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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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  • There Are Reasons To Stay Bullish Here

    Daily State of the Markets
    Friday, November 7, 2014

    A month ago, the sky was falling. The technical divergences seen in the market were coming home to roost. Growth was slowing. Indicators were falling. Moving averages were snapping. There was fear in the air. And for the first time in a very long time, it looked like the bears might actually be awakening from an extra-long hibernation.

    But after a quick dip of about -9 percent and a very exciting joyride to the upside of more than +11 percent (and counting), the tide appears to have turned. No longer is #GrowthSlowing a problem because this just means more QE money printing is to come - and these days, nobody really cares what color the currency is. And more QE, of course, means there is more money in the system that will be looking for a home in a stock or bond market near you. So, in short, it's all good, right?

    If you have detected a wee bit of sarcasm sprinkled into this morning market missive so far, give yourself a gold star. You see, it seems that the central bankers of the world are trying to print their way to global prosperity. And while saving the world from a global banking meltdown in 2008 was definitely a good idea, it seems that the central bankers haven't figured out that they simply must step away from the printing press at some point.

    Cynicism and sarcasm aside, investors need to take note that the current rally might just be for real. You see, nobody REALLY wants to put money to work here. Everybody is looking for a better entry point. And yet, Ms. Market has managed to fool everyone and just march merrily higher. Are we having fun yet?

    But there are reasons to be positive here. At least 8 of them by my quick count. So, let's run through a few of these and see how we feel at the end.

    8 Reasons To Run With The Bulls

    1. Big Declines in October Are a Good Thing. Of the 113 Octobers since 1900, there have been declines in the stock market of at least -5 percent or more 40 times. And what happened the rest of the year, you ask? Good things mostly. In the post-World War II era, during years in which there was a drop of -5 percent or more in October, the Dow Jones Industrial Average was higher in November and December 74 percent of the time. And according to Ned Davis Research, the median gain was +4.1 percent for the Nov-Dec period, which is significantly better than the +2.7 gain seen for all Nov-Dec periods.

    2. 15 Days Above the 5-Day. The S&P 500 has closed above its 5-day moving average for fifteen consecutive days now. Our research shows that this suggests the bulls have earned the benefit of any doubt for a while.

    3. An Impressive String of Higher Lows. While this streak actually ended on Tuesday, November 4, the S&P 500 had produced a "higher lows" (meaning that the today's low was higher than yesterday's low) each and every day for the prior 13 days. And although this is definitely a geeky thing to track, the analysts at NDR tell us that this has only happened 8 times before in the last 86 years. And the good news is that the market was higher a year later each and every time.

    4. It Pays to Trust the Thrusts. There are three primary ways to measure stock market momentum: price indicators, breadth indicators and volume indicators. And one of the best ways to identify a healthy uptrend is for any (or all) of the indicators to experience a "thrust" signal. This tells investors there is significant "oomph" behind the move, which tends to persist going forward. The good news is that over the past 16 days, both price and breadth indicators have flashed "thrust" buy signals. When the breadth thrust indicator has been on a buy, the market has gained ground at a rate of nearly 23 percent per year. Similar +20 percent average annual gains are seen when the price thrust signal is on a "buy" as well.

    So, it will suffice to say that a lot of good technical stuff has been happening in the last 16 days.

    S&P 500 - Daily

    View Larger Image

    However as they say on T.V., but wait, there's more.

    5. The Environment Models are Strong. One of the best ways to manage the stock market is to first identify the market environment and then to use the appropriate strategy that works best for that environment. To implement such an approach, one first needs to have a method to identify whether the environment is positive, negative or neutral. In short, this is what a lot of fancy math and computer models are for. But the good news is that all 3 of our Environment Models are sporting green lights at the present time, with our daily model currently at the second highest reading of the year.

    It is also worth noting that our Environment Models were Neutral before the big decline began in September. Thus, the models were basically saying that something was amiss.

    6. Sentiment Is Not Extreme. History shows that when investor sentiment readings reach extreme levels, markets tend to reverse - in due time, of course, which is always the tricky part. So it is good news that many sentiment indicators are no worse than neutral right now. Remember, the Sept/Oct decline created a great deal of negative sentiment, which means that anyone who wanted to sell had likely done so. But now, with the S&P at new highs, sentiment is not overly positive yet. This means that there may still be a fair amount buying power left out there as those underinvested folks look to jump on the bull train.

    7. #FOMO For a fund manager, underperforming is bad. For some it means their year-end bonus might be a tad light. For others it means no bonus at all. And for others still, it means their jobs might be on the line. As such, at this time of year - no, make that especially at this time of year - managers need to put whatever cash on hand to work as the fear of missing out becomes real. Thus, if Ms. Market continues to defy the odds and continue her march higher, those with severe cases of performance anxiety may have little choice but to bomb in with everything they've got.

    8. Show Me The Money. It is said that money makes the world go 'round. And this is certainly true in the stock market. So, it is positive for anyone owning equities that fund inflows have been perked up of late. Again, if new money comes into a fund at this time of year, managers are not likely to let it accumulate. No, they are going to put that money to work, now.

    9. 'Tis the Season. Everybody knows that stocks tend to experience a year-end or "Santa Claus" rally. And everybody knows that the November through April period is the best time of year to invest. So, while it may sound a bit self-fulfilling, this IS the time of year where folks tend to invest in stocks.

    So there you have it; 9 reasons to be bullish at this time. Nine reasons to be impatient when it comes to putting any cash to work. And 9 reasons why this rally just might keep on keepin' on.

    But...

    You just knew that was coming, right? We would be remiss if we failed to point out a few things. First, the market is very overbought (some might say "silly overbought") at this time. Thus, no one would be surprised to see a pullback begin at any time and for any reason. Second, the trends have been one-way streets for many months now. Therefore today's uptrend could become tomorrow's downtrend at the drop of an algo. And third, the cycles suggest that things could get a little sloppy for the next 2-3 weeks.

    In sum, a lot of very good things have been happening in the market since James Bullard started yammering on about what the Fed could do next and the Bank of Japan decided to print 24/7. However, the market has run an awfully long way in a short period of time. So... let's all be sure to be careful out there.

    Turning To This Morning

    Today's market will likely focus on the October Nonfarm Payrolls - aka the Jobs Report. Expectations are for an increase of 235K jobs last month and for the unemployment rate to remain unchanged at 5.9%. However, traders are also watching the situation in Ukraine as reports indicate increased Russian military movement. Apparently last week's elections favored candidates opposed to the ceasefire. The other hot topic remains what the ECB is likely to do and when. ECB Governor Noyer said today that he sees "some cases for buying government bonds." Noyer noted that such action may be justified to address risks to macroeconomic or financial stability. Recall that the ECB said on Thursday that it is prepared to act more aggressively to combat ultra-low inflation by buying large amounts of private-sector debt and perhaps even government bonds. As such, traders now expect QE to start at some point across the pond. The only question is when. Here in the U.S., stock market futures currently point to a flat-to slightly green 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: +0.52%
    Hong Kong: -0.42%
    Shanghai: -0.32%
    London: +0.64%
    Germany: -0.30%
    France: -0.42%
    Italy: -1.09%
    Spain: -0.98%

    Crude Oil Futures: +$0.55 to $78.46

    Gold: +$1.40 at $1144.00

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

    10-Year Bond Yield: Currently trading at 2.388%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +1.59
    Dow Jones Industrial Average: +9
    NASDAQ Composite: +9.02

    Thought For The Day:

    Life, like photography, is developed from the negatives. -Unknown

    Wishing you green screens and all the best for a great day,

    David D. Moenning
    President, Chief Investment Officer
    Heritage Capital Research
    Check Out the NEW Website!

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave (Twitter is the new Ticker Tape)

    Advertisement
    Will You Be Ready For The NEXT Bear Market?

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


    The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program.

    Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    David D. Moenning, an advisor representative of CONCERT Wealth Management Inc. (CONCERT), is founder of Heritage Capital Advisors LLC, a legal business entity doing business as Heritage Capital Research (Heritage). Advisory services are offered through CONCERT Wealth Management, Inc., an SEC registered investment advisor. For a complete description of investment risks, fees and services review the CONCERT firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting Heritage or CONCERT.

    Mr. Moenning is also the owner of Heritage Capital Management (HCM) a state-registered investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Neither HCM, Heritage, or CONCERT is registered as a broker-dealer.

    Employees and affiliates of Heritage and HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or Heritage/HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

    Nov 07 8:13 AM | Link | Comment!
  • Isn't It Odd That...

    Daily State of the Markets
    Thursday, November 6, 2014

    Although the S&P 500 and Dow Jones Industrial Average indices enjoyed pretty good gains Wednesday and finished at fresh all-time highs, the rest of the major indices failed to join the party. And the NASDAQ, NASDAQ 100, and Microcap indexes actually finished lower.

    To be sure this was somewhat odd behavior on a day that was supposed to reflect the great cheer created by the Republicans trouncing their opponents in the midterm elections and retaking control of the Senate for the first time in 8 years.

    The lackluster performance reminds me of the old Wall Street saw which suggests that a market that doesn't rally on good news could be in trouble. But wait, the S&P did rally. So, this is a little odd.

    Digging deeper into yesterday's action , it was also odd to see some of the social media darlings such as LinkedIn (NASDAQ: LNKD) take a hit and for some big names in the NASDAQ 100 (NASDAQ: QQQ) such as Intel (NASDAQ: INTC), Google (NASDAQ: GOOGL), and Amazon (NASDAQ: AMZN) to struggle on a day that was expected to be a sea of green on the screens.

    Also odd is the leadership being displayed by some of the traditionally defensive sectors. For example...

    Consumer Staples Sector SPDR (NYSE: XLP) - Daily

    View Larger Image

    Consumer Staples, which normally lead when the market is in trouble, are blasting higher at the present time with the chart looking like tech in the late 1990's.

    So, is this action indicative of concern about the state of the market on the part of money managers? Is this the reluctant long play? Or are the valuations simply compelling at current levels? In any event, it is indeed odd to see Consumer Staples ripping to new highs as the major indices struggle to reach The Promised Land.

    Along those lines, it is odder still to see the normally staid Utilities sector rocketing higher here.

    Utilities Sector SPDR (NYSE: XLU) - Daily

    View Larger Image

    The bears contend that the recent leadership seen in the Staples and Utilities sectors is a harbinger of bad things to come. Our furry friends suggest that defensive leadership is not healthy action and that another meaningful decline is on the horizon.

    However, it should be noted that the profitability of many utility companies is tied to energy prices. So with oil diving the lowest level in years, it isn't exactly surprising to see momentum-oriented traders bopping into the utility space for a trade.

    The Takeaway

    So let's review. The bears tried to implement the "sell the fact" trade yesterday on the Republican win but were only mildly successful - and only in certain areas. Then the current sector leadership is clearly defensive - all during what appears to be a fairly strong period for stocks. Thus, the takeaway is that things are just a little bit odd these days. And since the market has been a roller coaster ride of late, this is probably not a good time to be asleep at the switch.

    Turning To This Morning

    All eyes are on Mario Draghi this morning as the ECB President hosts the post meeting press conference beginning at 8:30 am eastern. So far we know that the ECB has left rates unchanged and there has been no mention of a QE program. We also learned that the ECB's inner circle did not call Draghi on the carpet for his so-called secretive behavior during the meeting. In addition, Draghi says the ECB's Governing Council is unanimously supportive of using "unconventional measures" and that covered bond purchases will soon begin. Finally, Draghi notes that the economic data coming in for the Eurozone indicates that growth momentum is clearly weakening and that the risks to the outlook are to the downside. All the talk about the ECB taking action has turned things around in Europe as well as here at home as U.S. stock futures now point to a stronger open.

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: -0.86%
    Hong Kong: -0.20%
    Shanghai: +0.28%
    London: +0.47%
    Germany: +1.32%
    France: +1.56%
    Italy: +1.30%
    Spain: +1.33%

    Crude Oil Futures: -$0.49 to $78.19

    Gold: -$1.20 at $1144.50

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

    10-Year Bond Yield: Currently trading at 2.337%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +3.78
    Dow Jones Industrial Average: +43
    NASDAQ Composite: +7.00

    Thought For The Day:

    Fear makes the wolf bigger than he is. -German proverb

    Wishing you green screens and all the best for a great day,

    David D. Moenning
    President, Chief Investment Officer
    Heritage Capital Research
    Check Out the NEW Website!

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave (Twitter is the new Ticker Tape)

    Advertisement
    Will You Be Ready For The NEXT Bear Market?

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


    The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program.

    Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    David D. Moenning, an advisor representative of CONCERT Wealth Management Inc. (CONCERT), is founder of Heritage Capital Advisors LLC, a legal business entity doing business as Heritage Capital Research (Heritage). Advisory services are offered through CONCERT Wealth Management, Inc., an SEC registered investment advisor. For a complete description of investment risks, fees and services review the CONCERT firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting Heritage or CONCERT.

    Mr. Moenning is also the owner of Heritage Capital Management (HCM) a state-registered investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Neither HCM, Heritage, or CONCERT is registered as a broker-dealer.

    Employees and affiliates of Heritage and HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or Heritage/HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

    Nov 06 9:48 AM | Link | Comment!
  • Is Uncertainty Creeping In?

    Daily State of the Markets
    Wednesday, November 5, 2014

    It's been quite a roller coaster ride on Wall Street lately. Since the dog days of July (7/24/14 to be exact) the S&P 500 has been on a wild ride. In a period of just a little more than three months, the venerable stock market index has experienced a pullback of -4.35 percent, a rally of +5.74 percent, a scary decline of -9.84 percent, and a stampede to the upside which totaled +11.2 percent (so far) from the intraday low of October 15.

    And as the chart below illustrates, with the exception of a couple weeks in early September, all the moves have been one-way affairs. In other words, stocks have been either moving straight up or straight down for the better part of three-plus months now.

    S&P 500 - Daily

    View Larger Image

    So, after blasting higher over the past three weeks, it is safe to say that the stock market finds itself overbought and the bulls in need of a rest. In short, what investors have seen over the past two days is just that; a rest, a pause (that refreshes?), the start of a pullback, or what we like to call a sloppy period.

    Although the bears have not been able to get anything to speak of going to the downside (yet?), this isn't to say they haven't tried. And on Tuesday, our furry friends actually had something to work with.

    Cue The Next Crisis?

    The day started out well enough. The bulls got some good news as St. Louis Fed President James Bullard, flip-flopped his position on the state of the economy, saying that there is "no need for more QE for now, the economy is in good shape." This after saying 14 days ago that the Fed should consider delaying the end of QEIII.

    Then something came out of the blue (as it usually does these days) to cause traders to begin to worry, to fret, and perhaps to fear that the next crisis may be upon us. But in this case, it is really just a return of an old crisis - the European debt debacle.

    Citing sources inside the ECB, Reuters reported that central bankers plan to challenge ECB President Draghi over his secretive management style and erratic communications. The story implied the Draghi had gone rogue in Jackson Hole and had gone against the plan the ECB Board of Governors had agreed upon.

    Reuters suggested further that as the ECB has moved into more unconventional territory with regard to policy considerations, Draghi has acted increasingly on his own or with only the counsel of a few aides. In other words, the report indicated that Draghi may be challenged at the next ECB meeting.

    Why Should We Worry About Draghi?

    In short, the key thing to understand is the stock market HATES uncertainty. And if the ECB governors aren't all rowing in the same direction - especially on the topic of QE - then a lot of uncertainty could creep into the mix VERY fast.

    Remember, one of the key reasons behind the recent joyride to the upside in stocks is the fact that first Japan announced a big bump in its QE program and then, at some point in the future, it is assumed that the ECB will be joining in the QE game and printing new money that would need to find a home. And given that the ECB isn't known for swift action to begin with, the fact that there could be infighting (or worse) at the ECB could certainly create uncertainty about the very launch of a QE initiative.

    Then there is the state of the Eurozone economy. Just yesterday morning the European Commission had downgraded their forecast for economic growth in 2014 and 2015 with several projections getting uncomfortably close to the zero-line.

    The point here is that if the ECB is no longer united in their stance toward aiding the economies of Europe, then the economic future of the Euro area is clearly uncertain. And if the likes of France, Germany, etc. start dipping back into recession, it is a safe bet that the debt crisis would once again rear its ugly head.

    So, while the Dow actually closed up on the day and the S&P 500 pulled back only 6 points, the key takeaway from Tuesday's action is the idea that some uncertainty could possibly be creeping in. And as such, investors may want to keep an eye on Europe (yes, again) for a while.

    Turning To This Morning While Europe was the story of the day on Tuesday, today's market is all about the Republicans gaining control of the Senate. In an impressive victory, voters handed the keys to both the Senate and the House back to the Republicans. Although the outcome was expected, the margin of victory served as an exclamation point that Americans have had enough of the political gridlock in Washington. The President's sagging approval rating was cited by analysts as the primary reason the vote swung the GOP's way. In other news, the data on Europe's Services Sector showed that the economic struggle continues across the pond. Here at home, the ADP report on employment in the private sector showed that job growth continues to be strong. U.S. futures are currently pointing to a higher 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: +0.44%
    Hong Kong: -0.63%
    Shanghai: -0.48%
    London: +1.07%
    Germany: +1.40%
    France: +1.50%
    Italy: +2.08%
    Spain: +1.36%

    Crude Oil Futures: -$0.05 to $77.14

    Gold: -$27.20 at $1140.50

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

    10-Year Bond Yield: Currently trading at 2.359%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +10.60
    Dow Jones Industrial Average: +83
    NASDAQ Composite: +22.37

    Thought For The Day:

    Do not speak unless you can improve the silence. -Spanish Proverb

    Wishing you green screens and all the best for a great day,

    David D. Moenning
    President, Chief Investment Officer
    Heritage Capital Research
    Check Out the NEW Website!

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave (Twitter is the new Ticker Tape)

    Advertisement
    Will You Be Ready For The NEXT Bear Market?

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


    The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program.

    Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    David D. Moenning, an advisor representative of CONCERT Wealth Management Inc. (CONCERT), is founder of Heritage Capital Advisors LLC, a legal business entity doing business as Heritage Capital Research (Heritage). Advisory services are offered through CONCERT Wealth Management, Inc., an SEC registered investment advisor. For a complete description of investment risks, fees and services review the CONCERT firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting Heritage or CONCERT.

    Mr. Moenning is also the owner of Heritage Capital Management (HCM) a state-registered investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Neither HCM, Heritage, or CONCERT is registered as a broker-dealer.

    Employees and affiliates of Heritage and HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or Heritage/HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

    Nov 05 8:43 AM | Link | Comment!
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