the key to this game over the long term is to keep your accounts positioned on the proper side of the important trends as much as is humanly possible. The problem is that too many investors have unrealistic expectations about this concept. So here's a tip: You can't be in the market every day the indices are up and out of the market (or short) every day they are down. No, the best you can do is to try and get the big moves right.

Speaking of getting the moves right, the market once again finds itself joined at the hip to the goings on in Europe (yes, for the third summer in a row). But instead of pretending that we know what is going to happen in Greece, in Spain (NYSEARCA:EWP), in Portugal, and/or in Ireland (EIRL - btw, the Irish vote on the new EU referendum on May 31), we are going to attempt to understand what IS happening across the pond on a daily basis and do our darndest to interpret how the market reacts.

On that score, while an oversold bounce was to be expected after the extended bout of selling seen recently, we feel it is worth noting that the sudden bounce was not triggered by any specific news story or data. No, it appeared that stocks began to rebound on the idea that France (NYSEARCA:EWQ), Italy (NYSEARCA:EWI) and some others are going to try and present a united front at today's "informal" EU Summit in order to try and get Angel Merkel and the rest of the Germans (NYSEARCA:EWG) to agree to something besides more austerity.

Thus, we will submit that the recent improvement in the SPX can be attributed to the hope that France's new President will be successful in his pitch for new growth strategies (which, of course is econo-speak for borrowing money you don't have and spending it on stuff to stimulate growth) in the Eurozone (BATS:EZU) and/or the introduction of jointly issued Eurobonds. The only problem here is that the Germans (who would be on the hook for the majority of any new Eurobonds and would see their own borrowing costs rise) are unlikely to suddenly and without warning flip to the other side of either one of these issues.

However, as long as traders can make the case that any of the above is possible, they can pretend that things will be fine and that it is time to buy - or at the very least, cover your shorts. They can then talk about the great values that have been created by the $100 decline in AAPL (ok, that one might be true) and all the other trader fav's. And since they are able to predict where the economy and earnings will be in the coming quarters, they can make very convincing cases that investors need to drop what they are doing and start buying what they are selling... like Facebook (NASDAQ:FB).

Or... We could all simply stop pretending that we've got a fully functional crystal ball and instead work as hard as we can to manage risk on a daily basis and try stay on the correct side of the big moves. But then again, you don't get a lot of headlines or TV time without all the pretending!

Turning to this morning... Fear relating to Greece's potential exit from the Eurozone has returned this morning as foreign markets are down more than 1%. Not surprisingly, the U.S. futures have followed suit and are pointing to a lower open at this time.

On the Economic front... We'll get the FHFA Housing Price Index as well as the report on New Home Sales at 10:00 am.

Thought for the day... Consider following your heart, it just might know where its going...

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: -1.31%
    • Shanghai: -0.42%
    • Hong Kong: -1.33%
    • Japan: -1.98%
    • France: -1.86%
    • Germany: -1.46%
    • Italy: -2.54%
    • Spain: -2.09%
    • London: -1.68%
  • Crude Oil Futures: -$0.70 to $91.15
  • Gold: -$16.10 to $1560.40
  • Dollar: higher against the yen, euro, and pound
  • 10-Year Bond Yield: Currently trading at 1.748%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -8.78
    • Dow Jones Industrial Average: -82
    • NASDAQ Composite: -18.55

Disclosure: No positions.

Disclaimer: The opinions and forecasts expressed herein are those of Mr. David Moenning 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. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (NASDAQ:HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.