David Moenning's  Instablog

Daily State of the Markets
Thursday, May 2, 2013

Good Morning. I spent the better part of the last four days at NAAIM's (National Association of Active Investment Managers) annual "Uncommon Knowledge" conference, which was hosted in my hometown of Denver this year. While the conference agenda was chock full of strong presenters such as Keith McCullough of Hedgeye, Martin Pring, Tom McClellan, and Ian McAvity, the real benefit to attending a conference like this is getting to spend time chatting with more than 100 active money management professionals.

In case you're wondering, the term "active management" runs the gamut of everything from periodic reallocation of tactical and/or strategic investing strategies to trading in and out of various markets on a daily basis. In short, the managers at this conference engage in a wide variety of investment methodologies. However, the common thread is that ALL believe in doing something other than the old buy, cross your fingers and then hope approach. While we may disagree on whether a trend-following, black-box model, or mean reversion approach is better/smarter, one thing we all agree on is that buy-and-hope is an outdated concept - unless, of course, you are able to implement such a strategy when there is blood in the streets. But then again, isn't that too an "active" approach?

But I digress (as usual). While there is a contingent of managers within NAAIM that I would call "quants" who manage money based solely on the readings/rules of their mathematical systems, there are also a great many "active" managers who look to keep their clients in the right place at the right time using their experience and brains as a guide. And it was this crowd that I enjoyed talking to as the opinions on the outlook for the markets were all over the map.

I talked to advisors (a manager must be an RIA - Registered Investment Advisor - to be a member of NAAIM) who felt that the world was in sorry shape at the present time and that the piper would most certainly have to be paid at some point given the state of China, Europe, etc. What was interesting (well, to me anyway) is that some of these managers were younger and had only been in the business during the current secular bear market, while others were grizzly veterans who have seen it all since the 1970's. As such, I can't say that the folks I talked to were simply fighting the last war due to their frame of reference.

On the other side of the macro view, a smaller group of managers were borderline giddy about the outlook for the next couple of years. They cited the action on the chart, the Fed, BOJ, ECB, et al as well as the idea that the stock market tends to look forward and not back. Therefore, this group argued, if the market can find a way to not succumb to the "sell in May" season this year, stocks - specifically U.S. stocks - are the place to be.

While it isn't terribly surprising to have heard both bullish and bearish arguments from this crowd of investment professionals, the one thing that unites the crowd is the insistence on employing a risk management strategy. When asked, "What if you're wrong on your view?" the answer was universal. While the actual words chosen to offer a response varied, the overriding message was, "That's easy - we will follow our sell discipline and get the heck out of the way if things get nasty."

This is the message I will leave you with on this fine Thursday morning as I've got to pack a bag in a few minutes and start brushing up on my French (my goal is to not completely embarrass my wife in the restaurants this time around). While the approaches, strategies, methodologies, and time frames vary widely amongst the members of NAAIM, the common theme is the each and every manager has an exit strategy for their positions. And frankly, it is this one simple concept that separates the pros from the public.

While the public has a tendency to drink the Kool-Aid of the day being pushed by the financial media and their commission-based "advisors," most of the managers within the NAAIM organization get paid for "getting it right" when things go wrong. And this is why I so enjoy the gatherings because in short, I've found my people.

Publishing Note: My travel schedule continues to be full. Starting tomorrow, I will be traveling in Europe with my wife for two weeks. Then, the day after we return, I set off to fetch my youngest from college. So, I will be schedule-challenged for much of the next three weeks and will publish morning commentaries as time permits. However, rest assured that since vacation isn't a word in my vocabulary, I will be monitoring the markets on a daily basis.

Looking for a disciplined approach to managing stock market risk on a daily basis? Check Out My "Daily Decision" System. Forget the fast money and the latest, greatest option trade. What investors need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets.

Thought For The Day...

Positions in stocks mentioned: none

Follow Me on Twitter: @StateDave

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. (HCM) a Chicago-based money management firm. HCM is registered 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.

Daily State of the Markets
Friday, April 26, 2013

Good Morning. In an effort to keep things brief and to the point (which is likely to be a serious challenge for me), let me say that the state of the market appears to be tenuous at the present time. In short, while the bulls appear to have the situation well in hand from the intermediate-term (3 weeks to 3 months) and longer-term (3 months to a year) perspectives, yesterday's late-day volatility raises some questions in my mind about the potential for future gains in the near-term.

Just when you thought our heroes in horns were about to embark on another journey into new-high-land, a headline out of Germany at about 2:00pm eastern gave the bears the opening they had been looking for. With the S&P perched right at its closing high at 1593, a report hit the wires that Germany's Bundesbank had issued an opinion for the country's high court opposing the OMT. (The OMT is the ECB's "bazooka" that could buy as many bonds as needed to stabilize the euro. Oh, and for the record, the OMT doesn't even exist yet.) With sell algos ever at the ready for such things, the news pushed the S&P down, down, down for the next 45 minutes. Thus, the question of the day appears to be if the Eurozone crisis can stay contained for long if Germany is not on board with the primary stabilizing factor.

But to be fair, we shouldn't blame the entire 9-point decline off the top on the Bundesbank. You see, more than four years after the credit crisis ended here in the U.S., Ben Bernanke said Thursday that things are not yet peachy keen in the banking system. The headline the received most of the attention was a line from a Bernanke speech in which the Fed Chairman said that vulnerabilities remain the financial system. While not exactly an earth-shattering statement, the algos remain back on high alert after the fake tweet this week and appeared to do their thing immediately after the quote hit the wires.

I know what you're thinking. First, this type of stuff with the algos creating intraday volatility in both directions goes on all the time. Second, the overall trend clearly favors the bulls. And thirdly, there is always something for the bears to worry about, right? However, my point is that for the second time in a week, the computers sent the market into a tailspin at the drop of a hat. And frankly, this type of action worries me a bit.

The bears can now argue that yesterday represented a "failure" at the old highs (the S&P hit its high water mark on 4/11), which is a clear negative according to the technical analysis textbooks. As such, a move below yesterday's low of 1579 would likely add fuel to this argument and bring in technical sellers. Remember, there are plenty of traders who are "riding the range" (buying the bottom of a trading range and selling the top) these days. And frankly, our Market Environment Models' signal to "reduce leverage" in our active risk manager programs at yesterday's close felt pretty good for specifically this reason.

On the other side of the court, the bulls will argue that the Japanese QE program is creating a boatload of new cash that is sloshing around the financial looking for a home. As one analyst wrote yesterday, overwhelming Japanese buying appears to be pushing up the prices of bonds, stocks, gold, silver, and even Apple. So, with the Japanese effectively doubling up on Ben Bernanke's QE efforts, there is indeed an awful lot of new capital being created these days.

The good news here is that if the "money sloshing around" argument is real, then any declines in the stock market should see folks implementing a BTFD (buy the freaking dip!) strategy. As such, any pullbacks in the market could very well wind up being short and shallow.

From my perch, the bottom line is this... The money sloshing around could easily cause traders to ignore the concerns about the state of the U.S. economy, the European debt crisis, and China's slowing economy. However, as they have displayed this week, the bears do have some additional weapons to work with. As such, I wouldn't be terribly surprised to see a trading range remain in place between 1540 and 1590 for a while longer.

Publishing Note: My travel schedule is about to get pretty nutty. First, I am first attending NAAIM's annual conference with meetings starting on Friday. Then I will be traveling in Europe with my wife for two weeks. And finally, the day after we return, I set off to fetch my youngest from college. So, I will be schedule-challenged for much of the next three and one-half weeks and will publish morning commentaries as time permits. However, rest assured that since vacation isn't a word in my vocabulary, I will be monitoring the markets on a daily basis.

Looking for a disciplined approach to managing stock market risk on a daily basis? Check Out My "Daily Decision" System. Forget the fast money and the latest, greatest option trade. What investors need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets.

Turning to This Morning...

The overseas markets are mostly red this morning as traders appear to be growing more cautious. The comment yesterday from Fed Chairman Bernanke about the risk still in the financial system got people's attention. In addition, the Bundesbank's opinion that it opposes the OMT has put concerns about the Eurozone crisis back on the table. And with Europe's markets down, the U.S. futures are following suit in the early going.

Pre-Game Indicators

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

Major Foreign Markets:
- Shanghai: -0.97%
- Hong Kong: +0.66%
- Japan: -0.30%
- France: -0.77%
- Germany: -0.24%
- Italy: -0.62%
- Spain: -1.05%
- London: -0.40%

Crude Oil Futures: -$0.38 to $93.26

Gold: +$1.70 to $1463.70

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

10-Year Bond Yield: Currently trading at 1.701%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: -2.94
- Dow Jones Industrial Average: -27
- NASDAQ Composite: -7.00

Thought For The Day...

Positions in stocks mentioned: none

Follow Me on Twitter: @StateDave

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. (HCM) a Chicago-based money management firm. HCM is registered 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.

Daily State of the Markets
Thursday, April 25, 2013

Good Morning. It is always interesting to see what captures people's opinion in this game. For example, Tuesday's "hack job" of AP's Twitter account produced a mini flash-crash in which the DJIA fell 145 points in about 120 seconds and then recovered 134 points in the ensuing 3 minutes. So, in just 300 seconds, the DJIA traveled 279 points. But since the source of the dance to the downside was identified instantly and then the event was reversed almost as quickly as it came, I really didn't give it much thought. The bottom line is this type stuff happens all the time (albeit on a smaller scale) to individual stocks. However, since this time the computers hit the DJIA and the emotions from the Boston Marathon bombings were still raw, the public can't seem to get enough of this story.

While most professionals in the game understand that there are lots and lots of algos combing through the news wires looking for combinations of words that will trigger buy and sell orders, apparently the public does not. It's actually fun to see these programs in action at times, as the computers grab words that don't necessarily go together correctly. But since the computers can read a wee bit faster than we humans can and they do seem to get "the story" right most of the time, this is a game that probably isn't going to go away just because somebody sent out a false tweet.

One of my colleagues (Ted Lundgren of Hg Capital Advisors, a firm that, by the way, runs some pretty nifty investment strategies) called me yesterday and asked me if I thought the "mini crash" meant anything from a market environment perspective. Ted's contention was that this was an event that could have, or perhaps even should have, shaken the confidence of investors. He suggested that while not on the same scale, the Flash Crash of May 6, 2010 might be used as a guide here. "If you look at the Flash Crash," he opined, "You'll see that it was part of a larger move lower. But on Tuesday, the market didn't miss a beat. So, doesn't that tell us something?"

I admitted that I hadn't considered Tuesday's event from that perspective as market participants largely ignored the move. But Ted's contention was interesting because of the fact that CNBC spent much of the day Wednesday talking about what I'm calling the "hack crash." And in terms of the media coverage, it was as if this type of thing had never happened before.

But I digress (yes, there is indeed a reason that I often refer to this column as a "meandering" morning market missive). The key point that was made to me was that the "hack crash" occurred and nobody really seemed to care (other than the financial news networks, that is). I was reminded that by the end of the day Tuesday, the market had moved to the high of the day and there was a fair amount of talk making the rounds about the potential for new highs. In other words, despite the deep-dive that had occurred earlier in the day, fear was most definitely not in the air.

I countered with the argument that there is a large number of trend-following algos these days pushing the indices around and that computers don't scare easily. After all, the trend is indeed an algo's best friend when the market is moving in one direction or the other for any length of time. But I will admit that my friend had a point.

You see, there wasn't any panic to speak of in the market on either Tuesday or Wednesday. People weren't fearful that stocks would fall out of bed again at any moment. And while the bears could be heard pushing their agenda (this day was no different from any other day in that regard), the concept of the market falling apart at the seams did not seem to dominate anyone's conversation. No, it appeared that the "hack crash" was all in a day's work and that the bulls were continuing to go about their business.

Speaking of the bull business, it looks like the word "accumulation" is definitely to be included in the description. Remember, despite all the worries about earnings, Europe, the rising wedgie-something-or-other chart formations, the defensive leadership, and the weak economic data, it does appear that stocks are still being accumulated here in the good ol' USofA. As such, it looks like it will take more than a "hack job" to take this market down. But, then again, today is another day, so stay tuned!

Publishing Note: My travel schedule is about to get pretty nutty. First, I am first attending NAAIM's annual conference with meetings starting on Friday. Then I will be traveling in Europe with my wife for two weeks. And finally, the day after we return, I set off to fetch my youngest from college. So, I will be schedule-challenged for much of the next three and one-half weeks and will publish morning commentaries as time permits. However, rest assured that since vacation isn't a word in my vocabulary, I will be monitoring the markets on a daily basis.

Looking for a disciplined approach to managing stock market risk on a daily basis? Check Out My "Daily Decision" System. Forget the fast money and the latest, greatest option trade. What investors need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets.

Turning to This Morning...

The majority of overseas markets sport green numbers this morning with the exceptions of Spain and Shanghai. The fact that the UK avoided a triple dip recession in Q1, a rebound in gold, and a steady flow of earnings appears to be keeping the mood upbeat on Wall Street prior to the open. Futures currently point to a gain of about 50 Dow points at the open.

Pre-Game Indicators

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

Major Foreign Markets:
- Shanghai: -0.87%
- Hong Kong: +0.98%
- Japan: +0.60%
- France: +0.18%
- Germany: +0.64%
- Italy: +0.49%
- Spain: -0.73%
- London: +0.10%

Crude Oil Futures: +$0.28 to $91.71

Gold: +$23.10 to $1446.80

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

10-Year Bond Yield: Currently trading at 1.712%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +6.81
- Dow Jones Industrial Average: +51
- NASDAQ Composite: +9.68

Thought For The Day...

Positions in stocks mentioned: none

Follow Me on Twitter: @StateDave

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. (HCM) a Chicago-based money management firm. HCM is registered 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.