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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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  • The Important Message From Earnings Season

    Oil didn't go down. Bank stocks in Greece didn't crash. The dollar didn't make a new high. And rates didn't put in a new low. As a result, traders and their computers in the U.S. had the green light to hit the buy button for much of the day on Thursday.

    Yep, that's what this choppy, back-and-forth market has come to. If the key drivers are up, stocks move up. And if not, well, the algos chase their tails to the downside until the closing bell rings.

    If you are able to trade the stock market on a millisecond basis, as the big banks such as Goldman, Morgan Stanley, JPMorgan, etc. and hedge funds such as Citadel do, then this is what the stock market game is all about. However, if your time frame extends beyond lunch, the game is a bit more complicated at the present time.

    For investors - you know, the folks that own positions for periods measured in weeks, months, or years instead of milliseconds - their view on the stock market's fundamentals tends to play an important role in their decision making. As such, the outlook for the economy, earnings, inflation, and interest rates tends to be the primary focus of this crowd.

    Up until December, the outlook for most of the market fundamentals was pretty rosy. The economy was kicking into high gear, earnings were at record highs, inflation was nowhere to be found (which for the majority of my 35 year career has been a good thing), and rates were likely to stay low from an historical perspective. Therefore, the rebound from the September/October pullback pushed the S&P 500 to new all-time highs. And frankly, this made sense.

    Muddy Waters

    However, since the beginning of December the market's waters have been muddied as the economic data has come in on the punk side more often than not, the oil crash looks like it may be starting to have an impact, and folks in high places are becoming very worried about inflation - err, the lack thereof.

    The question at this time is if any of the worries are real. And one of the best ways to confirm or deny such concerns is to listen to the message from companies when they issue their earnings reports. And the bottom line is that based on the most recent reports, some pretty big names are starting to fret about the impact from crude's rude move, the dollar's strength, and a slowdown in global growth.

    What Companies Are Saying Now

    Let's go to the video tape and see what some of the big industrial names are saying about the issues of oil, the dollar, and global growth...

    Caterpillar (NYSE: CAT) kicked things off by saying in no uncertain terms that there are headwinds from oil, currency exchange, and global growth. Here are some of the comments from management from January 27:

      "Without a doubt, the impact of substantially lower oil and gas prices is the most significant reason we're expecting lower sales in 2015...With oil this low, we expect substantial reductions in producers' capex and that it will be negative for our sales."

      "Year-over-year, we expect a stronger dollar to be a sales headwind, commodity prices in mining have also taken another leg down over the past few months."

      "US [sales] still positive, but probably not quite as positive as we thought before. Almost every place else in the world, to some degree, negative."

    General Electric (NYSE: GE) said the following on January 23:

      "In December, we also outlined our expectations for Oil & Gas with a backdrop of oil at $60 to $65 a barrel. Since then, prices have fallen further. When we planned the year, we relied on multiple scenarios including a further fall in oil prices... The [Oil & Gas business] team is reducing employment, executing restructuring and simplification projects to materially reduce their cost structure, all predicated on a tougher scenario."

    3M (NYSE: MMM) also sounded the alarm about the rising dollar in it's January 27 report:

      "We now estimate FX to reduce sales by 4% to 5% versus previous guidance of minus 2% to minus 3%."

    Crane (NYSE: CR) voiced concerns on January 27 about the global macro outlook by saying:

      "While the long-term outlook remains attractive, we believe that current macro uncertainty from the decline in oil prices, weakness in Europe, currency volatility and geopolitical risks have delayed business investments across our process valve verticals."

    Illinois Tool Works (NYSE: ITW) talked about the dollar's impact of earnings on January 27:

      "We gave everybody a rough rule of thumb that said a $0.01 change in the euro versus dollar rate equates to $0.01 of EPS on an annualized basis. And obviously, since then, the euro has weakened versus the dollar to the tune of about $0.10 and so that's the $0.25 of headwind that we talked about now versus the $0.15 in December. And obviously, all currencies are moving."

    Rockwell Automation (NYSE:ROK) referenced headwinds from oil in its report from January 28...

      "We're reducing full year sales guidance, primarily to reflect a much more significant headwind from currency...We're dropping the high end of the sales range primarily due to the very significant decline in oil prices, but also because we are continuing to see forecasts for IP and GDP be revised downward in most regions..."

    Parker Hannifin (NYSE: PH) mentioned issues with currency conversion and China on January 27:

      "[Reduction in International guidance] is almost - almost all of it is currency. We are seeing some organic weakness in China in the construction business going forward, and that's impacting the numbers a little bit, and also internationally in Oil & Gas."

    Dover (NYSE: DOV) was all about oil in its comments from January 27:

      "...the big change to our forecast is in Energy, where the rapid decline in oil prices is significantly impacting energy CapEx spending and U.S. rig counts."

    The Takeaway

    So, there you have it. Some of the biggest industrial names are saying that the rise in the dollar, the crash in oil, and the economic slowdown in places like China and Europe are starting to impact their bottom lines - and will likely continue to do so.

    From a big picture point of view, the key takeaway is that a trend is starting to develop. But, since things don't matter on Wall Street until they do (and then they matter a lot), the question of the day is if this trend will become a focal point and cause traders to enter a "price discovery" (trader-speak for heavy selling) phase in the overall market.

    Recall that fundamental problems in the market oftentimes take a very long time before they impact prices. However, if one is paying attention to what is happening out there, it is quite possible to get ahead of the A.D.D. children and their fancy computer toys that control Wall Street on a daily basis. So, right now, the message from the big names is that the crash in oil, the rise in the dollar, and the slowdown in global growth is a big-picture concern.

    Turning to This Morning...

    Despite an improvement in Greece's stock market and pretty good earnings from Amazon.com, Visa, and Google, the mood in the markets on this fine Friday morning has flip-flopped once again. With traders keying on the movement in oil, the dollar and rates, it isn't surprising to see more red than green on the screens in the early going. In addition, the first look at U.S. GDP for the fourth quarter came in below expectations. So, with Europe a bit lower and rates diving, stock futures are pointing to a weak 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: +0.38%
    Hong Kong: -0.36%
    Shanghai: -1.60%
    London: -0.41%
    Germany: -0.51%
    France: -0.55%
    Italy: -0.38%
    Spain: -0.26%

    Crude Oil Futures: +$0.28 to $44.83

    Gold: +$9.40 at $1264.00

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

    10-Year Bond Yield: Currently trading at 1.681%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: -14.00
    Dow Jones Industrial Average: -72
    NASDAQ Composite: -7.35

    Thought For The Day:

    "The way I see it, if you want the rainbow, you gotta put up with the rain!" -Dolly Parton

    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 the U.S. Economy
    2. The State of the Earnings Season
    3. The State of the Oil Crash
    4. The State of Fed/ECB Policy
    5. The State of the Greece Banking System

    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: Moderately Negative
    (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 2 years)

    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: 1995-75
    • Key Near-Term Resistance Zone(s): 2060
    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): Negative
    • Price Thrust Indicator: Neutral
    • Volume Thrust Indicator: Neutral
    • Breadth Thrust Indicator: Neutral
    • Bull/Bear Volume Relationship: Neutral
    • Technical Health of 100 Industry Groups: Neutral
    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: Moderately Oversold
      - Intermediate-Term: Moderately Oversold
    • Market Sentiment: Our primary sentiment model is Neutral .
    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 Market Environment Model Reading: Positive

    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!


    Indicator Explanations

    Trend and Breadth Confirmation Indicator (Short-Term) 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 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 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 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 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 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.

    Weekly State of the Market Model Reading 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.


    Disclosures

    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., a 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.

    Jan 30 9:05 AM | Link | Comment!
  • Recent Tape Action Is Worrisome

    Are we having fun yet? If you are someone who attempts to manage risk and/or play the trends in the market the answer is likely a resounding, NO!

    What's the problem, you ask? The short answer is the price action has been more than a little nutty lately as the market has been moving sideways (and violently so), changing directions as many times as the Patriots change out footballs.

    Here's what I mean. In 2014, I count 14 changes (give or take a couple) in the direction of the trend for the year - with some waffling in between at times, of course. And it was this high number of direction changes that caused many active managers (including the vast majority of hedge funds) to struggle with performance last year.

    However, with less than a month under our belts in 2015, active managers couldn't be blamed if they began pining for the good ol' days of 2014. The problem is that since the beginning of December, there have been 7 changes in direction - with no waffling whatsoever - as stocks have been moving either straight up or straight down for two straight months now.

    S&P 500 - Daily

    View Larger Image

    Of course, it would be easy to blame the schizophrenic behavior on the fast-money types and their high-speed trading computers that seem to push the indices here and there, each and every day, at the drop of a hat. However, the key point to this morning's missive is that there just might be something else happening here. And if we are correct in our assessment, investors will want to be on their toes in the coming days/weeks.

    "Bad Action"

    Let's take a closer look at some of the "market action" seen recently. On December 16, it looked like the market was ready to break down in a meaningful way. Oil was crashing in spectacular fashion and analysts were busy telling us why this was a bad thing for the banks, emerging markets, jobs, and global growth.

    But as had been the case for quite some time now, the talk about Super Mario doing a QE deal caused traders to put aside their fears and instead bask in the glow of what would soon be another trillion dollars looking for a home.

    The problem is that while the rally (labeled #2 on the chart) did manage to make a new high, the fun and games didn't last long. Then on December 30th, things started to go the other way. And before you could put away your New Year's Eve garb, trend change #3 was at hand.

    During trend changes #4 and #5, oil was once again the focal point. Well, in between worries about Russia, Greece, and the U.S. economic data that is.

    But on January 16, word leaked out that the ECB wasn't going to disappoint and that Super Mario would actually fire the much ballyhooed bazooka that he'd been going on about for the better part of a couple years. Sure enough, the news of the next great money-printing experiment caused traders to celebrate (i.e. trend change #6) once again. The problem was that the QE celebration lasted for a grand total of 4 days.

    This time there was no new all-time high. This time investors didn't fall all over themselves to get on board the bull train. Nope, this time, the trend changed (#7, of course) on a dime as new concerns surfaced regarding the state of the U.S. economy, the impact of crude's rude move on blue chip earnings, and Greece... Yes, Greece... Again.

    And We're Back...

    Should we REALLY be worried about Greece, their banks, and what it might do to the European Union again? Haven't we been through this before? Wasn't the European debt mess declared solved in 2012?

    Apparently not. You see, even the Federal Reserve has now added the potential for "international developments" to their list of things to keep an eye on. And since Janet Yellen and her merry band of central bankers are pretty darn picky about the choice of words they use in their FOMC statements, the thinking is that there just might be something bad happening in the banking system across the pond.

    And then, just when you thought oil was stabilizing, WTI futures broke to a fresh new low yesterday. According to official reports, there appears to be a whole lot more oil floating around these days than had been previously though. And increased stockpiles of Texas Tea is not what the oil bulls wanted/needed to see on Wednesday.

    So, with the Fed worrying about Europe, the new Greek government talking trash to Germany, and oil continuing to crater, not even a blow-out quarter from Apple could keep prices from falling apart yesterday afternoon.

    Sure, things could easily turn around, maybe even today. And the bulls tell us that the 150-day moving, which currently sits at 1996 and has held like a champ over the past month and a half, is likely to be the bottom again. So, maybe trend change #8 will begin right here, right now and the day will once again be saved.

    However, the bottom line is the tape action has been anything but strong lately. In fact, it's been pretty rotten. And because of this, some caution might be warranted in the coming days. Yes, you are correct... Managing risk has been a waste of time and money over the past couple years. And yesterday did feel a little overdone. But if the tape action doesn't improve in a meaningful way, investors may soon need to start looking over their shoulders to see if something furry is lumbering their way.

    Turning to This Morning...

    Although none of the issues plaguing the market at the present time have been resolved, things appear to be stabilizing this morning. Much of the focus remains on yesterday's FOMC statement which was viewed by some as being dovish while others believed the Fed is being stubborn by not raising the possibility of postponing the liftoff in rates. On the subject of Greece, contagion issue seems to have calmed a bit and the country's stock market has caught a bounce - but the benchmark index is still down more than 13% on the week. Oil remains a focal point as well with WTI futures falling to fresh 6-year lows yesterday. Finally, earnings will continue to get a lot of attention today with more big names due to report. U.S. stock futures currently point to a mixed 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: -1.07%
    Hong Kong: -1.07%
    Shanghai: -1.32%
    London: -0.32%
    Germany: +0.16%
    France: +0.26%
    Italy: +0.61%
    Spain: +0.11%

    Crude Oil Futures: +$0.11 to $44.56

    Gold: -$15.70 at $1270.20

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

    10-Year Bond Yield: Currently trading at 1.741%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: -1.01
    Dow Jones Industrial Average: +26
    NASDAQ Composite: -6.18

    Thought For The Day:

    There is no pillow so soft as a clear conscience. -French proverb

    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 the U.S. Economy
    2. The State of the Earnings Season
    3. The State of Fed/ECB Policy
    4. The State of the Oil Crash
    5. The State of the Greece Banking System

    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: Moderately Negative
    (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 2 years)

    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: 1995-75
    • Key Near-Term Resistance Zone(s): 2060
    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): Negative
    • Price Thrust Indicator: Neutral
    • Volume Thrust Indicator: Neutral
    • Breadth Thrust Indicator: Neutral
    • Bull/Bear Volume Relationship: Neutral
    • Technical Health of 100 Industry Groups: Neutral
    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: Moderately Oversold
      - Intermediate-Term: Moderately Oversold
    • Market Sentiment: Our primary sentiment model is Neutral .
    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 Market Environment Model Reading: Positive

    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!


    Indicator Explanations

    Trend and Breadth Confirmation Indicator (Short-Term) 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 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 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 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 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 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.

    Weekly State of the Market Model Reading 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.


    Disclosures

    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., a 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.

    Jan 29 8:17 AM | Link | Comment!
  • Stuck In The Middle With You

    The question of the day would seem to be if the stock market's fundamentals, which look to be faltering a bit lately, will trump the tailwinds provided by the money printing programs of the BOJ and ECB.

    Stocks rallied in front of the launch of the latest QE program as this time, it was the ECB's turn to announce they would be turning on the printing presses. And by now, it is clear that traders are well versed in the QE play book. As we've mentioned a time or two, a great deal of the freshly minted currency (and remember, it matters little what color the cash is these days) printed by central banks has wound up in the U.S. stock and bond market. So, with the ECB committing to printing money to the tune of more than €1.1 trillion over the next 19 months, the fact that stocks were advancing prior to the announcement wasn't exactly surprising.

    However, there may be a fly in the ointment here as stock market fundamentals are suddenly in question.

    Punk Earnings Not Part of Bulls' Plan

    The most recent earnings reports from some very big names have come in surprisingly weak over the past few days, which has created a buzz in the bear camp. In short, there is talk that (a) dollar strength, (b) the crash in oil, and (c) a slowdown in global economic growth are all starting to impact the big, blue chip names - and not in a good way.

    Just yesterday, investors were treated to some really crummy numbers from the likes of Caterpillar (NYSE: CAT), Procter & Gamble (NYSE: PG), United Technologies(NYSE: UTX), and Microsoft(NASDAQ: MSFT). And to make matters worse, some of the forecasts for the future from company management were downright discouraging.

    Nor Punk Economic Data

    Also on the macro front is the topic of the U.S. economy. To this point, the general consensus has been that the U.S. has finally reached "escape velocity" as the most recent GDP prints have come in well above expectations. Therefore, stock market bulls have been able to buy any and all dips in the stock market, comfortable in the knowledge that the economy is humming along, inflation is low, and rates aren't likely to be a problem any time soon.

    But... the recent spate of weaker-than-expected economic data may be causing some investors to rethink this premise.

    I have the privilege of sitting on both CONCERT Wealth Management's Investment Committee and the Economics subcommittee. At our last Economics meeting, I posed the question to the team (which includes a former Fed economist) if the recent data was worrisome from a purely economic standpoint.

    The answer provided was fairly simple. The team acknowledged that the recent data had been weaker than consensus, but that there were no negative trends in place at this time. As such, the economists weren't worried.

    However, if nothing else, the stock market is a discounting mechanism of future economic growth. And with the Durable Goods report stinking up the joint for the fourth time in the last five months, it isn't surprising to see stocks falter a bit.

    Where Does This Leave Us?

    So, where does this leave things for investors? On the one hand, we have a growing economy, low inflation, low rates, and record earnings. And on the other we have a crash in oil prices, worries about disinflation/deflation, economic slowdowns in places like Europe and China, the struggles in Russia and other oil-producing emerging markets, and now, concerns about earnings and the economic data here at home.

    In my humble opinion, the answer can be summed up by the title of a song from the one-hit wonder Stealers Wheel, "Stuck in the Middle With You". And a quick glance at the chart of the S&P 500 makes this point fairly clear.

    S&P 500 - Daily

    View Larger Image

    Our take on the technical picture is that the price action since the beginning of December represents a consolidation of the big run seen in October/November. The key is that prices are currently tracing out what is commonly referred to as a "wedge" pattern as there are both uptrend and downtrend lines intact at this time.

    Next, it is worth noting that the S&P is now stuck in the middle of the wedge pattern as traders attempt to sort out the conflict between the most recent inputs. Again, the bottom line appears to be a question of whether the fresh cash coming into the markets will trump the crummy earnings and punk data seen lately. And the market's response so far seems to be to seek an equilibrium point in preparation for the next round of inputs.

    Speaking of inputs, Apple's (NASDAQ: AAPL) earnings crushed estimates after the close yesterday, which should quell the fear that iPhone sales might be slowing. And later today, we will get the latest from Janet Yellen and her merry band of central bankers.

    So, the key here is to sit tight and to listen to the message from the Fed, the earnings, and the upcoming economic data for clues as to which team has the stronger argument at this time. But for now, Ms. Market seems to be saying that she is stuck in the middle.

    Turning to This Morning...

    The keys to today's market so far include Apple's blow-out earnings, the political situation in Greece, the ongoing pain in oil, the Dollar, and the FOMC announcement scheduled for 2:00pm eastern today. In case you missed it, Apple crushed it with their earnings report after the close yesterday, blowing by the estimates and reporting record revenues, net profits, and iPhone sales. As you might expect, shares of AAPL are trading up by more than $9 at the moment. Next up is the fact that all the tough talk out of Greece's new government officials are taking a toll on the country's stock market, with bank shares being hit particularly hard. Greece's stock market is down about 15% already on the week. "King Dollar" is also getting a lot attention at the present time as the impact of the nearly 20% rise in the greenback is being felt by some of the big, blue chip names. On the oil front, prices are once again trying to stabilize, but futures are pushing lower in the early going this morning. And finally, there is the Fed, where today's announcement is expected to be a non-event (i.e. don't expect Janet Yellen to say anything about the possibility of pushing back the first rate hike). Finally, futures are pointing to a rebound at the open on Wall Street today.

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: +0.16%
    Hong Kong: +0.22%
    Shanghai: -1.40%
    London: -0.19%
    Germany: +0.27%
    France: -0.52%
    Italy: -0.49%
    Spain: -1.27%

    Crude Oil Futures: -0.95 to $45.25

    Gold: +$0.80 at $1292.50

    Dollar: higher against the yen, euro, and pound

    10-Year Bond Yield: Currently trading at 1.821%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +13.55
    Dow Jones Industrial Average: +83
    NASDAQ Composite: +61.70

    Thought For The Day:

    "All our dreams can come true if we have the courage to pursue them." -Walt Disney

    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 the U.S. Economy
    2. The State of the Earnings Season
    3. The State of Fed/ECB Policy
    4. The State of the Oil Crash

    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 2 years)

    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: 1995-75
    • Key Near-Term Resistance Zone(s): 2075-90
    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
    • Price Thrust Indicator: Neutral
    • Volume Thrust Indicator: Neutral
    • Breadth Thrust Indicator: Neutral
    • Bull/Bear Volume Relationship: Neutral
    • Technical Health of 100 Industry Groups: Neutral
    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: Moderately Oversold
    • Market Sentiment: Our primary sentiment model is Neutral .
    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 Market Environment Model Reading: Positive

    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!


    Indicator Explanations

    Trend and Breadth Confirmation Indicator (Short-Term) 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 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 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 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 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 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.

    Weekly State of the Market Model Reading 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.


    Disclosures

    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., a 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.

    Jan 28 9:02 AM | Link | Comment!
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