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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 Problem Are The Five E's

    Daily State of the Markets
    Wednesday, October 15, 2014

    Identifying the drivers of stock market action can be helpful in determining when a move is overdone and due to reverse. For example, the various wannabe crises that have cropped up over the past two years have all fizzled out in short order as investors realized there was nothing major to worry about. As a result, the dips have been bought on a consistent basis.

    What makes the current corrective phase interesting is there is no single catalyst or "crisis" that has led to the selling seen over the past 3+ weeks. And respected stock market analyst Lazlo Birinyi suggested on Tuesday that this situation, in and of itself is problematic.

    While the market action on an intraday basis has been exceptionally volatile of late (the CBOE Volatility Index hit the highest level since late 2012 yesterday), the big moves up and down each day have generally not been consistently tied to any specific headline.

    With the exception of the various announcements tied to the Ebola situation, the market has been largely moving of its own accord. Which brings us to this morning's key point. Traders are not necessarily concerned about one specific issue, but rather a host of concerns that can be titled, The 5 E's.

    E is for Ebola

    There has been one death and now two additional cases of Ebola reported in the United States so far. However, concerns about an uncontrollable outbreak have caused investors to fret about the economic impact of such an event and more specifically how the fear of Ebola could impact what is projected to be a strong holiday shopping season.

    However, investors (especially long-term investors) should keep in mind that Ebola is NOT an airborne disease. In short, the only way to catch Ebola is via contact with bodily fluids. And while the virus can stay alive on surfaces for a period of time, the fact that this disease in not transmitted through the air means that a huge outbreak is unlikely.

    Investors should recognize that market fears over health issues tend to flame out quickly. Past examples of this include SARS, swine flu, and bird flu.

    The bottom line here is that investors believing that Ebola is a key market driver should most definitely buy the dip here.

    E is Also for Europe

    Unless you have blocked it from your mind, you may recall that the stock market remained fixated on the European debt crisis from the summer of 2009 through most of 2012. During this period, the stock market saw three major corrections that were tied to the crisis, with the 2011 event being classified by some as a brief or "mini" bear market.

    S&P 500 - Weekly

    View Larger Image

    The key at this stage of the game is fear that the European debt crisis, which was never actually fixed, will return. Remember, Super Mario (ECB President Mario Draghi) has only talked about "the bazooka," he has never even loaded up the weapon at this point. As such, analysts fear that unless a QE program begins - and soon - traders could wind up once again watching every headline out of the Eurozone.

    It is also important to note that this time around the fear of what might happen in Europe is tied to economic weakness. No, make that surprisingly weak economic data out of Germany, which is the EU's biggest and purportedly strongest economy.

    The bulls contend that fears here are overblown. They argue that the recent weakness is tied to economic sanctions imposed on Russia as well as the seasonal shutdown of auto plants for retooling. As such, the data coming out of Europe and Germany will be heavily scrutinized moving forward.

    E Also Stands For Energy

    In case you haven't been watching closely, oil has been falling off a cliff lately. (See the chart below of the United States Oil Fund ETF - USO).

    The bears contend that the big dive in oil, which has taken prices down near the lows seen in 2011 and 2012, is due to concerns about global economic weakness. This would seem to fit as the drop in oil coincides with the weak economic data out of Europe and China.

    As you might suspect, stock market bulls see things a bit differently. The argument from the glass-is-half-full camp is that the swoon seen in energy is really tied to the sudden glut of oil supplies. In short, OPEC says oil under $80 is just fine with them. Why? Easy - analysts contend that supplies produced by the U.S. shale industry are too expensive at these levels. So, it appears that OPEC is simply opening up the spigot.

    In reality, this is probably a 60/40 or a 70/30 situation with the larger percent of the decline in oil being tied to supplies and the smaller amount tied to concerns about global growth.

    E is for Easing (And Economy)

    Another "E" that is causing concern in the stock market is tied to the central bankers of the world and their monetary easing programs.

    While the U.S. is winding down the Q"E" program this month and the Bank of England is talking about raising rates in the future, the rest of the world is still in an easing mode.

    Why is this a worry, you ask? The minutes from the most recent FOMC meeting along with multiple speeches from U.S. Fed governors reveal that the Fed is worried about global growth. So much so that there was talk about another round of QE being a possibility here in the U.S. And while the stock market has been lovin' QE for several years now (all that money being printed has to go somewhere and it has been winding up in the U.S. stock and bond markets), the fact that the worries are now about the global economy, well, you get the idea.

    And E is Also for Earnings

    The fear here is that all of the concerns about the other "E's" will wind up hurting earnings - if they haven't already. Frankly, this one seems a bit far-fetched at this stage of the game. But while the bulls point out that S&P 500 earnings are at record levels, the key thing to keep in mind is this was also true in 2000 and 2008.

    Summing Up

    The current decline in the S&P 500 is obviously a correction. Of course, a correction of "what" must remain the eyes of the beholder. And at -6.79%, the current decline is hardly anything to get overly upset about. However, the fact that the damage in the smallcaps is significantly more severe coupled with the 5 "E's" the market is struggling with suggests that the long-awaited "meaningful correction" in the U.S. stock market may indeed be here.

    Turning To This Morning

    There are two primary issues being highlighted this morning. First is another confirmed case of Ebola in Texas. And second is the surprisingly weak economic data in the U.S. While reports of another Ebola case caused U.S. futures to hiccup, the reports on PPI, Retail Sales, and the Empire Manufacturing Index were nothing short of shocking and have caused a rather negative reaction. First, on the inflation front, PPI fell again and is now up just +1.6% on a year-over-year basis. The key here is the Fed is looking for 2.0%. Next, the Empire Manufacturing Index, which has surged last month, nosedived this month and was well below expectations. And finally, Retail Sales in the U.S. fell for the fifth time in the last six months. The bottom line here is simple, suddenly economic worries in the U.S. are back and U.S. stock futures are pointing to another decline at the open.

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: +0.92%
    Hong Kong: +0.40%
    Shanghai: +0.62%
    London: -1.57%
    Germany: -2.10%
    France: -2.28%
    Italy: -2.91%
    Spain: -2.03%

    Crude Oil Futures: -$1.51 to $80.33

    Gold: +$1.50 at $1235.80

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

    10-Year Bond Yield: Currently trading at 2.055%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: -20.35
    Dow Jones Industrial Average: -133
    NASDAQ Composite: -38.95

    Thought For The Day:

    It is the mark of an educated mind to be able to entertain a thought without accepting it. -Aristotle

    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)

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    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.

    Oct 15 9:17 AM | Link | Comment!
  • Should You Worry About The Breaking Of The 200-Day?

    Daily State of the Markets
    Tuesday, October 14, 2014

    For much of Monday, the S&P 500 traded in a relatively narrow range with the market appearing to be searching for direction. After a decline of more than 5% over the past few weeks, most traders were looking for a bounce. After all, every single time the market had "dipped" over the past three years, buyers had emerged and before long, the market had always wound up bounding to new all-time highs.

    However, this time appears to be a bit different. And while stocks are indeed oversold and due for a reflex bounce, it is important to recognize that there are things happening in this pullback that were not present during all those dip-buying opportunities seen since the middle of of 2011.

    The venerable index fell more than 30 points in the last 90 minutes of trading yesterday. There was no obvious catalyst to the latest swoon, save word that another case of Ebola had cropped up in Dallas. However, there was a technical event taking place late yesterday that had not happened during the prior dips - and it did seem to attract a lot of attention.

    In short, the S&P 500 wound up decisively breaking below its still upwardly sloping 200-day moving average. And while history shows that such an event is actually a good sign for stocks in the ensuing weeks, there are an awful lot of folks that view the 200-day as the dividing line between a good and bad market. As such, there were undoubtedly a fair number of sell algos primed and ready when the break occurred.

    S&P 500 - Daily

    View Larger Image

    Time to Bail?

    For those who may be inclined to bail out of any and all equity positions based on the violation of the 200-day, you may want to continue reading.

    First of all, the key to a break of the 200-day being a good "timing signal" lies in the direction the moving average itself is heading at the time of the break. You see, when the 200-day is moving higher, brief breaks to the downside actually represent pretty good entry points.

    However, if the 200-day is itself sloping downward when the S&P breaks below, well, it's a different story. The bottom line is THIS is when you want to think about getting out of Dodge, if you haven't done so already.

    Bears Beware: Not a Great Timing Signal in Near-Term

    Regardless of which direction the 200-day is moving at the time of the crossing, history shows that such an event tends to signal an oversold market and is actually a decent buying opportunity in the near-term.

    In looking at the broad market, stocks have actually moved higher in the 4 weeks after a downward crossing of the 200-day moving average at a rate that is nearly 3 times higher than normal. And then over the next quarter, the market has outperformed the average 3-month return by more than double.

    Something More Meaningful?

    So, in the short-term, it appears that stocks are oversold and due for a bounce. And the history associated with a break of the 200-day would seem to suggest that the bounce could begin soon. However, the key question is if that move will represent a bottom to the corrective phase or simply a bounce within a more meaningful decline?

    This question is represented in the weekly chart of the S&P 500 shown below.

    S&P 500 - Weekly

    View Larger Image

    The red circles on the chart represent the dip-buying opportunities since the mini-bear of 2011 that was associated with the ongoing Europe debt crisis and the downgrade of U.S. debt. The black circles represent the two meaningful corrections that occurred after the credit crisis bear market ended in March 2009.

    So, the question is whether or not the current decline will be a red circle or a black circle?

    In looking at the charts of the other major indices for clues, the Russell 2000 continues to stick out like a sore thumb.

    Russell - Weekly

    View Larger Image

    To be sure, technical analysis is definitely more art than science and is a little like reading tea leaves at times. However, the message from the chart of the Russell 2000 is fairly clear as the current corrective phase is very different from the dips seen in the prior two years.

    The Bottom Line

    The current market environment continues to weaken. And while it can be argued that a fair amount of the recent carnage may have been a bit artificial and/or overdone, there is little denying the fact that this decline is different from what traders have become accustomed to over the past couple of years. Therefore, investors need to play the game accordingly.

    In our shop, our market indicators have had us managing risk pretty hard over the past few weeks and cash levels are currently quite elevated. And should the current bounce prove weak, the overall environment could easily move into the negative zone, which would cause a shift in strategy to a decisively more defensive approach. But for now, it is time to watch the bounce and see how it plays out.

    Turning To This Morning

    While it has been a back-and-forth pre-market session, it now appears that traders have finally made up their minds to put aside worries of Ebola, the end of QE, the glut of oil, as well as the lousy economic situation seen across the pond and focus on some earnings reports. Although the Eurozone and German ZEW Economic Indices performed another face plant last month and Asian markets struggled, earnings from JPMorgan, Citi, and the like have improved the mood in the early going. U.S. stock futures now point to a stronger open on Wall Street.

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: -2.38%
    Hong Kong: -0.41%
    Shanghai: -0.30%
    London: +0.18%
    Germany: +0.10%
    France: -0.21%
    Italy: -0.61%
    Spain: -0.23%

    Crude Oil Futures: -$0.65 to $85.09

    Gold: +$5.10 at $1235.10

    Dollar: higher against the yen, euro and pound.

    10-Year Bond Yield: Currently trading at 2.209%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +9.11
    Dow Jones Industrial Average: 63
    NASDAQ Composite: +26.45

    Thought For The Day:

    Do what you can, with what you have, where you are. -Theodore Roosevelt

    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.

    Oct 14 9:55 AM | Link | 2 Comments
  • An Awful Lot To Consider

    Anyone expecting a quiet Columbus Day Holiday in the markets (where stock markets are open but banks and bond markets are closed) will likely to be disappointed as the news flow over the weekend and the early action in the futures market suggests that last week's volatility could continue.

    In the wee hours, U.S. stock futures were down 15 points and suggested that it might be a scary open on Wall Street. Traders were apparently concerned about all the Fed-speak coming out of an IMF/World Bank conference. Vice Chair Stanley Fischer said that rate hikes in the U.S. could be delayed by a global slowdown and Daniel Tarullo stated that he was worried about the state of global growth.

    In case it isn't obvious, the key driver to the markets right now is global growth, or, perhaps more appropriately, a lack thereof. The bottom line is that there is once again talk of recession in places like Japan, Germany and the Eurozone as well as a serious growth slowdown in China.

    On the latter subject, there were reports out of China that the government is targeting an annual growth rate of 7% in 2015. Recall that the economic growth for the world's second biggest economy has been downgraded almost constantly in 2014 and the current estimate for 2014 is in the 7.3% zone.

    Speaking of the slowdown in China, semiconductor maker Microchip (NASDAQ: MCHP) missed earnings badly and blamed conditions in China for the shortfall. As expected, the company's stock got slammed for a loss of -12.3%. However, the concerns about China's impact on earnings quickly spread to the rest of the semiconductor sector as the SOX index (NASDAQ: SOXX) fell -6.9%.

    Shifting the focus across the Atlantic, let's not forget that the banking crisis that threatened the unity of the Eurozone from mid-2009 through much of 2012 was never really fixed. And in case you missed it, Finland's debt rating was downgraded on Friday. And then later in the afternoon (recall that S&P just love to make announcements on sovereign debt ratings on Friday afternoon's) Standard & Poor's downgraded their outlook on France from neutral to negative. In short, this means that France's debt rating will see a downgrade in the coming months. If your first reaction to all of this is, "here we go again," join the club.

    While growth is the subject du jour, remember that the Fed is also still part of the game. For example, Goldman Sachs was out with a report over the weekend suggesting that the end to QE could produce a shock in the markets that will expose liquidity risk.

    However, the good news is that things have improved rather dramatically in the last couple of hours. The improved mood appears to be tied to the announcement that Russian President Putin announced orders to pull back 17,600 troops from the Ukrainian border. As a result, European bourses now sport a decent shade of green and U.S. futures now point to a flat open on Wall Street.

    Current Market Environment

    The key question of the day is how low can the market go during this corrective phase? For the last 3+ years, all declines were contained within the -3% to -6% range. So, with the S&P 500 now down -5.23% from its September high, the bulls argue that the difficult days ought to be ending any day now. However, we remain concerned that (a) the reasons for the current decline are fundamental, (b) the divergences seen in the market are typically present during major tops, and (c) this time we are starting to see some important indicators issue sell signals. So, while our market environment models remain neutral on balance at the present time, we continue to view risk levels as elevated.

    Looking At The Charts

    Last week's reversal of the prior reversals created a large degree of technical damage on the charts. First, the near-term support was broken. Next, the 150-day moving average, which had been support, snapped and now represents overhead resistance. And finally, the S&P put in a "lower low" on a closing basis. Granted, you have to squint to see it, but Friday's close was below the August low. The good news is that the S&P 500 remains above its upwardly sloping 200-day moving average and stocks are now oversold on both a short- and intermediate-term basis. Therefore, a countertrend, reflex bounce is likely in the near-term. But the key line in the sand remains the 200-dma, which currently resides at 19005. Should this level be violated, we can probably expect a strong "whoosh" lower thereafter.

    S&P 500 - Daily

    View Larger Image

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: closed
    Hong Kong: +0.24%
    Shanghai: -0.36%
    London: +0.19%
    Germany: +0.45%
    France: +0.28%
    Italy: +0.60%
    Spain: +0.70%

    Crude Oil Futures: -$1.21 to $84.61

    Gold: $6.20 at $1228.00

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

    10-Year Bond Yield: Currently trading at 2.38%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +2.40
    Dow Jones Industrial Average: +17
    NASDAQ Composite: -2.15

    Thought For The Day:

    If you'll not settle for anything less than your best, you will be amazed at what you can accomplish in your lives. - Vince Lombardi

    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 Outlook for Global Growth
    2. The Price Action in the Major Stock Market Indices
    3. The State of Fed/ECB Policy
    4. The Outlook for U.S. Economy
    5. The Outlook for U.S. Earnings

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

    Intermediate-Term Trend: Moderately Negative
    (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: 1906
    • Key Near-Term Resistance Zone(s): 1930
    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: Negative
    • Volume Thrust Indicator: Negative
    • Breadth Thrust Indicator: Negative
    • Bull/Bear Volume Relationship: Negative
    • Technical Health of 100 Industry Groups: Low 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: Oversold
      - Intermediate-Term: Oversold
    • Market Sentiment: Our primary sentiment model is Positive .
    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: Neutral

    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!


    Is Your Portfolio Ready for the Next Financial Storm??

    Check out Heritage Capital Research's NextGen Active Risk Manager


    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.


    Looking For "Smart" Allocation Strategy?

    Check out Heritage Capital Research's SmartMix Program
    (SmartMix is designed to keep client accounts in HCR's top performing strategies at all times)


    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., 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.


    Looking For a Stock Portfolio that Also Manages Risk?

    Check out Heritage Capital Research's Hedged Equity Strategy


     

    Oct 13 9:01 AM | Link | Comment!
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