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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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  • Oil: The Good, The Bad, And The Ugly

    Daily State of the Markets
    Monday, December 1, 2014

    Although the Dow Jones Industrial Average eeked out another new all-time high close on Friday and the NASDAQ 100 stepped lively into the Promised Land, the S&P 500, the Midcap 400 and the Russell 2000 all went the other direction, losing -0.25%, -0.80% and -1.49% respectively.

    What was the reason for the disparity in returns, you ask? One word. Oil.

    Crude oil futures (January delivery) dove $7.70 or -10.45% on Friday, closing at $65.99. And for the month of November, oil futures fell an eye-popping -18%. Ouch.

    Looking at the U.S. Oil Fund ETF (NYSE: USO), which is an oil price proxy that is far easier for most folks to get their hands on, the devastation in the oil market becomes clear. In short, the USO fell -8.32% on Friday, -16.5% in November, and is down -35% since the recent peak in June of this year.

    U.S. Oil Fund (NYSE: USO) - Daily

    View Larger Image

    While the above chart is ugly enough, taking a look at the price of oil on a weekly basis really puts the recent dance to the downside into perspective.

    U.S. Oil Fund (NYSE: USO) - Weekly

    View Larger Image

    The problem in the oil market is easy enough to understand. In short, there is simply too much oil floating around the world these days and on Thursday OPEC announced they would NOT cut production of oil. And in essence, this means that the current glut of oil is likely to stick around for a while and that prices could continue to fall.

    OPEC Just Says No

    To anyone who has followed the markets since the 1970's, OPEC's decision should not come as a surprise. Remember that OPEC is a cartel whose sole purpose is to maintain their monopoly on the oil market.

    It is also important to recall that oil prices have moved up and down in dramatic fashion many times in the past. But since prices have been relatively stable over the past five years, the current dive is attracting an awful lot of attention.

    U.S. Oil Fund (NYSE: USO) - Weekly

    View Larger Image

    Why would OPEC agree to accept the 35% decline in oil prices when cutting production would almost assuredly cause the price of crude to head northward? To squeeze out the competition, of course.

    You see, at $100 per barrel, there is plenty of profit margin available to the companies using fracking to produce oil from shale fields.

    According to the EIA, the production of oil from shale deposits in the United States has increased by 74% in the last six years alone (from 5 million barrels per day in 2008 to 8.7 million today). And the projection is that production from shale will hit 9.5 million barrels per day in 2015.

    However, the key is that getting oil out of shale is much more expensive than an old fashioned well. Therefore, the profit margins are lower. And what happens to these producers when the price of oil drops out of bed? The answer is, nothing good.

    But Aren't Lower Oil Prices Good For the Consumer?

    To be sure, the big decline in the price of oil is good for the U.S. consumer. This is money that goes directly to a family's bottom line. Less money spent at the gas pump means more money to spend on other stuff. And given that the consumer is responsible for 2/3 of GDP in the U.S., yes, the decline in oil is indeed a good thing for the economy of the good ol' USofA.

    The Problem Is...

    So, why are traders worried about a decline in oil prices? Four reasons really.

    1. Jobs - The worry is that since $65 oil is not as profitable for the shale producers, job growth in this fast growing sector will suffer.

    2. The State of the Oil Patch - There will undoubtedly be a ripple effect in the oil business. Thus, the decline in price will impact oil producers, services companies, and so on, and so on.

    3. Deflation - The biggest worry is that the decline in oil will mean more deflation pressures in places like Europe and Japan. Without inflation, these economies may continue to struggle, which could become a nasty headwind for the global economy.

    4. High Yield Default Risk - Energy companies make up between 15% - 20% of all junk bond debt in the U.S. The fear is that falling prices will cause defaults in the sector and cause new problems for the banking industry.

    Yes, it is true that there are many positive arguments to be made regarding the decline in oil prices. And frankly, it is easy to see how the benefits to U.S. economy would outweigh the potential negatives relative to the global economy. But, with a stock market that is severely overbought, almost any input could easily become a negative.

    So, while stocks could easily pull back a bit in the near-term on deflation fears, don't forget that the central bankers of the world remain bent on producing some inflation. As such, the pullback in oil could easily provide the "cover" needed for the ECB to start doing more than just talking about QE. And lest you forget, there is a meeting of Super Mario and friends coming up...

    For now then, the cost/benefit argument for oil would seem to favor the economic bulls. But in a market that just produced a record rally, even positives could be viewed as negatives from a short-term perspective. So, stay tuned, this is going to be interesting.

    Turning To This Morning

    This morning's headlines are chock full of new inputs - none of which is particularly encouraging. First, despite the recent efforts by the PBOC, China's PMI data disappointed again with most of the components pointing to an ongoing cyclical slowdown. Next, Moody's cut Japan's debt rating to A1 from Aa3 citing uncertainty over the government's ability to control their deficit (think QE-infinity). Across the pond, another ECB board member voiced their opposition to a sovereign QE program and the manufacturing PMI data showed that Germany, France and Spain all fell into contraction mode. Here at home, first there is the report from the NRF that Black Friday weekend sales were down 11.3% over last year's levels. And finally, there are reports that the decline in oil will trigger junk bond defaults in the oil sector, which could produce a spillover effect and hurt the banking sector in general. Thus, it is not exactly surprising to see U.S. stock futures pointing to a 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: +0.75%
    Hong Kong: -2.59%
    Shanghai: -0.11%
    London: -1.04%
    Germany: -0.33%
    France: -0.44%
    Italy: -1.55%
    Spain: -0.79%

    Crude Oil Futures: +$0.02 to $66.17

    Gold: +$5.70 at $1181.20

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

    10-Year Bond Yield: Currently trading at 2.160%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: -9.46
    Dow Jones Industrial Average: -63
    NASDAQ Composite: -13.58

    Thought For The Day:

    When you're arguing with a fool, it is best to make sure he isn't doing the same. -Unknown

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

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

    Positions in stocks mentioned: none

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

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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.

    Dec 01 8:48 AM | Link | Comment!
  • The Bulls Are Running, But It Is Now Time To...

    Daily State of the Markets
    Friday, November 28, 2014

    The recent stock market rally has clearly been one for the record books. For those of you keeping score at home, the S&P 500 has now closed above its 5-day moving average for an eye-popping 29 consecutive days. And given that the old record was 22 straight closes above the 5-day, it is clear that this has been a rally that traders needed to participate in. Whether you were leveraged long or simply holding a healthy level of equity positions over the past month and a half, this appears to be the move that is making the year.

    But here is the rub. A great many investors have not participated in the recent joyride to the upside. Don't forget that on October 15, the sky looked like it was indeed falling as the S&P's pullback was quickly approaching the danger zone. And perhaps more importantly, the impetus behind the dance to the downside was fundamental in nature as investors began to recognize that growth was slowing in all the wrong places around the globe.

    S&P 500 - Daily

    View Larger Image

    But, as everybody knows by now, the bulls then hit the trifecta as Bullard, Draghi, and the Bank of Japan started talking QE again. Oh, and then a couple days later, the People's Bank of China got into the act by cutting rates and talking about doing more to stimulate the world's second biggest economy. So just like that, bad news was good news again for stocks as it meant the flow of freshly printed yen, euros, and maybe even yuan wasn't likely to stop any time soon.

    Why Is This Good Again?

    The current run for the roses has left many investors scratching their heads. However, the reason behind the move is really pretty simple. Forget about the U.S. economy, earnings, interest rates and inflation as these fundamental factors really don't matter much right now.

    No, this move is all about "the liquidity trade." You see, investors have learned that when central bankers print money, the cash has to go somewhere. And the bottom line is that a large percentage of the dollars, yen, and pounds that have been printed since 2011 have wound up in the U.S. stock and bond market.

    So, the thinking is that while the U.S. and UK are ending their QE programs, the Japanese, Europeans, and Chinese may just be getting started. And since traders don't really care about the color of the currency being printed these days, well, you get the idea.

    Can You Say Overbought?

    Thanks to my friend and Forbes Contributor, David Wismer, I came across the chart below this week. The chart was created by J. Lyons Fund Management based on work by Robert Shiller. In short, the chart looks at the S&P 500 relative to its regression line since 1870 in an effort to determine if stocks are "overbought" or "oversold" from a long-term perspective.


    View Larger Image

    The key to this chart is the degree to which the S&P is above or below its long-term trend line. And as most investors know, when a trend becomes too extreme, it tends to eventually revert back to the mean - or long-term trend.

    What is interesting to note is that in 1929, the S& was 74% above its long-term regression line. And we all know what happened after that. In 1999, the market was a jaw-dropping +148% above its trendline. And of course, the next few years in the stock market weren't exactly pretty. In July 2007, the S&P was 85% above the trend. And everybody remembers how that turned out.

    The point here is that currently, the S&P 500 is 91% above the long-term (back to 1870) trend. Uh oh.

    The Next Big Move Will Be Mean Reverting

    So, while this condition can indeed stick around for quite some time and the bulls may be able to continue to march merrily higher, it is important to recognize that the next REALLY big, REALLY important move could very well be a reversion to the mean. And in this case, a reversion to the mean would create a very big move to the downside. Or, at the very least, an extended period (think a decade or so) of sideways movement.

    This is not to say that stocks will crash and burn in 2015. However, from a long-term perspective, stocks are indeed VERY overbought.

    The key takeaway here is to understand that while investors may be getting uber-comfy with the stock market again and the fund companies are back to talking about buy-and-hope, this is NOT the time to fall asleep at the wheel. No, this is the time to begin preparing for the next REALLY big, REALLY important move.

    Sure, stocks may continue to melt-up into the end of the year as fund managers try to chase performance. But the big point to today's meandering market missive is if investors don't have a plan for defending against the ravages of a bear market, now might be a great time to start thinking about developing one!

    Turning To This Morning

    Traditionally, "Black Friday" is a day of shopping and not for watching stocks. And to recognize this, the stock market actually shuts down at 1:00 pm eastern today. But today, there is actually some news other than what shoppers did on Thanksgiving (IBM reports that online revenues were up +12.2% over last year). The big news in the markets today is word that OPEC decided against cutting back on oil production. As a result, oil is tanking and futures are currently trading down at four and one-half year lows. This should be viewed as a positive for the U.S. as the dive in gasoline prices acts like a tax cut - and just in time for the Holiday Shopping season. However, the decline in oil also brings concerns about the health of certain industries and foreign economies. And as such, trading across the pond has gotten a little sloppy today and futures in the U.S. are pointing to a mixed open.

    Pre-Game Indicators

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

    Major Foreign Markets:
    Japan: +1.23%
    Hong Kong: -0.07%
    Shanghai: +2.00%
    London: -0.21%
    Germany: -0.23%
    France: -0.28%
    Italy: -0.57%
    Spain: +0.11%

    Crude Oil Futures: -$4.61 to $69.08

    Gold: -$15.80 at $1181.70

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

    10-Year Bond Yield: Currently trading at 2.208%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: -0.67
    Dow Jones Industrial Average: +20
    NASDAQ Composite: +11.15

    Thought For The Day:

    Of those who say nothing, few are silent. -Thomas Neill

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

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

    Positions in stocks mentioned: none

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

    Advertisement
    Will You Be Ready For The NEXT Bear Market?

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


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

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

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

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

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

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

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

    Nov 28 9:31 AM | Link | Comment!
  • Holiday Seasonality In Play, But...

    The seasonality surrounding the Thanksgiving holiday tends to be modestly favorable. While the indices do tend to advance the day before and the day after Thanksgiving, the size of the gains are not terribly meaningful. However, the historical odds do seem to favor the idea of the bulls continuing the record string of days in which the S&P 500 closed above its 5-day moving - which currently stands at 28 and counting.

    It is also worth noting that the advance has not exactly been robust over the last two weeks. While stocks have managed to move higher almost on a daily basis, it would appear that a lack of selling pressure is more to blame for the relentless march to new highs than a stampede of buyers.

    Turning to this morning, there is more talk of stimulus and QE from places like China, Japan, and Europe. ECB Vice President Constancio said Wednesday in speech that the central bank will be able to gauge in Q1 whether it needs to get more aggressive by expanding asset purchases to sovereign bonds. So, despite Germany's opposition to the idea, it appears that QE is indeed coming to the Eurozone if the economy continues to stagnate.

    In Japan, BoJ officials defended the recent expansion of their QE program, saying that inaction would have been tantamount to breaking the bank's commitment to "do whatever it takes" to get inflation up to the 2% target range.

    And in China, headlines indicate that a system-wide rate cut as well as additional stimulus measure aimed at boosting the economy could come soon. China stock markets extended their recent rally to a fifth straight session, with the Shanghai Composite up nearly 5% this week.

    Here at home, investors got some economic data to chew on before the bell with Durable Goods, Weekly Jobless Claims, and Personal Income/Spending all coming in below expectations. As such, U.S. stock futures have given up much of their early gains and are now pointing to a modestly higher open on Wall Street.

    Current Market Environment

    Yesterday's economic data may present a decent summary for the overall stock market environment. First, the GDP growth rate came in at +3.9%, which was well above expectations and the first look. However, the Consumer Confidence numbers continued to disappoint. So, while the backdrop for the overall market continues to be positive, there always seems to be something to fret about. This is starting to show up in our market models as well. For example, while the models remain positive on balance, the momentum components are basically limping along in neutral. Therefore, investors should continue to side with the bulls but remain flexible.

    Looking At The Charts

    To say the market is overbought and due for a pullback would definitely be an understatement. It has now been 28 days since the S&P 500 closed below its 5-day moving average. As such, traders are likely on high alert for any kind of negative inputs at this time. In other words, should something negative come out of the woodwork, it is likely that all of the millisecond trend following algos will start heading in the same direction. However, traders looking for a pullback to provide an entry point to the traditional year-end rally have been sorely disappointed of late. The bottom line is we would look for a test of the 2050 support level at a minimum at some point in the near term.

    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: -0.14%
    Hong Kong: +1.12%
    Shanghai: +1.42%
    London: +0.02%
    Germany: +0.12%
    France: -0.37%
    Italy: -0.42%
    Spain: -0.76%

    Crude Oil Futures: -$0.08 to $74.01

    Gold: -$2.70 at $1195.10

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

    10-Year Bond Yield: Currently trading at 2.251%

    Stock Indices in U.S. (relative to fair value):
    S&P 500: +2.92
    Dow Jones Industrial Average: ++17
    NASDAQ Composite: ++8.37

    Thought For The Day:

    "A safe investment is an investment whose dangers are not at that moment apparent." -Lord Bauer

    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/BOJ Policy
    2. The Outlook for Global Growth
    3. The Outlook for U.S. Economy

    The State of the Trend

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

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

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

    Long-Term Trend: Positive
    (Chart below is S&P 500 daily over past 2 years)

    Key Technical Areas:

    Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:

    • Key Near-Term Support Zone(s) for S&P 500: 2050
    • Key Near-Term Resistance Zone(s): 2075
    The State of the Tape

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

    • Trend and Breadth Confirmation Indicator (Short-Term): Positive
    • Price Thrust Indicator: Positive
    • Volume Thrust Indicator: Neutral
    • Breadth Thrust Indicator: Neutral
    • Bull/Bear Volume Relationship: Positive
    • Technical Health of 100 Industry Groups: Positive
    The Early Warning Indicators

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

    • S&P 500 Overbought/Oversold Conditions:
      - Short-Term: Overbought
      - Intermediate-Term: Neutral
    • Market Sentiment: Our primary sentiment model is Negative .
    The State of the Market Environment

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

    • Weekly Market Environment Model Reading: Positive

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

    David D. Moenning
    Founder and Chief Investment Strategist
    Heritage Capital Research - A CONCERT Advisor
    Be Sure To Check Out the NEW Website!


    Indicator Explanations

    Trend and Breadth Confirmation Indicator (Short-Term) Explained: History shows the most reliable market moves tend to occur when the breadth indices are in gear with the major market averages. When the breadth measures diverge, investors should take note that a trend reversal may be at hand. This indicator incorporates an All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 5-day smoothing and the All-Cap Equal Weighted Equity Series is above its 25-day smoothing, the equity index has gained at a rate of +32.5% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +13.3% per year. And when both are below, the equity index has lost +23.6% per year.

    Price Thrust Indicator Explained: This indicator measures the 3-day rate of change of the Value Line Composite relative to the standard deviation of the 30-day average. When the Value Line's 3-day rate of change have moved above 0.5 standard deviation of the 30-day average ROC, a "thrust" occurs and since 2000, the Value Line Composite has gained ground at a rate of +20.6% per year. When the indicator is below 0.5 standard deviation of the 30-day, the Value Line has lost ground at a rate of -10.0% per year. And when neutral, the Value Line has gained at a rate of +5.9% per year.

    Volume Thrust Indicator Explained: This indicator uses NASDAQ volume data to indicate bullish and bearish conditions for the NASDAQ Composite Index. The indicator plots the ratio of the 10-day total of NASDAQ daily advancing volume (i.e., the total volume traded in stocks which rose in price each day) to the 10-day total of daily declining volume (volume traded in stocks which fell each day). This ratio indicates when advancing stocks are attracting the majority of the volume (readings above 1.0) and when declining stocks are seeing the heaviest trading (readings below 1.0). This indicator thus supports the case that a rising market supported by heavier volume in the advancing issues tends to be the most bullish condition, while a declining market with downside volume dominating confirms bearish conditions. When in a positive mode, the NASDAQ Composite has gained at a rate of +38.3% per year, When neutral, the NASDAQ has gained at a rate of +13.3% per year. And when negative, the NASDAQ has lost at a rate of -8.5% per year.

    Breadth Thrust Indicator Explained: This indicator uses the number of NASDAQ-listed stocks advancing and declining to indicate bullish or bearish breadth conditions for the NASDAQ Composite. The indicator plots the ratio of the 10-day total of the number of stocks rising on the NASDAQ each day to the 10-day total of the number of stocks declining each day. Using 10-day totals smooths the random daily fluctuations and gives indications on an intermediate-term basis. As expected, the NASDAQ Composite performs much better when the 10-day A/D ratio is high (strong breadth) and worse when the indicator is in its lower mode (weak breadth). The most bullish conditions for the NASDAQ when the 10-day A/D indicator is not only high, but has recently posted an extreme high reading and thus indicated a thrust of upside momentum. Bearish conditions are confirmed when the indicator is low and has recently signaled a downside breadth thrust. In positive mode, the NASDAQ has gained at a rate of +22.1% per year since 1981. In a neutral mode, the NASDAQ has gained at a rate of +14.5% per year. And when in a negative mode, the NASDAQ has lost at a rate of -6.4% per year.

    Bull/Bear Volume Relationship Explained: This indicator plots both "supply" and "demand" volume lines. When the Demand Volume line is above the Supply Volume line, the indicator is bullish. From 1981, the stock market has gained at an average annual rate of +11.7% per year when in a bullish mode. When the Demand Volume line is below the Supply Volume line, the indicator is bearish. When the indicator has been bearish, the market has lost ground at a rate of -6.1% per year.

    Technical Health of 100 Industry Groups Explained: Designed to provide a reading on the technical health of the overall market, this indicator takes the technical temperature of more than 100 industry sectors each week. Looking back to early 1980, when the model is rated as "positive," the S&P has averaged returns in excess of 23% per year. When the model carries a "neutral" reading, the S&P has returned over 11% per year. But when the model is rated "negative," stocks fall by more than -13% a year on average.

    Weekly State of the Market Model Reading Explained:Different market environments require different investing strategies. To help us identify the current environment, we look to our longer-term State of the Market Model. This model is designed to tell us when risk factors are high, low, or uncertain. In short, this longer-term oriented, weekly model tells us whether the odds favor the bulls, bears, or neither team.


    Disclosures

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

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

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

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

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

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

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

    Nov 26 8:59 AM | Link | Comment!
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