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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 Story Of The Day Is...

    There was no shortage of stories to attract the attention of traders and their computers yesterday. It seemed like there was a new item flashing across the screens every 15 minutes or so. However, at the end of the day, the market only seemed to care about a couple things - Yellen and Apple.

    In case you missed it, there was news out of Ukraine, Greece, OPEC, and the San Francisco Fed, as well as word of a potential terror threat at the Mall of America. Now toss in the back-and-forth, will she or won't she, discussion about what Janet Yellen will or won't say on Capitol Hill this week, and you had a recipe for volatility in the stock market.

    Greece Misses a Deadline - Again

    Just when you thought it was safe to assume that the deal between Greece and the Eurozone meant that this subject could be put on the back burner, Athens was back in the news yesterday. In an almost comical headline, we learned that within 24 hours of inking the deal to extend the deadline for bailout funding, Greece missed a deadline. It's first deadline. An important deadline. You see, apparently the Greek government wasn't quite ready to send a list of reforms demanded by the Eurozone yesterday. In essence, Athens said, "We'll get it to you tomorrow."

    While this didn't create much of a stir in the markets (recall that most analysts, including yours truly have put the drama in Greece aside for now), the news did cause some traders to wonder if Greece was once again the word for the day. But as has been the case throughout this so-called crisis, the major market indices didn't seem to care much by the time the closing bell rang.

    Fedspeak Sounding Hawkish

    Also placed in the non-event category on Monday was word that San Francisco Fed President John Williams - who is a voting member of the FOMC this year - had hinted at a June rate hike. In an interview with the Nikkei, Williams said he viewed the recent gains in the jobs market as 'remarkable' and then predicted unemployment would fall to 5.2% within the year. He also talked about the ways the Fed could change its language in order to let markets know a rate hike might be coming.

    While there was really nothing new here, the takeaway seemed to be that Fed members may decide to "talk tough" on the rate front in order to establish some credibility. In short, although everyone knows that Janet Yellen is a dove, the Fed doesn't want to appear to be wishy-washy on its policy at this time. Therefore, we may hear more tough love from Yellen this week.

    OPEC Beginning to Notice?

    What DID get the attention of the high speed trading algos yesterday was a report that OPEC was considering an emergency meeting. The FT reported that Nigeria's oil minister and OPEC president - Diezani Alison-Madueke - said yesterday afternoon that OPEC members have discussed holding an emergency meeting if oil prices continue to slide.

    Alison-Madueke said that if prices slip any further it is highly likely that she will have to call an extraordinary meeting in the next six weeks or so, adding that "we're already talking with member countries." The OPEC president also noted that "it is hoped that (oil) will stabilize at no less than $60, but we cannot be sure." She said almost all OPEC members, except perhaps Saudi Arabia, are very uncomfortable.

    However, after the expected spike in oil prices and the stock market caused by the headline, reality set in as other officials quickly said there is no such meeting being considered.

    All About Apple?

    One could also make the argument that the recent market action is really all about a little technology company started by a guy named, Jobs. Apple (AAPL) got an awful lot of attention yesterday as the company's market cap continues to balloon. (The recent spike in price doesn't hurt here.)

    Apple (NASDAQ: AAPL) - Daily

    View Larger Image

    An article in the FT mentioned that with Apple's valuation now over $770 billion, its market cap is now greater than entire S&P 600 small-cap index. The article added that stock now makes up 4.1% of S&P 500, a level surpassed by only five other companies in history. Next, the WSJ noted that Apple is now worth at least twice that of any other publicly traded US company. Finally, it is worth mentioning that if AAPL hits the most aggressive Street target (currently sitting at $165), the company's market cap would be just shy of $1 trillion.

    So, if you are looking for the real key to the recent advance in the NASDAQ and the NASDAQ 100, look no further than AAPL.

    Waiting on Yellen

    Despite all the news flow, the S&P 500 wound up doing very little to start of the week. And although a late rally took prices from the low of the day to the high of the day, the end result would seem to suggest that stocks have stalled out.

    The easiest explanation for the lack of follow through to Friday's breakout is the simple fact that Janet Yellen will testify on Capitol Hill twice this week. Her first congressional testimony on the state of monetary policy is scheduled to begin at 10:00 am eastern time.

    Most analysts don't expect much from Yellen here. The consensus is that she will stick to the language provided in recent FOMC statement and that the Fed Chairwoman isn't likely to provide any new insight in terms of when the "patient" forward guidance language will be removed. Also look for Yellen to talk up the recent momentum in the labor market and the softness in inflation.

    However, Yellen has provided some surprises before, so be sure to tune in.

    Turning to This Morning...

    Don't look now, but Greece actually sent the letter detailing the country's reforms to the Eurozone when it said it would. And then almost surprisingly, the European Commission said it will accept list of reforms. Markets in Greece are jumping for joy on the news but the giddy mood has not spread to the rest of Europe or across the Atlantic this morning. On the oil front, supply concerns continue to be the go-to excuse for a new round of selling, which has pushed futures back below $50. However, the bottom line is that traders are waiting on Janet Yellen's testimony on monetary policy this morning, which may shape trading for the day.

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: +0.74%
    Hong Kong: -0.35%
    Shanghai: +0.76%
    London: +0.19%
    Germany: -0.04%
    France: -0.11%
    Italy: +0.17%
    Spain: +0.31%

    Crude Oil Futures: +$0.19 to $49.64

    Gold: -$1.50 at $1199.30

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

    10-Year Bond Yield: Currently trading at 2.080%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +0.19
    Dow Jones Industrial Average: +9
    NASDAQ Composite: -5.69

    Thought For The Day:

    "The best thing about the future is that it comes one day at a time" - Abraham Lincoln

    Current Market Drivers

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

    1. The State of Fed/ECB Policy
    2. The State of the U.S. Economy
    3. The State of the Oil Crash
    4. The State of the Latest Greek Drama

    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: Positive
    (Chart below is S&P 500 daily over past 1 month)

    Intermediate-Term Trend: 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: 2085
    • Key Near-Term Resistance Zone(s): 2110
    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): Positive
    • Price Thrust Indicator: Positive
    • Volume Thrust Indicator: Positive
    • Breadth Thrust Indicator: Positive
    • Bull/Bear Volume Relationship: Positive
    • Technical Health of 100 Industry Groups: Moderately Positive
    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: Overbought
      - Intermediate-Term: Neutral
    • Market Sentiment: Our primary sentiment model is Negative .
    The State of the Market Environment

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

    • Weekly 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
    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.

    Feb 24 9:00 AM | Link | Comment!
  • On To The Next Big Thing

    The fact that the S&P 500 finally made a convincing break for the border and finished at an all-time high on Friday may have some investors scratching their heads. Yes, there was a deal reached to extend Greece's loan by four months. However, haven't we seen this movie before? Isn't this agreement just the prelude to the next disagreement over terms/verbiage that will end with a resounding "Nein!" from the Germans? Aren't there oodles of details that still need to be worked out?

    The answer to all of the above would appear to be, yes, as we have seen the drama in Greece play out over and over again since 2010. However, the key takeaway from the latest Greek mess is that the market didn't seem to care all that much about the possibility of a "Grexit," a contagion in rates, or the potential for banks to begin imploding in Europe. No, this time around, the situation in Greece looks to have been merely a distraction.

    So, unless Mr. Tsipras decides to do something really dumb (which by most counts, should have already happened if it was going to happen), investors can turn their attention elsewhere. Yep, that's right, we're calling it. You no longer need to keep your eyes glued to the news wires for the latest headlines, comments, or rumors out of Greece and Germany.

    In fact, one can argue that the price action on the S&P 500 has declared this crisis to now be officially over and done.

    S&P 500 - Daily

    View Larger Image

    However, this does not necessarily mean that things will be peachy keen from this point on. With Janet Yellen scheduled to appear on Capitol Hill for her semi-annual review of monetary policy, it is a safe bet that the focal point in the markets may turn to Fed.

    An Oldie But a Goodie...

    To be sure, focusing on the Fed is as old as the hills. And by now, everybody in the game knows that the focus will be the question of when we can expect the FOMC to start hiking interest rates.

    Up until recently, the consensus expectation had been for Ms. Yellen to begin announcing a series of teeny, tiny rate increases in June. After all, the "considerable time" language, which Yellen herself admitted to be Fedspeak for a time frame of six months, had been removed recently. And with the jobs data continuing to surprise to the upside, most analysts had expected the "liftoff" for rates to begin at mid-year.

    However, that was before the data in the U.S. started coming in on the punk side. That was before oil crashed, taking commodities and inflation expectations down with it. That was before growth rates in places like China and Europe began to get noticed. That was before central banks around the world dropped the flag on the race to zero in the currency markets. And that was before the Fed had publicly admitted to being concerned about things like the dollar and global growth.

    What About Jobs?

    If you will recall, the Fed's trigger for removing ZIRP (zero interest rate policy) had been the state of the jobs market. Unless and until the economy returned to "full employment" Ms. Yellen and her merry band of central bankers have felt that juicing the economy with low rates in order to stave off even the slightest chance of disinflation, was a good thing.

    But... It is important to recognize that by mid-year the unemployment rate will likely be in the FOMC's range of full employment. Thus, the question of the day then becomes, do we really need rates at zero with the economy at full employment?

    Do we really need ZIRP and all of the potential unintended consequences with wages rising? Much of the evidence we've seen lately shows that the jobs market is actually much stronger than the national data indicates. And lest we forget, Wal-Mart's recent announcement on wages may have been the best indication yet of what is really going on in the labor market.

    However, with inflation still below the Fed's target of 2% (which, to anyone who was around in the early 1980's, is simply comical) Ms. Yellen's bunch has "cover" to keep rates low for as long as they'd like. You see, there is enough fear about the potential irreparable damage that a premature rate hike could impose that the FOMC may decide to just to sit on its hands for a while longer.

    So, while Ms. Yellen will likely talk a good game this week on Capitol Hill about the possibility of a rate hike in June, the current consensus is that rates won't begin to rise until September.

    As such, traders may begin to look for something else to focus on - such as oil, which is down about 4% this morning!

    Turning to This Morning...

    The weekend news flow has been primarily about Greece. While there is a mountain of details that still need to be cleaned up, the fact that the Euro group's finance ministers have given Greece four months to work things out means that this situation can now be placed on the back burner. This means that all eyes will now shift to the Fed and the U.S. economy. On the latter front, it is a positive that the West Coast ports dispute was finally resolved. However, brace yourself for some additional punk economic data on the coming month as there has been an awful lot of stuff sitting on boats off the coast of California for some time now. Estimates are that it will take between two and six months to clear this logjam. And with Ms. Yellen's semi-annual testimony before Congress slated for this week, it is a safe bet that the Fed will once again be a topic of discussion around Wall Street's water coolers. Finally, oil is back below $50 this morning and U.S. stock futures are pointing to a soft 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: +0.73%
    Hong Kong: +0.02%
    Shanghai: Closed
    London: -0.29%
    Germany: +0.37%
    France: +0.13%
    Italy: +0.17%
    Spain: +0.58%

    Crude Oil Futures: -$1.79 to $49.02

    Gold: -$3.70 at $1201.30

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

    10-Year Bond Yield: Currently trading at 2.095%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: -3.50
    Dow Jones Industrial Average: -46
    NASDAQ Composite: -1.15

    Thought For The Day:

    If we did all the things we are capable of, we would literally astound ourselves. -Thomas Edison

    Current Market Drivers

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

    1. The State of Fed/ECB Policy
    2. The State of the Oil Crash
    3. The State of the U.S. Economy
    4. The State of the Latest Greek Drama

    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: Positive
    (Chart below is S&P 500 daily over past 1 month)

    Intermediate-Term Trend: 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: 2085
    • Key Near-Term Resistance Zone(s): NA
    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): Positive
    • Price Thrust Indicator: Positive
    • Volume Thrust Indicator: Positive
    • Breadth Thrust Indicator: Positive
    • Bull/Bear Volume Relationship: Positive
    • Technical Health of 100 Industry Groups: Moderately Positive
    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: Overbought
      - Intermediate-Term: Neutral
    • Market Sentiment: Our primary sentiment model is Negative .
    The State of the Market Environment

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

    • Weekly 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
    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.

    Feb 23 9:00 AM | Link | Comment!
  • Traders Have Seen This Greek Drama Before

    To be sure, the current situation in Europe has a familiar ring to it. Greece makes demands and threatens to leave the Eurozone. Greek officials make offers. Germany says, "Nein!" Analysts then fret about what could happen to the banks of Europe should the Greeks decide to walk away. And the headline-reading algos react to every single word coming out of any/all European official's mouths.

    The bottom line is that investors have watched the negotiations between Greece and the so-called Troika (European Commission, ECB, and IMF) unfold many times since 2010. If you will recall, it was worries over Greece that caused the big corrections of 2010, 2011, and 2012. (Well, to be fair, the wrangling in Washington that resulted in the downgrading of U.S. debt also played a big role in 2011.) So, investors can't be blamed if they start to wonder if the current mess will be a case of deja vu all over again.

    S&P 500 - Weekly

    View Larger Image

    So far at least, the markets have not given much credence to the Syriza government's insistence on renegotiating the deal with its European partners. So far at least, the market has not been treated to a joyride any time one of the major players says anything. But remember, this was the way the game was played a few years back.

    The point is that Wall Street traders LOVE their historical trends and play books for given scenarios. So, with the European Finance Ministers meeting today, investors should be aware of the fact that volatility could quickly come into the markets as neither side of this argument appears to be even hinting at backing down.

    Here's the Latest...

    To be clear, the U.S. stock market does not appear to care much about the Greek situation at the moment. But as we all know, this can change - and quickly. Therefore, it is probably a good idea to stay on top of what is happening across the pond.

    The first thing to understand is that Greece could run out of cash relatively quickly. Reports indicate that the government has enough money to stay afloat until the end of the month. But remember, February is a short month. Therefore, the issues at hand do seem to have some urgency associated with them.

    As we head into today's session, investors should also know that there will be a showdown today at the meeting of European Finance Ministers and that Greece has been ramping up the rhetoric in advance of the meeting.

    It is worth noting that the Greek government got a strong endorsement from parliament for its hardline stance on the bailout. Prime Minister Tsipras told members that the government will not yield to demands over its aid program no matter how much German Finance Minister Schaeuble demands it. Tsipras said it is not negotiating the bailout because the bailout has effectively been cancelled.

    However, recall that German Finance Minister Schaeuble warned yesterday that Greece would be offered no other deal than the extension of its existing bailout. According to Dow Jones, Schaeuble told reporters at G20 meeting in Instanbul that rumors of a six-month extension of Greece's bailout program were false, saying that such speculation was the stuff of fantasy.

    Just Posturing?

    At this stage, the U.S. stock market doesn't appear to be terribly worried about the situation. Traders have definitely seen this movie before and they know that in the end, nobody dies - and nobody leaves the Eurozone. As such, traders likely view the most recent activity as mere political posturing.

    However, it is probably a good idea to keep in mind that Greece has a long history of defaulting on its debts. Therefore, there would seem to be at least the possibility that Tsipras's government could continue to threaten to walk away right up until the clock strikes midnight.

    But so far at least, markets around the globe aren't freaking out and that is a good thing for now.

    Turning to This Morning...

    While there is definitely no fear in the air, there does appear to be some concern about the outcome of the emergency meeting of Europe's finance ministers to be held today. With both sides ramping up the rhetoric yesterday, there is sure to be a clash, with some explosive headlines expected. On the geopolitical front, there is also the situation with Russia to consider as markets anxiously await word if the leaders of France and Germany can reach a diplomatic solution today. In addition, it is worth noting that oil fell more than 5% yesterday, putting the possibility of further declines on the table. However, at this stage, crude appears to be searching for a bottom. Here in the U.S., futures are pointing to a slightly lower 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: closed
    Hong Kong: -0.87%
    Shanghai: +0.52%
    London: -0.56%
    Germany: -0.28%
    France: -0.61%
    Italy: -0.60%
    Spain: -1.06%

    Crude Oil Futures: -$0.20 to $49.83

    Gold: +$3.80 at $1236.10

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

    10-Year Bond Yield: Currently trading at 1.988%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: -3.89
    Dow Jones Industrial Average: -50
    NASDAQ Composite: -1.45

    Thought For The Day:

    Continuous effort -- not strength or intelligence -- is the key to unlocking our potential. -Liane Cardes

    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 Latest Greek Drama
    2. The State of the Oil Crash
    3. The State of the U.S. Economy
    4. The State of Fed/ECB Policy

    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 Positive
    (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: 1975
    • Key Near-Term Resistance Zone(s): 2080-90
    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): Positive
    • Price Thrust Indicator: Positive
    • 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: Overbought
      - Intermediate-Term: Neutral
    • 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
    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.

    Feb 11 8:47 AM | Link | Comment!
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