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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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  • It's Fed Day, Here's What We're Watching...

    Although the surprise move by the People's Bank of China to pump 500 billion yuan (approximately $80 billion) into the country's top five banks (a move that was the equivalent of a 0.50% cut in the country's reserve requirement rate) got all the attention yesterday, today is all about Janet Yellen and her merry band of central bankers here in the United States. In short, it's "Fed Day" again here in the U.S. and traders are likely ready to go.

    Speaking of "Fed Days," Bespoke Investment Group reports that the S&P 500 has averaged a gain of 0.47% on days when the Fed made announcements since ZIRP began in December 2008, which is well ahead of the average gain of 0.35% seen on all Fed days since 1995 (when central bank began publicizing policy changes on meeting days). However, since the Fed began to taper its latest QE program last December, the S&P has averaged a gain of 0.19% and finished higher on four of the last six "Fed Days."

    As a reminder, the FOMC announcement is scheduled for 2:00 pm eastern with Janet Yellen's Press Conference scheduled to follow at 2:30 pm. When the FOMC statement is released, analysts will be quickly scanning the text for the words "considerable time." Recall that these two little words have been used by the Fed to describe how long the Fed Funds rate is expected to stay at the current 0% - to 0.25% target. Removal of the phrase would seem to suggest that the Fed is leaning toward raising rates sooner rather than later. The current consensus expectation is for the Fed to begin a long, gradual rate-hike campaign in June 2005.

    Analysts will also be paying close attention to the "dot plot" contained in the FOMC statement. This graph shows the projection of where rates will be from each Fed Governor. The expectation is that there will be more "dots" projecting higher rates, sooner than there were at the last FOMC meeting.

    Overnight, markets rallied in China on the back of the monetary stimulus efforts of the PBOC. In Europe, the sentiment is upbeat as well. And U.S. futures are sporting a slightly green hue in the early going.

    Current Market Outlook

    Don't look now, but the much ballyhooed weakness in the stock market as well as the expectations for a meaningful decline appear to have been, once again, put on the back burner. Yesterday's triple-digit pop higher took the DJIA to new all-time highs on an intraday basis, a move that was sponsored in large part by the PBOC. The thinking is that China's stimulus moves will produce economic spillover in the global economy. The bulls were also supported Tuesday by Jon Hilsenrath, the WSJ's Fed-watcher, as well as PIMCO's Bill Gross. "Hilsy" opined that the "considerable time language in the Fed statement is likely to stay. And Mr. Gross, aka the bond king, suggested that Yellen will remain cautious in terms of monetary policy because the risk of the "lost decades" seen in Japan is higher than the difficulty some inflation might cause in the near-term. The bottom line is that the "liquidity trade" continues to be the focal point in this market.

    Looking At The Charts

    The title of Stealers Wheel's big hit "Stuck in the middle with you" seems to be a fitting description of the current technical picture as yesterday's move pushed the Dow and S&P 500 back into the trading range that has been in place since late August. However, this remains a tale of two tapes as the charts of the NASDAQ, Smallcaps, and Midcaps continue to sport downtrends. But for now at least, the threat of an imminent correction in the blue chips would appear to have been lessened.

    S&P 500 - Daily

    Midcap 400 - Daily

    Pre-Game Indicators

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

    Major Foreign Markets:
    - Japan: -0.14%
    - Hong Kong: +0.99%
    - Shanghai: +0.50%
    - London: +0.04%
    - Germany: +0.37%
    - France: +0.68%
    - Italy: +0.99%
    - Spain: +0.95%

    Crude Oil Futures: -$0.42 to $94.46

    Gold: +$0.60 at $1237.30

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

    10-Year Bond Yield: Currently trading at 2.582%

    Stock Indices in U.S. (relative to fair value):
    - S&P 500: +1.42
    - Dow Jones Industrial Average: +14
    - NASDAQ Composite: -2.87

    Thought For The Day:

    I am an optimist. It does not seem too much use being anything else. -Winston Churchill

    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 Geopolitical 'Issues'
    3. The Outlook for U.S. Economic Growth
    4. The Level of Interest Rates

    The State of the Trend

    We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:

    Short-Term Trend: Neutral
    (Chart below is S&P 500 daily over past 1 month)

    Intermediate-Term Trend: Moderately Positive
    (Chart below is S&P 500 daily over past 6 months)

    Long-Term Trend: Positive
    (Chart below is S&P 500 daily over past 12 months)

    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: 1980-85(ish)
    • Key Near-Term Resistance Zone(s): 2000-11
    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
    Signal 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: Neutral
    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: Neutral
    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: Negative
    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: Moderately Positive
    Indicator 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: Neutral
    Model 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.

    The Early Warning Indicators

    Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide "early warning signs" that a trend change may be near.

    • S&P 500 Overbought/Oversold Conditions:
      - Short-Term: Neutral
      - Intermediate-Term: 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 State of the Market Model Reading: Neutral
    Model 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.

    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
    Or call Heritage for more information at (847) 807-3590


    Sep 17 8:55 AM | Link | Comment!
  • Buyers Decide To Stand Aside Until...

    The word of the day appears to be weakness. Asian stock markets are down across the board this morning in response to weaker-than expected FDI (foreign direct investment) data in China, which showed inflows hitting the lowest level in at least two and one-half years. In addition, the ZEW Investor Confidence data in both the Eurozone and Germany continued to be surprisingly weak (Germany's ZEW index came in at the lowest level since December 2012). As a result, European bourses are also a sea of red this morning. Finally, geopolitics are back in the news today as the U.S. initiated its first official airstrikes against ISIS in Iraq and the fragile ceasefire in Ukraine is being tested by some military activity. Here at home, traders continue to fret about the Fed and futures point to a slightly lower open on Wall Street.

    Current Market Outlook

    While there does not appear to be any panic in the market at the present time, the action this month has been sloppy, to say the least. This is likely due - at least in part - to the uncertainty relating to the Fed's monetary policy. Everybody knows that QE is ending and that the Fed will begin to raise rates at some point next year. The questions at this stage are when and by how much? This uncertainty is likely causing buyers to either do less or stand aside completely at this time. Now toss in another round of selling in some of the high-flying "mo-mo" names such as Tesla and the social media darlings and you're left with a market that appears to be weakening. As such, the traders who have been looking/waiting for a meaningful correction are once again on high alert. Finally, our market models have slipped to neutral. And while this is not a death knell for the market, it does indicate that some degree of caution may be warranted until the bulls can regain their mojo.

    Looking At The Charts

    It is said that technical analysis of chart patterns is more art than science and the current situation would appear to confirm this view. For example, the bears are arguing that the near-term support levels on the major indices have been violated and that the direction of the trend is down. On the opposite sideline, our heroes in horns suggest that support in the market is not a specific point or level, but rather a zone. Therefore, as long as stocks don't make a meaningful break below 1980, the bulls say everything is fine. From an objective point of view however, one has to admit that the line in the sand is getting a little thin. We continue to contend that 1980 holds the key to the next move. Yet at the same time, the Fed is on tap tomorrow - so the action before Janet Yellen's press conference may take on less importance. In short, the outlook is more than a little cloudy right now.

    S&P 500 - Daily

    Pre-Game Indicators

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

    Major Foreign Markets:
    - Japan: -0.23%
    - Hong Kong: -0.91%
    - Shanghai: -1.80%
    - London: -0.43%
    - Germany: -0.36%
    - France: -0.47%
    - Italy: -0.55%
    - Spain: -0.45%

    Crude Oil Futures: -$0.39 to $91.53

    Gold: +$2.40 at $1237.50

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

    10-Year Bond Yield: Currently trading at 2.560%

    Stock Indices in U.S. (relative to fair value):
    - S&P 500: -2.97
    - Dow Jones Industrial Average: -27
    - NASDAQ Composite: -6.44

    Thought For The Day:

    If you are determined enough and willing to pay the price, you can get it done. -Mike Ditka

    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 Geopolitical 'Issues'
    3. The Outlook for U.S. Economic Growth
    4. The Level of Interest Rates

    The State of the Trend

    We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:

    Short-Term Trend: Moderately Negative
    (Chart below is S&P 500 daily over past 1 month)

    Intermediate-Term Trend: Moderately Positive
    (Chart below is S&P 500 daily over past 6 months)

    Long-Term Trend: Positive
    (Chart below is S&P 500 daily over past 12 months)

    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: 1980-85(ish)
    • Key Near-Term Resistance Zone(s): 2000-11
    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
    Signal 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: Positive
    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: Neutral
    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: Neutral
    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: Moderately Positive
    Indicator 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: Neutral
    Model 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.

    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: 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 State of the Market Model Reading: Neutral
    Model 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.

    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
    Or call Heritage for more information at (847) 807-3590


    Sep 16 8:56 AM | Link | Comment!
  • The Fed Is Betting Big That...

    Daily State of the Markets
    Monday, September 15, 2014

    The big focus in the market last week revolved around the possibility that Janet Yellen and her merry band of central bankers may need to change their tune at this week's FOMC meeting. More specifically, the issue is if there will be tweaks to the Fed's forward guidance language, with most of the concern focused on the likelihood that the FOMC may drop the phrase "considerable time" from its post-meeting statement.

    To review, these two simple words relate to the amount of time the Fed is expected to keep rates at current levels after QE ends - which is currently expected to happen next month. If you will recall, Janet Yellen made a bit of a gaffe at her first press conference by stating that the Fed's view of "considerable time" is about 6 months.

    The Problem: Two Little Words

    Here's the problem. The general consensus for when the Fed will begin hiking rates is June 2015. However, the buzzer on the QE game clock will sound next month. And some quick math suggests that six months after October is April, not June.

    Now toss in last week's release of a paper published by the San Francisco Federal Reserve Bank, which basically suggested that investors may be underestimating the pace of Fed tightening, and boom - you've got some adjustments being made in the markets.

    As Exhibit A, we present the fact that the yield on 10-year Treasury Bonds spiked from 2.461 percent to 2.614 percent last week and has moved up from 2.334 percent (an increase of 12 percent) in the last 10 trading sessions alone.

    10-Year Treasury Yield Daily

    Granted this is a pretty big move in rates in a very short period of time. However, as anyone who has attempted to play the short side of the bond market will attest, trying to game when the big, bad bear market in bonds will actually commence has been a tough road.

    ProShares UltraShort 20+ Year Treasury ETF (NYSEARCA:TBT) - Weekly

    The bond bears have been saying for quite some time now that the bond market is NOT the place to be. The argument is pretty straightforward. The Fed is going to stop buying bonds, which will dramatically reduce demand for bonds (which should cause rates to rise). In addition, the Fed will then begin raising interest rates in order to "normalize" monetary policy.

    In English, this means that the Fed will take the Fed Funds rate from zero to somewhere around 3 to 3.5 percent over a period of time. And everybody knows that when rates rise, bond prices fall.

    As the chart below illustrates, rates certainly have a lot of room to rise.

    10-Year Treasury Yield Weekly

    In the near-term, a move back up to 3 percent on the 10-year would appear to be a cinch. This is simply where rates were at the beginning of this year. And in looking at the weekly chart of yields, a move back toward the 4 percent level - a level last seen in 2009-2010 - would be logical.

    Next, traders are looking at where rates were the last time the economy was healthy. Intuitively, this would seem to represent an ultimate stopping point for rates once the Fed has finished "normalizing" monetary policy. And as the chart above shows, the level seen in 2007 was 5.2 percent, which is just about double where the yield on the 10-year is now.

    The Fed's BIG Bet

    So, everybody knows that the Fed is going to end QE. Everybody knows that the Fed will then wait a while before starting to raise rates. And everybody knows that returning rates to "normalized" levels will be a long, gradual process.

    However, what investors don't know is if the Fed will be able to keep the markets from freaking out once the normalization process begins.

    Remember, the Fed hopes that by communicating their plans to raise rates slowly and gently over time, the markets won't freak out. The fear, of course, if that another market meltdown would cause the economy to stop on a dime (again) and that the Fed would then be forced to deal with the possibility of recession (again).

    The Fed is betting (and betting big) that by communicating exactly what will happen and when, markets will remain calm. The Fed is betting that since the increase in rates will be slow and steady and that the rate-hike campaign is intended merely to get things back to normal, the markets won't freak out.

    When considered objectively, the Fed's plan/big bet certainly makes sense. The reason that rates are being increased is that the economy is finally improving and is no longer in need of stimulative measures. The thinking is that the markets will see this as a good thing.

    Remember, an improving economy means better earnings. Better earnings mean better valuations and in turn, higher stock prices. As such, the thinking is that investors should be cheering the Fed's move and not dreading it.

    Here's the Rub

    The bottom line here is Fed's plan has never been implemented before. As such, the plan represents a bet - a VERY big bet - on what the economic outcome will be.

    Lest we forget, the "Don't fight the Fed" strategy has worked both ways for a very long time. On the rate-hike side of the equation, historically it's "three steps and a stumble" for the stock market. Granted, selling stocks after the Fed has hiked rates three times (without an intervening rate cut) hasn't always worked. But the record of this particular strategy is fairly impressive.

    So fed is basically betting that this time will be different.

    Time For Investors to Place Their Bets?

    As far as the stock market is concerned, the big bet is that any "adjustments" made to the major stock market indices will prove to be temporary and that the corrective declines will be relatively shallow. And so far at least, the stock market does seem to be taking the most recent spike in rates in stride.

    Currently, it appears that traders are watching the moves in rates and the dollar very closely. And as one can see from the chart of the Dow below, it appears that some very modest "adjustments" may be taking place.

    Dow Jones Industrial Average - Daily

    With stock market investors having enjoyed a stellar move over the past 3 years and one of the best bull markets in history since 3/9/2009, those seeing the glass as half empty are concerned that it is time for the market to go the other way and that the "normalization" process will end badly.

    But on the other sideline, the bulls contend that the improving economy will win out in the end. Our heroes in horns argue that stocks have entered a secular bull market and that the move from 2009 is just the beginning.

    So there you have it. From a macro point of view, it is time for investors to size up the situation and place their bets.

    Our Plan Is To...

    After this type of analysis, we tend to receive lots of inquiries about what our plan is. To be sure, there are lots of ways to play the current situation and investors need to make their own decisions. But at our shop, the plan is to simply pass on making any kind of bet about what happens next.

    In short, we don't make "market calls" or "bet" on our macro view or projected outcomes - ever. We learned a long time ago that Ms. Market doesn't give a hoot about what we think "should" happen next! No, our plan, as always, is to follow the guidance provided by our unemotional market models and to try to stay in tune with what "IS" happening in the market.

    Such an approach may be boring. And we will never make headlines or get those prime interviews on the financial channels (which, apparently, no one is watching anymore!). But employing a disciplined methodology to managing the risk/reward environment on a daily basis, does allow us to sleep quite well at night.

    Turning To This Morning

    New pledges to fight ISIS, Scotland's independence vote and the ramifications thereof, and weaker than expected China economic data are in the news again this morning. However, the primary focus remains on the Fed and this week's two-day FOMC meeting, which will include a post-meeting press conference with Janet Yellen. Reports indicate that Ms. Yellen is busy seeking a consensus on the Fed's next steps and that the committee is currently discussing whether to take a start-early tact with smaller rate-hikes or a start-late approach with more rapid increases. Foreign markets are mixed and 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: -0.97%
    - Shanghai: +0.30%
    - London: -0.01%
    - Germany: +0.22%
    - France: -0.08%
    - Italy: -0.82%
    - Spain: -0.32%

    Crude Oil Futures: -$0.62 to $91.65

    Gold: +$6.00 at $1237.50

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

    10-Year Bond Yield: Currently trading at 2.603%

    Stock Indices in U.S. (relative to fair value):
    - S&P 500: -1.99
    - Dow Jones Industrial Average: -1
    - NASDAQ Composite: +0.12

    Thought For The Day:

    Always do right. This will gratify some people and astonish the rest. - Mark Twain

    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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    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.

    Sep 15 8:15 AM | Link | Comment!
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