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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 Is A Sixth "E" To Worry About

    As of Tuesday afternoon, the stock market was struggling with "The Five E's". Traders were fretting about the potential impact of Ebola, Europe's sinking economy, the big dive in energy, the status of various monetary easing efforts by central bankers around the world, and what the outlook for the coming earnings season might be.

    And after Tuesday's market didn't give way in the face of some pretty decent pressure, many analysts thought that it was time for a bounce. Perhaps even a bounce big enough to declare an end to the corrective action that has been in place for much of the past month.

    But after three straight lousy economic reports in the U.S. Wednesday, there was suddenly a new "E" to worry about.

    E is Also for Economy

    First there was the report on inflation at the Producer level - aka the PPI - which fell -0.1 percent in September. While this doesn't sound that bad, the year-over-year gain also fell to 1.6 percent. The problem is this level indicates "weak inflationary pressure" and is well below the 2 percent level the Fed is targeting. Thus, some nervous-Nelly's contend that the U.S. could still be flirting with deflation if things don't perk up soon.

    Next came the Empire Manufacturing Index, which had soared in September to the highest level since late-2009. But, in October the index nosedived to the lowest level in 6 months and indicated that "the pace of growth slowed significantly" in the region.

    And then there was the report on Retail Sales in the U.S. This report is important because a core tenant in the bullish case for stocks is the idea that the U.S. economy is a "closed system" where Mom and Pop are responsible for more than 70% of economic activity. So, the fact that Retail Sales fell in the month of September and disappointed for the fifth time in the last six months was not a welcome sign.

    All three reports were released simultaneously at 8:30 am eastern and before you could refill your coffee cup, S&P futures were down 20.

    The problem was simple - there was a brand new "E" to worry about.

    Remember, up to this point, the bulls had argued that despite all the other "E's" in play, the U.S. economy remained in good shape. Thus, any decline related to all the other stuff simply represented another "buy the dip" opportunity.

    But... if the U.S. economy was suddenly at risk of hitting another speed bump, the bears suggest that the "escape velocity" theme as well as the "buy the dip" game were both in trouble.

    Therefore, another decline at the open certainly made sense. But frankly, that was about the last thing that made much sense during Wednesday's very wild ride on Wall Street.

    S&P 500 - Daily

    View Larger Image

    As expected, the S&P 500 dove as the opening bell rang. But the plunge wasn't the 20 points the futures had projected. The dance to the downside wasn't 30 points either. Heck, it wasn't even 40 points. No, the S&P moved down 50 points - in a straight line - in just 9 minutes.

    Thus, it appeared that the sky was falling. Or that there was a "forced liquidation" (aka a hedge fund blow-up). Or that the millisecond algos were overly caffeinated at the open. Or any/all of the above.

    Can You Say Volatility???

    The talking heads spoke of "fear" and "capitulation." However, can a market really capitulate in 9 minutes? And for the record, what exactly were traders capitulating about? Ebola? Europe? The end of QE? The new weakness in the U.S. data?

    To those that understand the way the game is played in Mahwah, New Jersey, the move looked like algos running amok, like millisecond trend-following at its best, and like a few players and their computers overwhelming the U.S. stock market.

    You see, that initial 9-minute spike down was just the start of the fun.

    Time to Go the Other Way

    So, what do computer-driven trading systems do after a 9-minute, 50-point move? Go the other way, of course!

    It is a fact that high-speed trend-following algos automatically reverse after a set number of minutes or a specific percentage decline each day. So just imagine how excited this gang must have been after that nasty open.

    As expected, the rebound began. Bam! The S&P 500 popped 29 points (or 1.5 percent) in the ensuing 19 minutes. Thus, the venerable S&P, the index of stocks the represents the U.S. stock market to the world, had traveled 79 points in less than half an hour. Are we having fun yet?

    From there, more "normal" market action ensued. Perhaps the humans jumped into the game as they weighed the latest "E" that had been added to the worry list. Not surprisingly then, the market wound up losing ground over the next two and one-half hours, to the tune of about 40 points.

    So let's review. The S&P fell 50 points in 9 minutes, rebounded 29 points in 19 minutes and then fell another 40 points - all before lunch had ended. And believe it or not, that was NOT the end of the ride.

    Cue the Rebound

    Whether or not you believe in the "Plunge Protection Team," the afternoon action sure smacked of somebody making sure that an out-and-out crash did not occur yesterday.

    The bulls argue that it was a combination of a Yellen headline saying the Fed Chair was confident about 3 percent GDP growth in 2014 and the release of the Fed's Beige Book report that got things moving higher.

    However, the Yellen headline was actually from a weekend speech and it would appear that the three downright crummy economic reports ought to trump a backward looking Beige Book. To which our heroes in horns replied, QE4 is coming.

    The next thing you know, the S&P is skyrocketing upward, the NASDAQ is threatening to move into the plus column, and both the small- and micro-cap indices are up more than 1 percent. Wait, what?

    Before fading just a bit into the close, the bull algos had managed to push the S&P up 48 points - or about 2.6 percent off the low. Good work, boys.

    Instead of the S&P being down -9.5 percent (where the decline from the recent all-time high stood at Wednesday's low) and at a loss for the year, the bulls had somehow found a way to limit the damage. Thus, the decline on the S&P for the current corrective phase is now -7.4 percent. And the index remains in the green for the year.

    What's the Takeaway?

    The key here is that while a decline of about 1 percent would seem to be in keeping with the surprisingly weak economic news of the day, the wild and woolly ride of 105 S&P points does not.

    So what gives? Why the intraday insanity? In short, an unprecedented lack of liquidity seems to be the answer.

    Eric, Hunsader of Nanex, who is a mouthpiece for exposing the vagaries of high-frequency trading, has been saying for the last couple of weeks that there is a new HFT algo in town that is simply overrunning the market and causing liquidity to crater. Hunsader has trotted out several charts showing that liquidity in the S&P futures is at its lowest level since 2011.

    Hunsader told CNBC Wednesday, "There was no liquidity at all, so it doesn't take a whole lot of size to really move the price."

    So there you have it. Another "E" to worry about and a market that is basically too "thin" to handle all the games the big boys and their fancy computer toys want to play. But don't worry, the Dow "only" fell 173 points yesterday and everybody on the planet is now saying that a rebound is ready to begin. So, it's likely to be up, up and away from here, right?

    Turning To This Morning

    One of the big questions after yesterday's roller coaster ride on Wall Street was which big move was "real" as both the opening thrashing and the afternoon rebound appeared to be completely algo-driven and as such, a bit exaggerated. This morning, the global markets and U.S. futures are suggesting that the early fears were the real deal. This morning there are three issues causing global stock markets to fret. First there is the fact that both Wal-Mart and Ebay effectively cut their outlook for the holiday shopping season after the bell yesterday. In short, this immediately brings Q4 earnings and GDP into question. Next, the worries about Greece and Europe's banking system are back in a big way today (see the big red numbers for European bourses below). And finally, there is another headline involving Ebola on an Air France flight. The good news is that traders will get more input on the U.S. economy this morning. The bad news - at least for now - is that futures are pointing to a drop of 200 Dow points at the open at the present time. So, fasten your seatbelts, it could be another wild ride on Wall Street.

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: -2.23%
    Hong Kong: -1.03%
    Shanghai: -0.74%
    London: -1.88%
    Germany: -1.90%
    France: -2.56%
    Italy: -3.40%
    Spain: -3.75%

    Crude Oil Futures: -$1.72 to $80.06

    Gold: -$1.90 at $1242.90

    Dollar: higher against the yen, euro and pound.

    10-Year Bond Yield: Currently trading at 2.0026%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: -24.74
    Dow Jones Industrial Average: -172
    NASDAQ Composite: -57.77

    Thought For The Day:

    To be old & wise, you must first have been young & stupid. -Unknown

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    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: Negative
    (Chart below is S&P 500 daily over past 6 months)

    Long-Term Trend: ModeratelyPositive
    (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: 1875
    • Key Near-Term Resistance Zone(s): 1905ish
    The State of the Tape

    Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...

    Trend and Breadth Confirmation Indicator (Short-Term): Negative
    Indicator Explained

    Price Thrust Indicator: Negative
    Indicator Explained

    Volume Thrust Indicator: Negative
    Indicator Explained

    Breadth Thrust Indicator: Negative
    Indicator Explained

    Bull/Bear Volume Relationship: Moderately Negative
    Indicator Explained

    Technical Health of 100 Industry Groups: Neutral
    Indicator Explained

    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: Moderately 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 State of the Market Model Reading: Neutral
    Indicator Explained

    Looking For Guidance in the Markets?

    The Daily Decision: If you want a disciplined approach to managing stock market risk on a daily basis - Check the "Daily Decision" System. Forget the fast money and the latest, greatest option trade. Investors first need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets. The Daily Decision system was up 30.3% in 2012, is up more than 25% in 2013, and the system sports an average compound rate of return of more than 30% per year.

    The Insiders Portfolio: If you are looking for a truly unique approach to stock picking - Check out The Insiders Portfolio. We buy what those who know their company's best are buying - but ONLY when they are buying heavily! P.S. The Insiders is up over 30% in 2013 and has nearly doubled the S&P 500 since 2009.

    The IRA/401K Advisor: Stop ignoring your 401K! Our long-term oriented service designed for IRAs and 401Ks strives to keep accounts positioned on the right side of the markets. This is a service you really can't afford not to use.

    All StateoftheMarkets.com Premium Services include a 30-day money-back guarantee!

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

    David D. Moenning
    Founder and Chief Investment Strategist
    StateoftheMarkets.com
    President, Heritage Capital Research
    Check Out the NEW Website!

    Positions in stocks mentioned: none

    For up to the minute updates on the market's driving forces, Follow Me on Twitter: @StateDave (Twitter is the new Ticker Tape)

    Free Research From StateoftheMarkets.com:

    Remember, you can receive email alerts for more than 20 free research report alerts from StateoftheMarkets.com including:

    Our Mission Statement:

    At StateoftheMarkets.com, our goal is to provide everything you need to be a more successful investor: The must-read headlines, market commentary, market research, stock analysis, proprietary risk management models, and most importantly - actionable portfolios with live trade alerts.

    Finally, we are here to help - so don't hesitate to call with questions, comments, or ideas at 1-877-440-9464.


    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 and on our website is for informational purposes only. No part of the material presented in this report or on our websites 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. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

    Oct 16 8:22 AM | Link | Comment!
  • 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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    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)

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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.

    Oct 14 9:55 AM | Link | 2 Comments
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