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David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980... More
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  • Two Indicators That Make You Say, "Hmmm"

    Daily State of the Markets
    Friday, September 19, 2014

    With the Fed meeting finally out of the way, traders can now turn their attention to other things happening in the markets such as rising interest rates, the wild action in the currency markets (if you haven't seen it recently, be sure to check out symbol UUP - PowerShares U.S. Dollar Index), the question of where commodities are going, China's stimulus plans, that hot new IPO, the ongoing geopolitical issues, and of course the fundamentals of the stock market.

    One of the big debates going on in the stock market at the present time has to do with valuations. Some argue that stocks are wildly overvalued, while a great many traditional indicators suggest stocks are no worse than fairly valued. However, there are some lesser-known valuation indicators as well as some sentiment indicators that should give even the most ardent bull pause.

    The Price-to-Sales Ratio is Through the Roof

    Exhibit B for those who believe valuations are a problem (Exhibit A is the Shiller valuation model) is the Median Price-to-Sales ratio for the S&P 500. Over the past 50 years, the norm for the median P/S ratio has been 0.88. However, take a peek at the chart below...

    Median Price-to-Sales Ratio - Monthly from 1965

    With the median price-to-sales ratio at 2.08, the word you are likely looking for is "Yikes!"

    Even if one accepts the argument that today's valuation metrics have to be viewed in a different light than they did prior to the 1990's, the current P/S ratio is still, well, "way out of whack" with even the recent past. In fact, the current 2.08 reading represents an all-time record high.

    While the all-time high really says it all, it is worth noting that the current median P/S ratio is higher than it was in 2007, much, much higher than 2000, and nearly 2.5 times the level seen in 1987.

    Here's the important part. History shows that when the median P/S ratio has been above 1.5ish, the S&P 500 has gained ground at a rate of less than 0.1 percent per year. Yikes, indeed!

    Of course, the problem with valuation indicators is they have almost NO bearing on the short- and intermediate-term moves in the stock market. So, while this indicator may be a reason to raise an eyebrow, it is probably best to put such concerns as valuations on the back burner. However, it is probably a good idea not to forget about this chart forever either. Remember, in the stock market, things like this don't matter until they do - and then then matter a lot.

    Another Reason to Worry: Sentiment Becoming Lopsided

    With all the excitement about the Alibaba IPO, which is slated to be the biggest in U.S. history, a fair amount of attention is being paid to emotions and market sentiment. Although the current bull market remains one of the most hated and/or distrusted ever, some the sentiment indicators are also reaching levels that may make you go, hmmmm.

    For example, Investors Intelligence takes the temperature of investors on a weekly basis. Respondents are asked to place themselves in either the "bull," "bear," or "expecting a correction" camp. Savvy investors know to be wary of the crowd at extremes and thus, this is one of the surveys that is closely watched each week. And through the years, paying attention to the crowd at extremes has been quite profitable at times.

    The problem is that the current number of "bears" fell to 13.3 percent last week - which is the lowest level since... wait for it... the summer of 1987. Another way to put this is that bearish sentiment is presently at a 27-year low.

    Not a Sell Signal, But...

    Like valuation indicators, it is vital to recognize that excessive sentiment can remain intact for quite some time. As such, this indicator is not, in and of itself, a reason to run out and sell everything.

    However, it is also very important to understand that these types of indicators CAN tell us a thing or two about what to expect from the market in the future.

    For those expecting to see predictions of doom and gloom here next, I'm sorry to say that it's just not gonna happen. But... here's something the bears out there can sink their teeth into. You see, history DOES show that when sentiment reaches the type of extreme level we are seeing now, future returns in the stock market are well below average.

    Sparing you the details of the specific indicator, when the number of outright bears in the Investors Intelligence survey has been at or below 13.5, returns over the next 3, 6, 9, and 12 months have been subpar.

    For example, in the past, three months after the number of bears in the II survey hit 13.5 or below, the S&P 500 has produced an average gain of just +0.11 percent. While not a negative number, this is a far cry from the average gain of +1.89 percent for all 3-month periods. And then, twelve months later the story is MUCH worse. Since 1965, the S&P; saw total returns of -0.81 percent after this signal, versus +7.81 percent for all 12-month periods. Ouch.

    The key takeaway here is that valuation and/or sentiment "issues" are not reasons to buy or sell because those "issues" can (and often do) stay in place for incredibly long periods of time (hence the famous phrase, "the market can stay irrational longer than you can stay solvent"). However, it is definitely worth noting that when extremes in sentiment and/or valuation are reached, future returns tend to be on the disappointing side.

    So, while it IS okay to stay long and strong in this type of market, it is probably a good idea to recognize that risk is elevated and that historically, accidents have happened in this type of environment. So, let's all be careful out there!

    Turning To This Morning

    The big news overnight was Scotland's vote to stay in the U.K. Scottish voters rejected independence from the U.K. by a margin of 55% to 45%. Reports indicate the "No" vote was supported by late push from three main UK political parties to give Scotland more control over the country's taxes, spending and welfare. British Prime Minister Cameron said he will ensure these commitments are honored and called for England, Wales and Northern Ireland to have more control over own affairs. Global markets are mostly higher on the news although there is talk of France's credit rating being cut by Moody's today. Here at home, futures are off their best levels but still point to a moderately higher open on Wall Street.

    Pre-Game Indicators

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

    Major Foreign Markets:
    - Japan: +1.58%
    - Hong Kong: +0.57%
    - Shanghai: +0.56%
    - London: +0.57%
    - Germany: +0.30%
    - France: -0.15%
    - Italy: -0.81%
    - Spain: +0.35%

    Crude Oil Futures: -$0.34 to $92.73

    Gold: -$3.50 at $1223.40

    Dollar: lower against the yen, higher vs. euro, and pound.

    10-Year Bond Yield: Currently trading at 2.611%

    Stock Indices in U.S. (relative to fair value):
    - S&P 500: +5.69
    - Dow Jones Industrial Average: +45
    - NASDAQ Composite: +14.73

    Thought For The Day:

    It is better to be defeated on principle than to win on lies. -Arthur Calwell

    Wishing you green screens and all the best for a great day,

    David D. Moenning
    President, Chief Investment Officer
    Heritage Capital Research
    Check Out the NEW Website!

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave (Twitter is the new Ticker Tape)

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    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 is for informational purposes only. No part of the material presented in this report 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.

    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.

    David D. Moenning, an advisor representative of CONCERT Wealth Management Inc. (CONCERT), is founder of Heritage Capital Advisors LLC, a legal business entity doing business as Heritage Capital Research (Heritage). Advisory services are offered through CONCERT Wealth Management, Inc., an SEC registered investment advisor. For a complete description of investment risks, fees and services review the CONCERT firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting Heritage or CONCERT.

    Mr. Moenning is also the owner of Heritage Capital Management (HCM) a state-registered investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Neither HCM, Heritage, or CONCERT is registered as a broker-dealer.

    Employees and affiliates of Heritage and HCM 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 Heritage/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.

    Sep 19 8:10 AM | Link | Comment!
  • Where's The Oomph?

    Yesterday's FOMC meeting remains a focal point for the global markets. Despite the late-day selloff in the U.S., global markets are higher overnight. In short, some analysts believe that the selling in the U.S. was overdone, particularly when considering that the "considerable time" phrase remained in the statement (purportedly to give the Fed flexibility going forward) and the other forward guidance language. The other big macro story overnight centered on China as the PBoC cut its 14-day repo rate by 20 bps to 3.5%. However, the debate on whether or not China will implement any further stimulative measures continues. Finally Scotland goes to the polls today to vote on independence and the outcome could create added volatility in currency trading. At this time, U.S. futures are pointing to a stronger open on Wall Street.

    Current Market Outlook

    It looks like both the Dow and S&P 500 will open at fresh all-time highs this morning. The question, of course, is if the gains will hold up. Lately, the trend has been for traders to sell into moves that take the blue chips to new highs. And based on the debate over the future of rates and the rally in the dollar, this trend could certainly continue. What we are left with is a market that has moved slowly and almost begrudgingly higher. In other words, the trend may be up but there isn't much "oomph" accompanying the move. Couple this with the current reading of our market models and we are left thinking that some caution makes sense at this time.

    Looking At The Charts

    The good news is that the Dow Jones Industrial and Transport indices both closed at new all-time highs yesterday. The bad news is that none of the other indices followed suit and the S&P remains stuck in its recent range. The bottom line here is that leadership has become uber-narrow and technical divergences abound in this market. For example, only 2 of the S&P's 10 sectors (tech and health care) are currently above both their 50- and 200-day moving averages. However, the bulls appear to have a shot today to push the S&P into the promised land. But keep in mind that there is still resistance overhead and there is a good chance that the sell algos will be primed and ready to "fade" the opening move. Therefore, both the early action and today's close could be a good "tell" about the next meaningful move.

    S&P 500 - Daily

    Pre-Game Indicators

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

    Major Foreign Markets:
    - Japan: +1.13%
    - Hong Kong: -0.85%
    - Shanghai: +0.35%
    - London: +0.37%
    - Germany: +0.96%
    - France: +0.60%
    - Italy: +0.39%
    - Spain: +0.73%

    Crude Oil Futures: -$0.15 to $94.27

    Gold: -$15.40 at $1220.90

    Dollar: lower against the yen, euro, and pound.

    10-Year Bond Yield: Currently trading at 2.617%

    Stock Indices in U.S. (relative to fair value):
    - S&P 500: +6.78
    - Dow Jones Industrial Average: +49
    - NASDAQ Composite: +14.53

    Thought For The Day:

    "I'm not telling you it's going to be easy, I'm telling you it's going to be worth it." Art Williams

    Current Market Drivers

    We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

    1. The State of Fed/ECB Policy
    2. The Level of Interest Rates
    3. The Outlook for U.S. Economic Growth
    4. The State of the Geopolitical 'Issues'

    The State of the Trend

    We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:

    Short-Term Trend: Neutral
    (Chart below is S&P 500 daily over past 1 month)

    Intermediate-Term Trend: Moderately Positive
    (Chart below is S&P 500 daily over past 6 months)

    Long-Term Trend: Positive
    (Chart below is S&P 500 daily over past 12 months)

    Key Technical Areas:

    Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:

    • Key Near-Term Support Zone(s) for S&P 500: 1980-85(ish)
    • Key Near-Term Resistance Zone(s): 2000-11
    The State of the Tape

    Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...

    Trend and Breadth Confirmation Indicator (Short-Term): Neutral
    Signal Explained: History shows the most reliable market moves tend to occur when the breadth indices are in gear with the major market averages. When the breadth measures diverge, investors should take note that a trend reversal may be at hand. This indicator incorporates an All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 5-day smoothing and the All-Cap Equal Weighted Equity Series is above its 25-day smoothing, the equity index has gained at a rate of +32.5% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +13.3% per year. And when both are below, the equity index has lost +23.6% per year.

    Price Thrust Indicator: Neutral
    Indicator Explained: This indicator measures the 3-day rate of change of the Value Line Composite relative to the standard deviation of the 30-day average. When the Value Line's 3-day rate of change have moved above 0.5 standard deviation of the 30-day average ROC, a "thrust" occurs and since 2000, the Value Line Composite has gained ground at a rate of +20.6% per year. When the indicator is below 0.5 standard deviation of the 30-day, the Value Line has lost ground at a rate of -10.0% per year. And when neutral, the Value Line has gained at a rate of +5.9% per year.

    Volume Thrust Indicator: Neutral
    Indicator Explained: This indicator uses NASDAQ volume data to indicate bullish and bearish conditions for the NASDAQ Composite Index. The indicator plots the ratio of the 10-day total of NASDAQ daily advancing volume (i.e., the total volume traded in stocks which rose in price each day) to the 10-day total of daily declining volume (volume traded in stocks which fell each day). This ratio indicates when advancing stocks are attracting the majority of the volume (readings above 1.0) and when declining stocks are seeing the heaviest trading (readings below 1.0). This indicator thus supports the case that a rising market supported by heavier volume in the advancing issues tends to be the most bullish condition, while a declining market with downside volume dominating confirms bearish conditions. When in a positive mode, the NASDAQ Composite has gained at a rate of +38.3% per year, When neutral, the NASDAQ has gained at a rate of +13.3% per year. And when negative, the NASDAQ has lost at a rate of -8.5% per year.

    Breadth Thrust Indicator: Negative
    Indicator Explained: This indicator uses the number of NASDAQ-listed stocks advancing and declining to indicate bullish or bearish breadth conditions for the NASDAQ Composite. The indicator plots the ratio of the 10-day total of the number of stocks rising on the NASDAQ each day to the 10-day total of the number of stocks declining each day. Using 10-day totals smooths the random daily fluctuations and gives indications on an intermediate-term basis. As expected, the NASDAQ Composite performs much better when the 10-day A/D ratio is high (strong breadth) and worse when the indicator is in its lower mode (weak breadth). The most bullish conditions for the NASDAQ when the 10-day A/D indicator is not only high, but has recently posted an extreme high reading and thus indicated a thrust of upside momentum. Bearish conditions are confirmed when the indicator is low and has recently signaled a downside breadth thrust. In positive mode, the NASDAQ has gained at a rate of +22.1% per year since 1981. In a neutral mode, the NASDAQ has gained at a rate of +14.5% per year. And when in a negative mode, the NASDAQ has lost at a rate of -6.4% per year.

    Bull/Bear Volume Relationship: Moderately Positive
    Indicator Explained: This indicator plots both "supply" and "demand" volume lines. When the Demand Volume line is above the Supply Volume line, the indicator is bullish. From 1981, the stock market has gained at an average annual rate of +11.7% per year when in a bullish mode. When the Demand Volume line is below the Supply Volume line, the indicator is bearish. When the indicator has been bearish, the market has lost ground at a rate of -6.1% per year.

    Technical Health of 100 Industry Groups: Neutral
    Model Explained: Designed to provide a reading on the technical health of the overall market, this indicator takes the technical temperature of more than 100 industry sectors each week. Looking back to early 1980, when the model is rated as "positive," the S&P has averaged returns in excess of 23% per year. When the model carries a "neutral" reading, the S&P has returned over 11% per year. But when the model is rated "negative," stocks fall by more than -13% a year on average.

    The Early Warning Indicators

    Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide "early warning signs" that a trend change may be near.

    • S&P 500 Overbought/Oversold Conditions:
      - Short-Term: Neutral
      - Intermediate-Term: Neutral
    • Market Sentiment: Our primary sentiment model is Negative.
    The State of the Market Environment

    One of the keys to long-term success in the stock market is stay in tune with the market's "big picture" environment in terms of risk versus reward.

    Weekly State of the Market Model Reading: Neutral
    Model Explained:Different market environments require different investing strategies. To help us identify the current environment, we look to our longer-term State of the Market Model. This model is designed to tell us when risk factors are high, low, or uncertain. In short, this longer-term oriented, weekly model tells us whether the odds favor the bulls, bears, or neither team.

    Wishing you green screens and all the best for a great day,

    David D. Moenning
    Founder and Chief Investment Strategist
    Heritage Capital Research - A CONCERT Advisor
    Be Sure To Check Out the NEW Website!


    Is Your Portfolio Ready for the Next Financial Storm??

    Check out Heritage Capital Research's NextGen Active Risk Manager
    Or call Heritage for more information at (847) 807-3590


    Sep 18 9:17 AM | Link | Comment!
  • It's Fed Day, Here's What We're Watching...

    Although the surprise move by the People's Bank of China to pump 500 billion yuan (approximately $80 billion) into the country's top five banks (a move that was the equivalent of a 0.50% cut in the country's reserve requirement rate) got all the attention yesterday, today is all about Janet Yellen and her merry band of central bankers here in the United States. In short, it's "Fed Day" again here in the U.S. and traders are likely ready to go.

    Speaking of "Fed Days," Bespoke Investment Group reports that the S&P 500 has averaged a gain of 0.47% on days when the Fed made announcements since ZIRP began in December 2008, which is well ahead of the average gain of 0.35% seen on all Fed days since 1995 (when central bank began publicizing policy changes on meeting days). However, since the Fed began to taper its latest QE program last December, the S&P has averaged a gain of 0.19% and finished higher on four of the last six "Fed Days."

    As a reminder, the FOMC announcement is scheduled for 2:00 pm eastern with Janet Yellen's Press Conference scheduled to follow at 2:30 pm. When the FOMC statement is released, analysts will be quickly scanning the text for the words "considerable time." Recall that these two little words have been used by the Fed to describe how long the Fed Funds rate is expected to stay at the current 0% - to 0.25% target. Removal of the phrase would seem to suggest that the Fed is leaning toward raising rates sooner rather than later. The current consensus expectation is for the Fed to begin a long, gradual rate-hike campaign in June 2005.

    Analysts will also be paying close attention to the "dot plot" contained in the FOMC statement. This graph shows the projection of where rates will be from each Fed Governor. The expectation is that there will be more "dots" projecting higher rates, sooner than there were at the last FOMC meeting.

    Overnight, markets rallied in China on the back of the monetary stimulus efforts of the PBOC. In Europe, the sentiment is upbeat as well. And U.S. futures are sporting a slightly green hue in the early going.

    Current Market Outlook

    Don't look now, but the much ballyhooed weakness in the stock market as well as the expectations for a meaningful decline appear to have been, once again, put on the back burner. Yesterday's triple-digit pop higher took the DJIA to new all-time highs on an intraday basis, a move that was sponsored in large part by the PBOC. The thinking is that China's stimulus moves will produce economic spillover in the global economy. The bulls were also supported Tuesday by Jon Hilsenrath, the WSJ's Fed-watcher, as well as PIMCO's Bill Gross. "Hilsy" opined that the "considerable time language in the Fed statement is likely to stay. And Mr. Gross, aka the bond king, suggested that Yellen will remain cautious in terms of monetary policy because the risk of the "lost decades" seen in Japan is higher than the difficulty some inflation might cause in the near-term. The bottom line is that the "liquidity trade" continues to be the focal point in this market.

    Looking At The Charts

    The title of Stealers Wheel's big hit "Stuck in the middle with you" seems to be a fitting description of the current technical picture as yesterday's move pushed the Dow and S&P 500 back into the trading range that has been in place since late August. However, this remains a tale of two tapes as the charts of the NASDAQ, Smallcaps, and Midcaps continue to sport downtrends. But for now at least, the threat of an imminent correction in the blue chips would appear to have been lessened.

    S&P 500 - Daily

    Midcap 400 - Daily

    Pre-Game Indicators

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

    Major Foreign Markets:
    - Japan: -0.14%
    - Hong Kong: +0.99%
    - Shanghai: +0.50%
    - London: +0.04%
    - Germany: +0.37%
    - France: +0.68%
    - Italy: +0.99%
    - Spain: +0.95%

    Crude Oil Futures: -$0.42 to $94.46

    Gold: +$0.60 at $1237.30

    Dollar: lower against the yen and pound, higher vs. euro.

    10-Year Bond Yield: Currently trading at 2.582%

    Stock Indices in U.S. (relative to fair value):
    - S&P 500: +1.42
    - Dow Jones Industrial Average: +14
    - NASDAQ Composite: -2.87

    Thought For The Day:

    I am an optimist. It does not seem too much use being anything else. -Winston Churchill

    Current Market Drivers

    We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

    1. The State of Fed/ECB Policy
    2. The State of the Geopolitical 'Issues'
    3. The Outlook for U.S. Economic Growth
    4. The Level of Interest Rates

    The State of the Trend

    We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:

    Short-Term Trend: Neutral
    (Chart below is S&P 500 daily over past 1 month)

    Intermediate-Term Trend: Moderately Positive
    (Chart below is S&P 500 daily over past 6 months)

    Long-Term Trend: Positive
    (Chart below is S&P 500 daily over past 12 months)

    Key Technical Areas:

    Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:

    • Key Near-Term Support Zone(s) for S&P 500: 1980-85(ish)
    • Key Near-Term Resistance Zone(s): 2000-11
    The State of the Tape

    Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...

    Trend and Breadth Confirmation Indicator (Short-Term): Neutral
    Signal Explained: History shows the most reliable market moves tend to occur when the breadth indices are in gear with the major market averages. When the breadth measures diverge, investors should take note that a trend reversal may be at hand. This indicator incorporates an All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 5-day smoothing and the All-Cap Equal Weighted Equity Series is above its 25-day smoothing, the equity index has gained at a rate of +32.5% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +13.3% per year. And when both are below, the equity index has lost +23.6% per year.

    Price Thrust Indicator: Neutral
    Indicator Explained: This indicator measures the 3-day rate of change of the Value Line Composite relative to the standard deviation of the 30-day average. When the Value Line's 3-day rate of change have moved above 0.5 standard deviation of the 30-day average ROC, a "thrust" occurs and since 2000, the Value Line Composite has gained ground at a rate of +20.6% per year. When the indicator is below 0.5 standard deviation of the 30-day, the Value Line has lost ground at a rate of -10.0% per year. And when neutral, the Value Line has gained at a rate of +5.9% per year.

    Volume Thrust Indicator: Neutral
    Indicator Explained: This indicator uses NASDAQ volume data to indicate bullish and bearish conditions for the NASDAQ Composite Index. The indicator plots the ratio of the 10-day total of NASDAQ daily advancing volume (i.e., the total volume traded in stocks which rose in price each day) to the 10-day total of daily declining volume (volume traded in stocks which fell each day). This ratio indicates when advancing stocks are attracting the majority of the volume (readings above 1.0) and when declining stocks are seeing the heaviest trading (readings below 1.0). This indicator thus supports the case that a rising market supported by heavier volume in the advancing issues tends to be the most bullish condition, while a declining market with downside volume dominating confirms bearish conditions. When in a positive mode, the NASDAQ Composite has gained at a rate of +38.3% per year, When neutral, the NASDAQ has gained at a rate of +13.3% per year. And when negative, the NASDAQ has lost at a rate of -8.5% per year.

    Breadth Thrust Indicator: Negative
    Indicator Explained: This indicator uses the number of NASDAQ-listed stocks advancing and declining to indicate bullish or bearish breadth conditions for the NASDAQ Composite. The indicator plots the ratio of the 10-day total of the number of stocks rising on the NASDAQ each day to the 10-day total of the number of stocks declining each day. Using 10-day totals smooths the random daily fluctuations and gives indications on an intermediate-term basis. As expected, the NASDAQ Composite performs much better when the 10-day A/D ratio is high (strong breadth) and worse when the indicator is in its lower mode (weak breadth). The most bullish conditions for the NASDAQ when the 10-day A/D indicator is not only high, but has recently posted an extreme high reading and thus indicated a thrust of upside momentum. Bearish conditions are confirmed when the indicator is low and has recently signaled a downside breadth thrust. In positive mode, the NASDAQ has gained at a rate of +22.1% per year since 1981. In a neutral mode, the NASDAQ has gained at a rate of +14.5% per year. And when in a negative mode, the NASDAQ has lost at a rate of -6.4% per year.

    Bull/Bear Volume Relationship: Moderately Positive
    Indicator Explained: This indicator plots both "supply" and "demand" volume lines. When the Demand Volume line is above the Supply Volume line, the indicator is bullish. From 1981, the stock market has gained at an average annual rate of +11.7% per year when in a bullish mode. When the Demand Volume line is below the Supply Volume line, the indicator is bearish. When the indicator has been bearish, the market has lost ground at a rate of -6.1% per year.

    Technical Health of 100 Industry Groups: Neutral
    Model Explained: Designed to provide a reading on the technical health of the overall market, this indicator takes the technical temperature of more than 100 industry sectors each week. Looking back to early 1980, when the model is rated as "positive," the S&P has averaged returns in excess of 23% per year. When the model carries a "neutral" reading, the S&P has returned over 11% per year. But when the model is rated "negative," stocks fall by more than -13% a year on average.

    The Early Warning Indicators

    Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide "early warning signs" that a trend change may be near.

    • S&P 500 Overbought/Oversold Conditions:
      - Short-Term: Neutral
      - Intermediate-Term: Neutral
    • Market Sentiment: Our primary sentiment model is Negative.
    The State of the Market Environment

    One of the keys to long-term success in the stock market is stay in tune with the market's "big picture" environment in terms of risk versus reward.

    Weekly State of the Market Model Reading: Neutral
    Model Explained:Different market environments require different investing strategies. To help us identify the current environment, we look to our longer-term State of the Market Model. This model is designed to tell us when risk factors are high, low, or uncertain. In short, this longer-term oriented, weekly model tells us whether the odds favor the bulls, bears, or neither team.

    Wishing you green screens and all the best for a great day,

    David D. Moenning
    Founder and Chief Investment Strategist
    Heritage Capital Research - A CONCERT Advisor
    Be Sure To Check Out the NEW Website!


    Is Your Portfolio Ready for the Next Financial Storm??

    Check out Heritage Capital Research's NextGen Active Risk Manager
    Or call Heritage for more information at (847) 807-3590


    Sep 17 8:55 AM | Link | Comment!
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