David Moenning's  Instablog

Daily State of the Markets
Tuesday, June 18, 2013

Good Morning. For the fifth day in a row (and the eleventh out of the last twelve), the DJIA experienced intraday volatility exceeding 100 points yesterday. While volatility in and of itself isn't a big deal these days, we do have to recognize that this represents a change in the market's character over what we had seen in the first five and one-half months of the year. And until we either hear from Mr. Bernanke or the trading range breaks, we can probably expect the manic depressive behavior to continue.

I was traveling during much of Monday's session and as such, I didn't have access to the minute-by-minute action on the charts. Yet, even via the finance app on my iPhone I was able to pick up the monster dive that took the Dow down 150 points in about half an hour. And as usual, I wanted to know why the move had occurred.

Obviously, the quick dance to the downside was tied to algo-driven sell programs - that's never in question these days. No, it was the trigger that I was looking for.

Within just a moment or two, I had identified the culprit. A headline from the Financial Times read: "Fed likely to signal tapering move is close." And just like that, the S&P 500 fell 15 points and the DJIA dropped 150.

But here's the problem. The article didn't say anything new on the subject. And the article did not quote any Fed officials. No, just the inference that the Fed might be close to tapering the amount of money going into their QE program every month was enough to send the algos into overdrive.

But upon closer inspection, the article really represented speculation on the part of the author. Sure, Mr. Kaminska cited some correlation between the number of Bloomberg stories with the keywords "tapering" and "volatility." And yes, the author did reprint a portion of an article written by somebody else talking about Jon Hilsenrath's recent article. But other than that, this article, yes, the one that moved the market 150 points in a matter of minutes, contained little to no substance.

My immediate response was to the move was to wonder aloud if the FT article had trumped the Hilsenrath article from Thursday. It seemed odd to me that the market was keying off of some article from across the pond instead of the position taken by "Hilsy." Did the FT know something that Hilsenrath didn't? Did the FT have a new comment from someone on the inside? In a word, no.

In fact, the author of the FT article later tweeted several comments that seemed to ease the markets fears. First, Kaminska tweeted that the Fed doesn't leak information to anyone - including him. Then he said that he believes the Fed's tapering will begin in September. And Kaminska tweeted that he doesn't know anything for sure.

So there you have it. Once again, the alogs picked up on a headline and assumed it was accurate. But in the words of my friend and colleague Curt Bergquist, this was "an article about an article about an article... now that's award winning reporting." In other words, the algo's didn't "read" the article, they just were programmed to react to the headlines. And then once the humans got involved and realized that this was a non-story, the indices rebounded a bit. But not before the computers scared the heck out of anyone watching who wasn't privy to what was happening.

In sum, this is the state of the speculation regarding what the Fed may or may not do next. The good news is we only have to wait another day and one half for the current ride to end.

Publishing Note: My apologies... I managed to misread my schedule yesterday. It is tomorrow that I have an early meeting and will not publish morning report. Regular "State" reports will return on Thursday.

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 speculation of what Ben Bernanke is likely to say at his press conference on Wednesday continues unabated. At this time, it appears that traders are positioning themselves for a dovish statement from the FOMC as U.S. futures are pointing to a higher open. However, as we saw yesterday, the mood can turn on a dime so it is best to stay flexible.

Pre-Game Indicators

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

Major Foreign Markets:
- Shanghai: +0.13%
- Hong Kong: +0.00%
- Japan: -0.20%
- Germany: -0.03%
- France: -0.07%
- Italy: +0.61%
- Spain: +0.67%
- London: +0.83%

Crude Oil Futures: +$0.29 to $98.06

Gold: -$7.90 to $1375.40

Dollar: lower against the yen and euro, higher versus pound

10-Year Bond Yield: Currently trading at 2.195%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +5.01
- Dow Jones Industrial Average: +52
- NASDAQ Composite: +9.94

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
Monday, June 17, 2013

Good Morning. The question of the day is whether or not the Federal Reserve Board will begin "talking taper" at this week's FOMC meeting. Although we will find out soon enough (it is a safe bet that Ben Bernanke will address the subject at his press conference which will be held at the end the Fed's two-day meeting on Wednesday), this won't keep traders around the globe from speculating on the issue of when and by how much the Fed will start cutting back on their stimulus programs. And this, in turn, is likely to keep markets volatile until we get the word from the Fed Chairman this week.

While there has been a fair amount of public discussion by Fed governors recently on the topic, so far at least we haven't heard anything official out of the FOMC. The bottom line is this has kept the market on pins and needles - and will likely continue to do so over the coming days.

However, if one steps back from the blinking screens for a moment, the idea that stocks have been moving up and down violently every time the subject is broached is sort of silly. Remember, there is absolutely zero discussion currently of the Fed raising rates. Bernanke's bunch has made it very clear that rates will continue to stay low for an "extended period." Heck, we're not even talking about the FOMC actually stopping the QE programs any time soon. No at this stage, traders are fretting over the idea of the Fed simply reducing the amount of stimulus it is providing to the economy each month.

Stocks rallied furiously on Thursday in response to a blog by the WSJ's well known Fed watcher, Jon Hilsenrath. Mr. Hilsenrath opined that the Fed Chairman is none to happy about the way the markets have reacted to the idea of QE tapering. (Recall that bond yields have spiked higher over the past month and that any further increase in rates could put a crimp in the economic recovery.) And since Hilsenrath is purported to be a public mouthpiece for Bernanke, traders now expect to hear dovish comments out of the FOMC this week.

We should remember that Ben Bernanke is one of the world's renowned experts on the Great Depression. And given that one of the big mistakes made back then was that government officials prematurely assumed everything was fine, Bernanke has made it clear over the past four years that he plans to err on the side of caution. In other words, the Fed isn't likely to pull the punch bowl too soon unless the economy is showing signs that it has finally has established "escape velocity" and can grow steadily and strongly without assistance from the Fed. In short, as long as inflation is low and unemployment is high, Bernanke is likely to continue to prime the pump with economic stimulus.

On the subject of the economic recovery, it should be obvious to anyone paying close attention that the economy is not exactly hitting on all cylinders at the present time. Sure, housing has perked up. And yes, we are starting to see some signs of improvement in the jobs market. But, the pace of economic recovery is anything but robust at the present time as we continue to see data come in on the disappointing side from time to time.

While I can easily be accused of oversimplifying the matter this morning, I'm going to suggest that the bond market may be getting ahead of itself at this stage and that the Fed isn't likely to say much of anything about raising rates or even when the FOMC might start to cut back (i.e. taper) on its stimulus efforts. So, while everyone else may be "talking taper" right now, the data hasn't convinced me that the Fed will be.

Publishing Note: I have an early meeting on Tuesday and will not publish morning report. Regular "State" reports will return on Wednesday.

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...

In light of the fact that there were no negative developments over the weekend, traders have returned to their desks with a more positive view this morning. And with Japanese stocks rising for a second consecutive day and European bourses higher, 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: -0.28%
- Hong Kong: +1.22%
- Japan: +2.73%
- Germany: +1.32%
- France: +1.70%
- Italy: +0.64%
- Spain: +1.19%
- London: +0.80%

Crude Oil Futures: +$0.76 to $98.61

Gold: -$2.80 to $1384.80

Dollar: higher against the yen, lower versus euro and pound

10-Year Bond Yield: Currently trading at 2.117%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +11.778
- Dow Jones Industrial Average: +106
- NASDAQ Composite: +26.52

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
Wednesday, June 12, 2013

Good Morning. This time the bears refused to be run over. This time, after a quick 50-point swing upwards in the S&P 500, the short-sellers were rewarded for selling into some resistance. This time, the good economic news (the NFIB Small Business Index hit the second highest level since December 2007) was ignored. And this time, there may actually be a question as to which way the next move in the stock market is going to go.

To be fair, the bears have had a rough go of it this year, so they probably deserve a day or two in the sun. In short, all of those deep-thinking macro doom-and-gloomers haven't been rewarded for their negativity. Once again, hedge funds are dramatically underperforming the S&P 500. This was the group who were so sure that the sequester debate would lead to disaster, that the economy was in trouble, that Europe was going to actually implode this year, that the slowdown in China was going to tank the global economy, and that the new highs in the stock market, which were driven by "monetary meth," would certainly give way to the next great bear market.

Instead of another debacle, our furry friends in the bear camp have been tortured almost daily for six straight months as the market indices have marched merrily higher in the face of all those concerns. While I may contend that investors have shunned bonds, commodities, and the emerging markets, leaving only the U.S. stock market as a viable alternative, those in the glass-is-half-empty camp contend that the rally in stocks has been all about "hopium" and the money being created by the central bankers of the world on a daily basis.

I might also contend that the upward mobility in the stock market since mid-November has been based on the idea that there isn't another calamity on the horizon and that the U.S. economy may have finally turned the corner. While the term "escape velocity" hasn't been used by the Fed and the economy isn't exactly hitting on all cylinders at the moment, there is little doubt that housing is on a roll and that the jobs market is improving. And the bottom line is that with these to areas on the rise, as long as rates and inflation remain low, stocks are the place to be.

However, everybody knows that all good things come to an end. In addition, everybody in this business knows that Wall Street has a tendency to overdo just about everything it ever does. As such, one must always be on the lookout for when the music stops and the trend changes directions.

Although I am not suggesting that the end is nigh or that we are on the precipice of the next bear market. However, I am willing to recognize that the game has been rather lopsided of late and that it rarely stays that way for long. Therefore, it is probably a good idea to be on the lookout for something that could trigger an extended run for the bears.

While stocks have not broken down and we rate the current short-term trend as neutral, there are a handful of issues cropping up that could give the bears an edge at some point soon. Japan is one example. The move in the yen, the Japanese Government Bonds and the country's stock market has been swift. And since the moves have all been driven by central bank intervention, there is room for disappointment here.

Next up there is Europe. Yes, again. Don't look know but Greece got smoked yesterday on the usual fears. More importantly, there are concerns that Germany's high court may muck up the works by declaring the ECB's bazooka (which isn't even in existence yet) unconstitutional. Oh, and if you had your t.v. on yesterday, you undoubtedly saw the violence that continues to erupt in Turkey (and for the record, yes, I am aware of the fact that half of Turkey lies in Asia).

Then there was the scare in Georgia yesterday that got people's attention for a bit. There was the intraday spike in oil that could be a concern if it continues. And finally, there is the ongoing tie-up between the movement in the yen and the stock market.

So, while yesterday's triple-digit loss in the stock market may not be something to run and hide over, we do have to recognize that some of these issues may be enough for the bears to capitalize on at some point. As such, we're keeping our eyes open and will be watching the important support zones closely.

Publishing Note: I have early commitments on Thursday/Friday and will publish morning commentaries as time permits.

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...

Improved sentiment in Europe has U.S. stock futures rebounding this morning. Better than expected Industrial Production numbers as well as expectations that Germany's high court will defer any decision on the constitutionality of the OMT until after the elections in September are being cited as the key drivers behind the bounce in Europe and U.S. futures.

Pre-Game Indicators

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

Major Foreign Markets:
- Shanghai: closed
- Hong Kong: closed
- Japan: -0.21%
- Germany: +0.04%
- France: +0.48%
- Italy: +0.11%
- Spain: +1.74%
- London: +0.27%

Crude Oil Futures: +$0.19 to $95.57

Gold: +$0.50 to $1377.50

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

10-Year Bond Yield: Currently trading at 2.198%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +10.89
- Dow Jones Industrial Average: +99
- NASDAQ Composite: +18.76

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.