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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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Daily State of the Markets
  • The Line In The Sand 0 comments
    Jan 17, 2013 8:13 AM

    Daily State of the Markets
    Thursday, January 17, 2013

    Good morning. First the good news. For the fourth day in a row, the bulls managed to claw their way back from another fairly intense round of intraday selling yesterday. Stocks dove at the open on global growth concerns and then once again worked their way back to breakeven. The bad news is that the S&P 500 wound up closing at nearly the exact same spot it has for the past five days. And given that this type of action doesn't happen all that often, both the bull and bear camp appear to have something to hang their hats on at the moment.

    Our friends in the bear camp opine that such a streak represents a "lack of price progress" and indicates that the momentum which had propelled the S&P up nearly 5% in just eight days, is now gone. We also hear talk of overbought conditions, overhead resistance, overheated sentiment, and technical divergences. The nattering nabobs of negativity go on to suggest that the recent bull run that began in mid-November was entirely unjustified given the state of the global economy (which was downgraded a bit by the World Bank Tuesday evening), the outlook for the earnings parade, and the expectations that another circus is coming to Washington in the near-term.

    But in light of the fact that stocks have gone absolutely nowhere for nearly a week now, it is easy to understand that the team on the opposing sideline doesn't exactly agree. Our bovine buddies contend that despite the recent soft patch in the economy, stocks are relatively good values and offer better yields than bonds. The glass-is-half-full gang goes on to suggest that rates are low, inflation is nonexistent, the economy is improving, valuations are fair, and profits are near all-time highs. Oh and since the stock market tends to look forward and not backward, the bull camp believes that there is still a fair amount of room to run to the upside.

    The bottom line, however, is that traders appear to have positioned the market at what I like to call an equilibrium point. You see, when there are big, bad events on the horizon, traders tend to place their bets on the outcome and then draw a line in the sand, beyond which they are unwilling to proceed without a resolution to the questions at hand. And with the results of both the earnings parade and the budget/debt battle looming, it isn't surprising that traders don't want to press those bets. As a result, that line in the sand is now becoming more clearly defined with each passing day.

    Both teams have had their chances to advance the ball down the field over the past week and neither has been able to move the chains, so to speak. Thus, it appears to me that since stocks have run a long way in a short period of time, traders are simply waiting on the next input to break the log jam.

    So, what's it going to be? Will the earnings reports from the big names continue the "revenue light" theme that prevailed last quarter? Or will more companies put up impressive results like Goldman did yesterday? Will the debt ceiling become part of the budget debate and put a government shutdown on the table? Or will the powers-that-be find a way to hold a debate without a gun to the country's head? Will the economy continue to improve? Or will fear of what Congress might inflict on the nation cause the current slow growth to grind to a halt?

    In my humble opinion, these are the important questions of the day. And unless we get some answers - and soon - the line our two teams have drawn in the sand at 1472 on the S&P 500 might just become a wall.

    Turning to this morning... After 5 straight closes at the same level, it probably shouldn't come as a surprise that the futures are currently pointing to little change at today's open. However, there will be inputs for traders to work with today including earnings from Citi (and then Intel and American Express after the close) and a handful of economic reports. Currently S&P futures are higher by about a point while the DJIA futures are flat.

    Pre-Game Indicators

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

    Major Foreign Markets:
    - Shanghai: -1.06%
    - Hong Kong: -0.07%
    - Japan: +0.09%
    - France: +0.90%
    - Germany: -0.01%
    - Italy: +0.92%
    - Spain: +0.60%
    - London: +0.13%

    Crude Oil Futures: +$0.58 to $94.82

    Gold: -$1.00 to $1682.20

    Dollar: lower against the yen, euro, and pound

    10-Year Bond Yield: Currently trading at 1.855%

    Stock Futures Ahead of Open in U.S. (relative to fair value):
    - S&P 500: +1.07
    - Dow Jones Industrial Average: +2
    - NASDAQ Composite: +4.92

    Thought For The Day...

    Be kind, for everyone you meet is fighting a hard battle. -Plato

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave

    In his latest video presentation, Dave M. walks you through the New "Adaptive" Active Risk Management System for the Stock Market


    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.

    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.

    The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

    Employees and affiliates of HCM and Ridge 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 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.

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