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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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  • All Bets Are Off

    Daily State of the Markets
    Friday, November 21, 2014

    Any analysis of the stock market action or the macroeconomic picture done prior to Friday morning is likely to be tossed out the window this morning. The bottom line is the action taken by the People's Bank of China and the most recent comments made by the ECB's Mario Draghi now trump everything.

    China's Surprise Move

    In a surprise move, the People's Bank of China cut its one-year benchmark lending rate by 40 basis points (0.40%) to 5.6% after the market close on Friday. It was the first time the Chinese had cut rates since July 2012.

    The PBoC attempted to downplay the significance of the move by saying that the rate cut was not a change in monetary policy. In a statement, the bank said that there is no need for aggressive stimulus with economic growth still at a reasonable rate.

    However, anybody that has been paying attention knows better. Remember, a growth rate of 7%, while admirable almost anywhere else in the world, is simply too low in China. The current assumptions are that the world's second biggest economy will likely miss its growth target of 7.5% this year - perhaps by a wide margin.

    Recall that just yesterday, the flash PMI came in at 50.0, which is right on the line between expansion and contraction mode for the manufacturing sector and was a 6-month low. Oh, and the Output Component fell to 49.5 in November. HSBC said, "Disinflationary pressures remain strong and the labour market showed further signs of weakening."

    Separately it was reported that the Chinese economy grew by 7.3% year-over-year in the third quarter - the slowest pace in more than five years.

    The move by the PBoC put a spring back into the bulls' step in Europe on Friday as countries such as Germany are tied heavily to the economic success of China. Germany's DAX index is up over 2.2% in afternoon trade.

    But Wait, There's More!

    Speaking of Europe, Super Mario is attracting attention again this morning. The ECB President appears to be doing everything he can to underpin the idea that the European central bank will soon launch a sovereign QE program. Friday morning, Draghi said in speech that ECB needs to raise inflation expectations as fast as possible.

    "We will continue to meet our responsibility - we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us," Mr. Draghi said in a speech to a banking conference Friday morning.

    Draghi added, "If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases."

    Recall that inflation in the Eurozone was reported at just 0.4% last month, which is far below the ECB's target of 2%, and that central bankers around the world appear to be using the concept of inflation expectations in order to justify buying bonds and other assets (and in Japan's case, stock market ETFs and REITs) on the open market in order to keep rates low and stimulate growth.

    Therefore, you can toss aside anything you might have been thinking about with regard to what comes next in the stock market. The bottom line here is that more stimulus and more QE is a good thing for stocks.

    S&P 500 - Daily

    View Larger Image

    Turning To This Morning

    There has been big news overnight as the Chinese unexpectedly cut rates and ECB President Draghi once again talked positively about launching a sovereign debt QE program across the pond. As one might have expected, European stock markets have rallied hard on the news and U.S. stock futures are pointing to a stronger open. And yes, sometimes it is that simple in this game.

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: +0.33%
    Hong Kong: +0.37%
    Shanghai: +1.40%
    London: +1.05%
    Germany: +2.15%
    France: +2.22%
    Italy: +2.42%
    Spain: +2.60%

    Crude Oil Futures: +$1.89 to $77.74

    Gold: +$7.90 at $1198.80

    Dollar: higher against the yen, euro, and pound

    10-Year Bond Yield: Currently trading at 2.345%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +18.65
    Dow Jones Industrial Average: +153
    NASDAQ Composite: +37.46

    Thought For The Day:

    The easiest way to save face is to keep the lower half shut. -Unknown

    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)

    Advertisement
    Will You Be Ready For The NEXT Bear Market?

    Heritage Capital Research's NextGen Active Risk Manager Can Help
    Contact Heritage for more information or call us at (847) 807-3590


    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.

    Nov 21 8:56 AM | Link | Comment!
  • The Bears Are Baffled

    Daily State of the Markets
    Wednesday, November 19, 2014

    The major indices stepped lively to a fresh set of new highs yesterday with the Dow, S&P 500 and NASDAQ 100 all finishing at their highest levels ever. However, as has been the case for much of the year, the smallcaps, midcaps, and microcaps failed to confirm. And while this situation could be rectified should stocks continue to run in the near-term, the divergence between the generals and the troops remains an issue.

    The problem is that such divergences are generally present at the end of bull markets. This is not to say that this bull will run out of steam any time soon. However, it is important to remember that tops in the market are a process and not an event. As such, those bears still willing to show their faces in public are suggesting that stocks could indeed be embarking upon a blow-off style top at this time.

    A New Record

    However, there can be little argument that the current joyride to the upside has been impressive. Not only did the S&P 500 close at a fresh new all-time high yesterday, the venerable index also finished above its 5-day moving average again - for the 23rd consecutive session. What is remarkable here is that such a feat has never happened before. Yep, that's right, the S&P has never experienced the type of straight-up advance that has been seen over the past 5 weeks.

    S&P 500 - Daily

    View Larger Image

    Given that the sky was supposed to be falling on October 15 as the market flirted with a decline that was fast approaching the -10% range on the back of worries about growth slowing, many investors continue to scratch their heads about the reason behind the out-and-out romp higher that is taking place.

    Wasn't Global Growth a Problem?

    Compounding the confusion is the fact that many economies of the world are sagging badly at the present time. Japan officially entered a recession on Monday. The Eurozone is likely in recession, it just isn't official yet. And everybody on the planet knows that China is slowing.

    Across the pond, the Bank of England's top guy fretted publicly about deflation this week. Mark Carney said on Monday that disinflation seems to be creeping in and that it may be three years before inflation reaches the central bank's 2% target.

    In addition, the UK's David Cameron told the press this week that there are warning flags flying with regard to the state of the global economy.

    In China, officials have been promoting new stimulus measures aimed at keeping the economy moving forward at an acceptable clip. The latest of which is a commitment to rebuild "the silk road" in an effort to make trading with the outside world easier going forward.

    And yet, stocks in the U.S. just continue to dance merrily higher. So, what gives?

    QE-Infinity Is a Thing

    First and foremost, investors need to keep in mind that free money continues to trump just about everything in the stock market. In other words, the focus of the market remains on QE - and little else.

    Remember that Japan just upped their QE program by 60% and that unlike the program in the U.S. that focused on gov't bond purchases, the Japanese are actually buying stocks and REITS as well as gov't bonds. And then after Monday's big economic surprise, PM Abe has dissolved the government, called for snap elections, and has tasked a committee to come up with more ways to stimulate the economy. In short, QE-infinity looks to be a thing in Japan.

    Next up is Europe. While the ECB is famous for talking the talk without actually walking the walk, almost everyone expects Super Mario to actually fire the QE bazooka at some point in the near future. The bottom line here is that the economies of Europe are in bad shape and something needs to be done to keep the Eurozone out of a triple-dip recession, which would likely bring the sad state of affairs in the continent's banking industry back in focus. And from there, it isn't much of a leap to see the markets of the world focused on the European debt crisis - again.

    Therefore, there is growing pressure on Germany's hawks to swallow their pride and accept the fact that the ECB has got to start buying €1 trillion or so worth of bonds on the open market in the near term.

    The key here is to recognize that while the U.S. and the U.K. are ending their QE programs, the Japanese and the Europeans will likely pick up the slack. And this means that there will continue to be a whole lot of freshly minted money floating around the global banking system looking for a home. And where do you think a lot of that money is going to go? In the U.S. stock and bond market, of course.

    As David Wagner pointed out in his post on financial relativity in this space last week, the U.S. remains the only real option to park large amounts of cash. So, while the color of the currency being printed may be different going forward, the QE trade will likely stick around for a while.

    Next time, we'll look at a few more reasons why stocks continue to levitate here. Things like seasonality, performance anxiety, and the fundamentals of the stock market are likely to make the list.

    Turning To This Morning

    The focus of the markets this morning appears to be on politics, the potential for the ECB to embark on a QE program, and the Fed. On the political front, the vote on the Keystone pipeline fell one vote short in the Senate, so political gridlock appears to be alive and well in Washington. In Europe, S&P's chief European economist said that plans to spend €1 trillion on infrastructure will likely fail unless the ECB steps up to the plate with a pure QE plan in the near future. And here at home traders and economist alike are awaiting the release of the minutes from the latest Fed meeting. Recall that the statement from the October 28-29 meeting was viewed as being "incrementally more hawkish" than had been expected. On Wall Street futures are currently pointing to a slightly lower open for stocks.

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: -0.97%
    Hong Kong: -0.32%
    Shanghai: -0.66%
    London: -0.09%
    Germany: +0.52%
    France: +0.44%
    Italy: +0.81%
    Spain: -0.03%

    Crude Oil Futures: +$0.24 to $74.85

    Gold: -$0.90 at $1196.20

    Dollar: lower against the yen, euro, and pound

    10-Year Bond Yield: Currently trading at 2.340%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: -2.75
    Dow Jones Industrial Average: -14
    NASDAQ Composite: -05.09

    Thought For The Day:

    Happiness can be found in the darkest of times, if one only remembers to turn on the light. -Unknown

    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)

    Advertisement
    Will You Be Ready For The NEXT Bear Market?

    Heritage Capital Research's NextGen Active Risk Manager Can Help
    Contact Heritage for more information or call us at (847) 807-3590


    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.

    Nov 19 8:44 AM | Link | Comment!
  • The Biggest Surprise Wasn't...

    Daily State of the Markets
    Tuesday, November 18, 2014

    Perhaps the biggest surprise of the day Monday wasn't the fact that Japan suddenly finds itself back in a recession. Nor the fact that the Bank of England's Mark Carney began to publicly fret about deflation. Or that Super Mario started talking about QE again. Or even that David Cameron said that "red warning lights are flashing" in the global economy again.

    No, the big surprise was that the U.S. stock market didn't seem to care. Not at all. Not about any of it. Interesting...

    With a handful of rather shocking remarks, headlines, and speeches to pick from, the big surprise was that our furry friends in the bear camp came up empty handed. Again.

    S&P 500 - Daily

    View Larger Image

    Stop and think about this for a moment. After a disastrous showing in Q2, where Japan's GDP plunged at an annualized rate of -7.3%, the economy in the Land of the Rising Sun was expected to rebound to the tune of +2.2%. Heck, the lowest analyst estimate on record for Japan's Q3 GDP growth rate was +1.00%. So, what happened when the GDP print came in at -1.6%?

    In Japan, of course, things got ugly quickly as the Nikkei dove nearly -3%. And in the early going, the U.S. futures were sporting a bright red number. But by the time the opening bell rang at the corner of Broad and Wall (or perhaps more accurately, in Mahwah NJ), much of the worry had evaporated and it looked like business as usual.

    Takeaway #1: Japan's Economy Isn't Important

    So, what should investors take away from this rather strange action? First, the economy in Japan stinks. And the fact that the geniuses in charge implemented a sales tax at exactly the wrong time means that Abenomics still has a lot of work to do.

    The chart below really tells the whole story.

    iShares Japan (NYSE: EWJ) - Daily

    View Larger Image

    Although Shinzo Abe has held onto his job much longer than his recent predecessors, the weekly chart of Japan suggests that jury is still out on whether or not the QE-infinity bet the Prime Minister is making will pay off.

    Compare the chart of the EWJ to the S&P 500. While many analysts argue that the U.S. economy and in turn, the stock market, is being propped up by the Fed, this chart would seem to suggest that investors have a lot more faith in the good 'ol USofA than Japan.

    S&P 500 - Weekly

    View Larger Image

    Takeaway #2: Europe's Economy Isn't Important - Yet

    Also in our list of rather surprising developments yesterday were the comments from the BoE's Carney, the ECB's Draghi, and the UK's David Cameron. With some of the key words contained in the headlines being "disinflation," "Sovereign QE," and "Warning Lights," one might have expected more of a reaction out of the algos that dominate the intraday of the U.S. stock market.

    One might have also expected European bourses to sport a bit of a reaction. But in light of the fact that the mere mention of the words "sovereign QE" seems to trump any and all other news, it appears that the state of the European economy doesn't matter right now either.

    iShares European Union (NYSE: EZU) - Weekly

    View Larger Image

    But then again, the chart above doesn't exactly paint a pretty picture. Thus, one can conclude that there might indeed be some issues lurking under the surface in Europe. Therefore, investors looking for something to worry about after the year-end mark-up season ends here in the U.S., may want to focus their attention on the sagging economies across the pond.

    Takeaway #3: Yep, That's Right, It's Still All About...

    So, since Japan's economic tank job, Carney's fretting and/or Cameron's words of warning failed to get the bears stirred up, there is really only one conclusion to come to. This market continues to be all about QE - regardless of what color the currency being printed is.

    While QE is dead here in the U.S., it is clearly alive and well elsewhere in the world. As my friend Brenda Wenning wrote last week, "QE is dead, long live QE!"

    Turning To This Morning

    The news flow out of Japan continues to dominate the market conversation this morning. First, as was widely expected, Prime Minister Abe announced an 18-month delay in the second phase of the sales tax increase. Next, the PM said he dissolve the lower house of Parliament on Friday and hold snap elections on December 14. And finally, there is talk of - what else - more stimulus after yesterday's surprising dive in GDP as Abe has instructed ministers to begin preparing new measures to help move the economy forward. Across the pond, German and Eurozone ZEW confidence indices rebounded for the first time in five months. And here at home, traders will get fresh data on inflation before the bell. Futures currently point to a flat 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: +2.18%
    Hong Kong: -1.13%
    Shanghai: -0.73%
    London: +0.41%
    Germany: +1.23%
    France: +0.75%
    Italy: +0.89%
    Spain: +1.16%

    Crude Oil Futures: +$0.12 to $75.76

    Gold: +$16.10 at $1199.60

    Dollar: lower against the yen, euro, and pound

    10-Year Bond Yield: Currently trading at 2.338%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +0.63
    Dow Jones Industrial Average: +10
    NASDAQ Composite: -0.31

    Thought For The Day:

    To be able to ask a question clearly is two-thirds of the way to getting it answered. -John Ruskin

    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)

    Advertisement
    Will You Be Ready For The NEXT Bear Market?

    Heritage Capital Research's NextGen Active Risk Manager Can Help
    Contact Heritage for more information or call us at (847) 807-3590


    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.

    Nov 18 7:50 AM | Link | Comment!
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